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Bank charges milking depositors - analysts
Paul Nyakazeya, Zimbabwe Independent
June 24, 2011

http://www.theindependent.co.zw/local/31461-bank-charges-milking-depositors--analysts.html

Individuals and corporates are forking out between US$20 and US$40 monthly in bank charges, far above regional averages of below US$25, as banks milk account holders through high charges to boost their income and support the infrastructure they put in place when the economy was faring better. Figures obtained from different banks show that an individual is charged between US$2 and US$8 for a single withdrawal while companies pay up to US$10 to be issued with a draft/RMO. Charges for withdrawals increase depending on the amount being withdrawn.

In South Africa, Botswana, Zambia and Mozambique the average charge or a withdrawal is US$3 dollars.

Telegraphic transfers cost between US$15 and US$30 for both corporates and individuals depending on the amount involved. The same amount is charged for deposits received by telegraphic transfer. The regional average for such transactions is US$14.

However, Bankers Association of Zimbabwe (Baz) says local bank charges were in line with regional charges.

Asked if local bank charges were not too high when compared to the region, Baz president John Mushayavanhu said local charges were competitive.

"As Baz, we have done a study of bank charges in the region and overseas and I can confirm to you that our charges are very comparable to the charges prevailing in the region," he told Businessdigest.

"What we are focusing on now is continuous investment in electronic banking, which reduces cost. On interest rates charged by banks, we are working, through moral suasion within the association, to reduce the disparity on interest rates being offered and/or charged by banks.

"This will go a long way in minimising the underlying contagion effect of arbitrage opportunities associated with the disparity," Mushayavanhu said. Some analysts' said the charges were outrageous and reflect the structural inefficiencies that banks have carried over from the hyper-inflation environment.

Banks are said to be sitting on deposits that from the core business perspective, cannot generate sufficient interest income to cover their operational expenses.

The net interest margins, in the range of 2%-7% are too thin especially for small banks that sit on deposits below US$150 million.

"Resultantly the banks overload the non-interest income to ensure that the cost to income structures remain respectable," a banker said

"But unfortunately overloading the non-interest income component means asking the customers to pay more in bank charges for bank inefficiencies and economy-related structural rigidities," said the banker.

Local banks are also charging as much as US$10 for a single deposit. The average regional charge for the same transaction is US$7. Some banks are not charging for maintaining clients' accounts, but others are levying between US$2,90 and US$5. Corporates are being charged between US$8 and US$12 per month for monthly account maintenance. FCA inter account transfers cost between US$1 and US$5 depending on the bank for both individuals and corporates.

Economists David Mupamhadzi told Businessdigest this week that the current bank charges in the market were not favourable and discourages people from using the formal banking channels.

"When faced with punitive charges customers will shy away from the formal market, a situation which is detrimental for the growth of the economy," he said.

"Addressing the issue of liquidity is important to solve the pricing problem in the financial sector. Currently the market is dry, while costs are going up - a situation which will force banks to hike bank charges to recover costs," Mupamhadzi said.

Mupamhadzi said banks should also accept the reality in the economy, and downsize their operations.

"It is difficult to see how banks can maintain the same cost structures as before the adoption of the multicurrency system," he said.

Service charges for salary processing tariffs cost between US$1, 50 and US$4 per entry for manual salary payments. Unclaimed salaries cost between US$4 and US$7.

Companies are being charged between US$7 and US$10 per payroll for late salary submissions.

Most banks have not set a charge for intermediated money transfer tax.

Facility negotiation fees for companies cost 5% of the value of the overdraft or loan. Between US$4 and US$8 is charged for stop orders.

Economist John Robertson told Businessdigest that bank charges in Zimbabwe were punitive, and discouraged people from using formal channels for savings, a situation that is undesirable especially given the liquidity problems that the economy is facing.

"Banks should play a leading role in mobilising savings across the whole country through offering attractive returns, however in the case of Zimbabwe this is not happening because of the high bank charges and the low returns on deposits," he said.

Bankers interviewed said most banks in the region do not use bank charges as a main source of income, a situation which is prevalent in Zimbabwe. In South Africa for example, high bank charges are levied on people who withdraw huge amounts of cash as a way of discouraging people from withdrawing large amounts of cash.

Accounts closed within six months are attracting a fee of between US$18 and US$25, while reactivation of a dormant account costs between US$20 and US$25. Services for bonds guarantees, securities and indemnities and bills range between 5% and 10% of the amount at hand.

Charges for letters of guarantee, and guarantees are between 4% and 6% of the amount involved. Letters of credit for foreign inward cost US$75 per credit. Foreign outward for commercial banks cost 10% of the amount being transacted.

A bank CEO who spoke to businessdigest said banks typically derive their income from a combination of interest income as well as non funded income which includes bank charges.

"The charges are somewhat justified given the cost structures prevailing in the banking institutions," he said

"Given the subdued income from the core lending activities, fees and commission income have been maximised to boost overall profitability but this will gradually correct itself in response to market forces and technological advances. Fees and service charges will however remain an integral part of all banking institutions' income," the CEO said.

Economic analyst Eric Bloch told Businessdigest that the innumerable public critics of Zimbabwe's banks were also appalled by the magnitude of the interest rates applied by the banks to those limited loans and advances as they are able to make.

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