FINANCE secretary George Guvamatanga has issued local financial institutions a month-long ultimatum to reduce service charges amid concerns that the fees are discouraging savings.
Banks traditionally earn the bulk of their income from interest charged on loans instead of service charges. But in Zimbabwe, the financial institutions have taken a cautious approach in lending, citing policy inconsistency and limited access to capital for on-lending.
Over the years, the authorities have used moral suasion to entice the fragile financial services sector to make adjustments on astronomical fees after public complaints.
Moral suasion is the act of persuading a person or group to act in a certain way through rhetorical appeals, persuasion, or implicit and explicit threats — as opposed to the use of outright coercion or physical force. In economics, it is sometimes used in reference to central banks.
Guvamatanga told delegates attending a post-Budget breakfast meeting that the authorities are concerned over the increase of non-funded income on the books of banking institutions.
Non-interest income is bank and creditor income derived primarily from fees including deposit and transaction fees, insufficient funds (NSF) fees, annual fees, monthly account service charges, inactivity fees, check and deposit slip fees, and so on.
Credit card issuers also charge penalty fees, including late fees and over-the-limit fees. Institutions charge fees that generate non-interest income as a way of increasing revenue and ensuring liquidity in the event of increased default rates.
“Someone commented that we no longer have banks in this country but real estate companies masquerading as banks, literally collecting rent from customers on a monthly basis,” Guvamatanga said.
“If you withdraw US$100 000, you walk away from the bank with US$97 000, so the question is: Are we encouraging the depositors to pay their money? There is always an argument that there different accounts: there is a deposit account or a savings account. But look, how are we encouraging the depositors to have their money in those accounts which do not attract this US$15 or US$20? The other place where there is robbery is Visa and MasterCard, those foreign cards. You deposit your money, you are charged commission for depositing your cash.
“I pledge with you that please can you go back starting from January 2024, can you sit down during the remaining two weeks so that when you come back in January your charges also encourage people to put their money into the bank. At the moment the banks are the biggest problem as far as confidence is concerned. They are now focused on non-funded income instead of the core business (interest income).
Insiders say financial institutions agreed on an upward review of the fees to maintain ATM infrastructure and banking software, in a move analysts say could boost non-interest income for the sector, while hurting customers.
Banks are charging up to 2% commission on withdrawals, while monthly bank charges are as high as US$30.
“I was looking at your results, most of you are between 60 and 70% non-funded income,” Guvamatanga said.
“I know you have restructured your business, but a 70% non-funded income, 30% funded income, that is not achievable anywhere in the world. It has actually shown that the cost of banking in this country is just too high. This is something that we have not spoken about and I hope that you will go back and relook and have major adjustments and maybe that confidence may come back.”