Bank charges rocket in Zimbabwe

By Phillimon Mhlanga

Banks in Zimbabwe have taken advantage of the prevailing cash shortages by hiking their transaction costs by as much as 570 percent, leaving the bulk of depositors who are already living on the margins of poverty poorer.

This has infuriated long-suffering depositors who strongly, and rightly so, feel that cash should be made available at affordable charges, on demand. It is now being feared that the punitive bank charges could further diminish confidence in the turbulent financial services sector, which is critical in allocating resources in an economy.

The situation has even led workers who are gainfully employed in the formal sector to start contemplating receiving their salaries through other electronic platforms such as EcoCash, One Wallet and TeleCash whose charges are much lower.

Zimbabwe is presently grappling with an unprecedented shortage of notes, which has forced banks to limit daily cash withdrawals.

Considering that a depositor who used to make a single trip to the bank now has to make multiple withdrawals in a week because of the daily cash withdrawal cap, the punitive charges are translating into jaw-dropping margins for the banks, and significantly huge costs for depositors.

Before the cash crisis, most banks were charging withdrawal fees of about US$3 for withdrawals made in the banking halls and US$2,50 for withdrawals done on Automated Teller Machines (ATMs) for cash of up to US$1 000.

But now, a depositor is now parting with US$20 for a withdrawal of US$1 000 made over several days because of the cash limits, implying a hike of between US$17 and US$17,50 or nearly 570 percent. Some banks are charging slightly less, but overall, all have increased their withdrawal charges by huge margins.

Even international payment charges have gone up because of the high costs of settling international card transactions. For instance, the cash withdrawal fee for international debit cards has gone up from three percent to five percent per transaction, with a minimum charge of US$3,50 per transaction for those using Mastercards.

Bank executives argued this week that the harsh operating environment has increased costs of keeping their units viable, which overheads could only be recouped from the banking public. For example, most foreign-owned banks are being forced to import cash with the cost of doing so being passed onto the customers.

Bankers Association of Zimbabwe (BAZ) president, Charity Jinya, yesterday said the workload for the banks has increased, which also follows that the cost of processing transactions has gone up. She said this was not of the banks’ making.

“It’s a situation none of us want to be in. It’s a sign of the times. (But) things can’t be done for free. Since we are now repeating transactions, just look at the amount of work bankers are now getting to do. Labour wants to be paid for it,” said Jinya.

Economist, Brains Muchemwa, said the on-going cash crisis has plunged banks into a tight corner with regards to funding their nostros and cash importation requirements. Inadvertently, the associated costs are being, to some extent, passed on to consumers so as to share the national burden.

“The resolution entails largely allowing banks higher retention levels on their nostro balances so that they better forecast funding cash requirements,” he said.

A nostro account is a bank account held in a foreign country by a domestic bank, denominated in the currency of that country. It is used to facilitate settlement of foreign exchange and trade transactions. The Consumer Council of Zimbabwe has described the situation confronting depositors as “very distressing”.

The executive director for the consumer watchdog, Rosemary Siyachitema, was this week frantically trying to secure meetings with the Reserve Bank of Zimbabwe and BAZ to highlight the plight of depositors.

“It’s a difficult time for consumers,” Siyachitema told the Financial Gazette on Tuesday.

“They (banks) have been putting too much pressure on consumers to use plastic money, but our capacity for the usage of plastic money is not good. We are ill prepared; schools don’t have facilities for plastic money; the city councils don’t have the capacity.

“If we are to go the plastic money way, retailers should be automated to welcome many people to use the plastic money. “The facilities should be spread all over the country to enable ease of doing business,” she added, in response to the central bank’s calls on Zimbabweans to start using plastic money.

Indigenous banks seem to be the worst hit by the crisis as the majority of them have switched off their ATMs, with long queues being the order of the day in their banking halls.

The government-owned People’s Own Savings Bank (POSB) and Agribank did not have cash in their banking halls and ATMs, but depended on deposits and were dispensing a maximum of US$100 per day per customer or account.

At one of these institutions, a depositor said he had failed to get a single cent from his account over three days despite queuing daily. FBC Bank was charging two percent per withdrawal and allowed a daily withdrawal limit of US$200 per day, translating to US$20 for US$1 000 over five days.

CBZ Bank and ZB Bank were charging US$3 for a maximum withdrawal of US$200 per day, implying a charge of US$15 per US$1 000. Steward Bank was charging US$5 for a withdrawal of US$500, which is the maximum withdrawal limit for the bank. This translates to US$10 per withdrawal of US$1 000.

NMB Bank’s withdrawal limit was pegged at a maximum of US$300 at US$3 per transaction, or US$12 for US$1 000. The country’s largest building society, CABS appears to be the only foreign-owned institution battling with cash shortages, and faced almost similar circumstances as POSB.

But most of the foreign-owned banks, which get liquidity support from their parent companies abroad, have benefitted in a big way from their ownership, with cash availability unmatched by the other players.

Depositors with Barclays Bank of Zimbabwe and Stanbic Bank Zimbabwe were able to withdraw up to US$9 999 per day, but were forking out 1,5 percent for any withdrawal, which brought the charge for the maximum withdrawal to about US$150 per transaction.

Standard Chartered Bank of Zimbabwe is allowing depositors to withdraw up to US$10 000 a day but charging 1,55 percent for a transaction per day. This means if a depositor withdraws the maximum amount of US$10 000, he or she will be charged about US$155 per transaction.

MBCA was allowing depositors to withdraw up to US$10 000 per day, charging one percent of the withdrawn amount. The withdrawal charge in the banking hall for maximum cash translated to about US$100 per transaction per day.

Ecobank, apparently the only bank that had no cash withdrawal limits for inside-the-bank transactions, was charging one percent of the amount withdrawn. To that end, if a depositor withdraws US$10 000, the pan-African bank charged US$100 per transaction.

BancABC, another pan-African bank that was recently bought by former Barclays Plc chief executive officer, Bob Diamond, had restricted maximum withdrawals at US$500 a day over the counter and not more than US$250 per day from its ATMs. Its bank charges were pegged at US$5 for every withdrawal, implying an aggregate charge of US$20 for a withdrawal of US$1 000.

Foreign-owned banks were allowing withdrawals of between US$500 and US$2 000 from their ATMs, charging a minimum of US$3 per transaction.

But the banks were not feeding the ATMs with cash, forcing depositors to withdraw cash from the banking halls where withdrawal charges were higher.

Analysts warned this week that the situation could undermine efforts to encourage domestic savings and rebuild the shattered economy as the astronomical charges were eating into depositors’ already low incomes, hence leaving them poorer.

Economist John Robertson this week said the scarcity of money was hurting everybody, banks included. He said the withdrawal limits, payment difficulties, falling incomes and falling business activity, were a result of deeper causes that needed to be dealt with, but have been ignored by the authorities.

“This deeper cause is the loss of productive capacity that used to produce all the food needed by the whole country; used to run factories that produced most of the consumer goods we needed; and used to offer the full range of services, including retail, transport, construction, banking, maintenance, education and health.

“All of these used to employ tens of thousands of people who were paid regularly and could support the shops as well as the banks in ways that gave the businesses enough business for them to pay their wages and taxes,” said Robertson.

“We have now lost that capacity, so we are importing our food and consumer goods, our transporters are carrying other country’s goods and our employees are fewer in number. Businesses pay less profits tax, less Pay As You Earn and less Value Added Tax to government, so government is also very short of money now.

“The banks know that many who want to borrow money will have difficulty repaying the loans, so they are lending only to the few safe borrowers still in business.

“But the banks still need a good income as they have to pay good salaries to retain good employees. That is why transaction charges have been put up: to bring in the income needed to stay in business,” he added.

Robertson said the charges may come down once the policy environment has improved.
“Bank clients need to accept that it is in their interests to keep the banks afloat,” he said.

“When things improve, bank charges will certainly go down because, with much safer borrowers recovering their ability to repay loans, the banks will see their preferred income, their interest income, increasing steadily.” Financial Gazette