Banks face tough reforms
HARARE – The year 2013 promises to be one in which the banking sector must brace for tough reforms that will leave its members with no choice but adopt measures that ensure both them and depositors are protected.
When the Reserve Bank of Zimbabwe governor, Gideon Gono announced the new phased capital requirements to $100 million by June 2014, there was a huge uproar from some bankers while certain politicians even threatened to approach President Robert Mugabe and Prime Minister Morgan Tsvangirai to reverse the decision.
However, as reality sunk in, there was no going back on the decision as this was the only way to strengthen banks and bring discipline to the financial sector.
According to the RBZ, all banks were expected to have at least 25 percent of the new prescribed capital by December 31, 2012, 50 percent by June 2013, 75 percent by December 2013 and 100 percent by June 2014.
While a “one size fits all” approach would not work, the banks will have to accept the reality changes are necessary because they are part of a global financial system demanding tighter controls.
It is imperative to note that although Finance minister Tendai Biti announced austerity measures to put a cap on bank charges and lending rates, negotiations were underway this week with the Bankers Association of Zimbabwe (Baz) as well as the Central Bank to try and meet halfway.
Banks are being obliged to reduce lending rates to below 15 percent as they are currently charging lending rates as high as 25 percent per annum, which market watchers say slows down economic recovery.
We hope that the meeting was fruitful and the outcome ensures protection of depositors, who have long been taken for granted by banks. Banks have always made money from mopping deposits cheaply at no cost while lending the same money at high interest rates.
The interest rates have no influence on the zero cost of deposits hence banks were making a killing unchecked. Biti announced last year in the National Budget that, starting this month, banks must not levy fees on deposits of less than $800 and give four percent interest per annum on deposits of at least $1 000 held over 30 days.
He points out that 40 percent of internally generated money comes from National Social Security Authority (Nssa) and Old Mutual, therefore banks should not on-lend at a rate exceeding 10 percent because they were getting funds at reduced cost.
Whilst the measures seek to ensure that bank charges and interest rates promote financial inclusion, stability and economic growth, Baz argues that its members, whose income ratio is 40 percent, will incur huge financial losses.
Banks that have been making profit through non-interest income streams, such as fees and charges now need to be innovative and grow their income streams by introducing products that are attractive and not let depositors bear the brunt. – Staff Writer