HARARE – Finance minister Tendai Biti’s banking reforms have attracted heavy criticism from bankers and market watchers who believe the new regulations will have negative consequences on the financial sector, particularly small banks.
In his 2013 budget presentation yesterday, Biti proposed that banks pay a minimum four percent per annum interest rate on $1 000 and above deposits held for 30 days.
Currently most Zimbabwean banks are not paying interest rates on savings and current account deposits.
Biti also said banks should not levy bank charges on deposits less than $800. He also put a ten percent interest cap on loans.
He said banks – with more than 50 percent of their revenue coming from non-interest income – had to be more innovative.
Eddie Cross, an economist and legislator, said the new banking measures will undermine the banking system.
“I think this is dangerous. Our banking sector is highly competitive and I don’t see much evidence of collusion. We will be tampering with the viability of our banking system at our own peril. We should leave the system to determine its own basis of trading and I don’t think this strong interference is healthy at all,” said Cross.
James Wadi, BancABC chief economist, also said while he agreed to some changes to be brought by the new legislation such as the mandatory issuance of debit cards, he believed the removal of bank charges will hurt small banks.
“Prescribing a straight-jacket approach on scrapping bank charges for all deposits of $800 or less will disadvantage small banks that chose to serve the lower end of the market,” he said.
“The minister must find the best way to go around this to ensure the survival of the small banks who have become innocent victims because they have no funds.”
But, Biti is adamant.
The Finance minister says there will be no changes to the proposed new banking legislation aimed at regulating the lending and deposit rates in the financial services industry.
He told a post budget review seminar in the capital that banks had failed to abide by the development agenda of the nation, hence the stiff regulation.
“Leadership requires that we take unpopular decision to make things work in the country and I have just done that,” he said.
“I don’t believe in regulated markets and in the past 46 months we have refused to regulate on anything, but where you have a monopoly and oligopolistic tendencies then we have market failure. Where there is market failure regulation is inevitable.”
“The Central Bank and the Bankers Association of Zimbabwe will sit together and craft a memorandum of understanding on the manner in which the lending rates will be defined,” he said, adding that banks will also take into account the cost of money.
The memorandum will then be converted into a statutory instrument.
Biti said Old Mutual and the National Social and Security Authority (Nssa) had agreed that their local bank deposits, which constitute 40 percent of the country’s deposits, be loaned out at ten percent at bank level.
The two institutions and the banks will then agree on how best to share the ten percent interest.
Currently lending rates in Zimbabwe range between 15-30 percent.
Speaking at the budget review, Confederation of Zimbabwe Industries (CZI) president Kumbirai Katsande said more consultations needed to be done with various stakeholders, especially the banking sector, on bank charges.
Katsande said while the 2013 budget covered almost every aspect of the economy, “The only question is whether or not the economy can generate the necessary funds needed.”
He said CZI – an industry representative body – was appreciated the protection of local industry, but said industry was worried about the possible effects on business of the forthcoming elections. – John Kachembere