Banks in Zimbabwe are generating up to 90 percent of their revenue through service charges as opposed to the global norm of riding on interest rates.
Despite prevailing economic challenges, all banking institutions in the country have remained profitable with aggregate profit of $13.46 billion having been recorded for the half year ended 30 June 2020 alone, up from $79.40 million for the corresponding period in 2019, according to the Reserve Bank of Zimbabwe (RBZ). The key revenue drivers were mainly non-interest income.
Under normal circumstances, banks should receive interest on the loans offered to clients with profits being derived from the spread between the rate they pay for the deposits and the rate they earn or receive from borrowers, experts say. The expectation is also that banks must earn interest income from investing their cash in short-term securities like treasury bills, Government bonds and money markets.
However, the situation is different in the country where banks have resorted periodically increasing service charges, which has raised the ire of depositors and is partly blamed for frustrating public confidence in using formal banking channels. For instance, banks levy between 2,5 percent and three percent for withdrawal charges with up to $100 monthly account fee for local dollar and US$5 for nostro accounts. It costs about $60 or so dollars to apply for a debit card while ATM transactions drain up to 1.5 percent charge with mobile banking going to three percent, plus the two percent electronic transaction tax.
Given the prevailing cash shortages in the economy, depositors have no choice but to use electronic transactions such as swipe, mobile money and bank transfers.
“It’s true that if we check the financials for our banks, a majority of them, 80 to 90 percent of their revenue is actually coming from bank charges, it is not a good sign,” said Deputy Minister of Finance and Economic Development, Clemence Chiduwa. He was responding to questions from legislators in Parliament last week. This was after Umzingwane legislator, Levy Mayihlome, had accused the banks of manipulating the poor to maximise income through service charges that erode the little income from a majority of depositors.
“The banking sector in this country is earning income from bank charges instead of interest rates. What is the Ministry of Finance and Economic Development doing to change that culture so that banks earn from lending to clients instead of arm-twisting poor citizens who send their money to the bank and they have no choice,” said Mayihlome.
“They are charging these bank charges without their consent. What is the ministry doing to change that mindset?”