HARARE – ZIMBABWE’S policy to control interest rates and bank charges will result in increased financial exclusion as most banks will snub smaller depositors, said Kingdom Bank Limited (Kingdom) — a major player in the country’s financial sector.
A fortnight ago, Finance minister Tendai Biti barred banks from levying charges on deposits of $800 and below while he also ordered the institutions to pay a minimum four percent per annum interest on deposits of $1 000 and more held for at least 30 days.
Biti’s promulgations were meant to encourage financial inclusion.
But, Kingdom argues the policies will have a reverse impact.
“…there will be no incentive for bankers to open accounts for low-income earners.
“This works against financial inclusion,” Kingdom said in its weekly market report.
Gideon Gono, Reserve Bank of Zimbabwe governor, has said Zimbabwe’s level of financial inclusion — the proportion of the population using financial products and services, both formal and informal — is very low.
According to a survey last year, 40 percent of adults are financially excluded while only 24 percent are banked.
Only 38 percent of the adults are formally served through banks and other formal services.
Most Zimbabweans lost confidence in the financial services sector when their life time Zim-dollar savings were wiped out at the inception of the multiple currency system in 2009.
According to the Bankers Association of Zimbabwe, more than $2 billion is circulating outside formal banking channels.
Kingdom also warned that the reforms will force bankers to limit credit at interest rates that fall below their risk levels.
“Bankers remain accountable to depositors for funds received and take extreme risk in lending it in Zimbabwe, which naturally requires adequate compensation,” said Kingdom.
The institution said Biti should have worked with recommendations from industry “instead of prescribing rates and charges to banks.
The free market should be allowed to operate.”
“The more banks begin to publicise their prices, the better bank clients will be able to exercise their own discretion and take their banking business to the cheapest bank.”
Meanwhile, other industry players and market analysts feel Biti is interfering with the fragile financial sector.
“I think this is dangerous. Our banking sector is highly competitive and I don’t see much evidence of collusion.
“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 Eddie Cross, an economist and legislator.
James Wadi, BancABC chief economist, has also said 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.
But, Biti is adamant.
The Treasury chief has said there will be no reverse on the new policies.
He argues that banks should be more innovative in creating revenue, and besides, the sector needs to be regulated to protect depositors.
“Leadership requires that we take unpopular decision to make things work in the country and I have just done that,” Biti boasted. – John Kachembere