THE Reserve Bank of Zimbabwe has ordered all commercial banks to stop levying service charges on individual accounts with balances of US$100 or less, amid public outcry that the service fees were discouraging savings.
BERNARD MPOFU
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 to 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 high 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.
“There has been an outcry as far as bank charges are concerned. Again I used to be in the commercial banking sector, I stand guilty as charged,” central bank governor John Mushayavanhu told journalists during the presentation of the Monetary Policy Statement.
“But we cannot continue to have a situation where a tobacco farmer from Chiendambuya sells their tobacco, uses the money and maybe leaves US$100 in their account. By the time they come next season, the money is now minus 100. What happened to US$100?
“So, with immediate effect banks will not charge monthly bank maintenance or service charges for individual bank accounts with a conservative daily balance of US$100 and below or its equivalent in ZiG for a period of up to 30 days. At least if you leave your US$100 in your account, end of season you should find it in your account beginning of next season.”
Mushayavanhu said the apex bank has reviewed the bank policy rate from 130% per annum to 20% per annum consistent with the new monetary policy framework.
The overnight accommodation interest rate has been set at 5% above the bank policy rate and the bank deposit facility interest rate at 7.5% below the bank policy rate, thus giving the starting interest rate corridor of between 11% to 25% per annum, he said.
“The bank policy rate and the corresponding interest rate corridor will be reviewed by the Monetary Policy Committee (MPC) from time to time in line with inflation developments.
“Minimum savings and time deposits interest rates on ZiG are set at 9% and 7.5% below the bank deposit facility rate of 12.5%, respectively. Minimum interest rates on FCA deposits remain unchanged at 1% and 2.5% for savings and time deposits, respectively.”
Last December, Finance secretary George Guvamatanga issued local financial institutions a month-long ultimatum to reduce service charges. 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.
