RBZ wants banks to return to core business

Source: The Herald – Breaking news.

 Dr John Mushayavanhu

Business Reporter

RESERVE Bank of Zimbabwe (RBZ) Governor, Dr John Mushayavanhu, has urged banks to shift from fee-based income models to traditional lending or funded income-driven approaches.

He cautioned that insistence on exorbitant fees and commissions could lead to banks being pushed out of the market by more efficient players.

Banks typically rely on funded income as a primary revenue source.

However, data indicates that they are generating 80 percent of their revenue from non-funded income.

“The central bank is working with banks to make sure that they go back to core business, which is the business of lending money,” said Dr Mushayavanhu in a podcast interview with ZTN Prime in Harare on Friday last week.

“And also, as the economy and the banking sector digitalises, you will find that the cost of maintaining an account or the cost of doing a transaction will go down.

“The challenge is out there. If the banks do not change, they will be pushed out of the market by more efficient players.”

Dr Mushayavanhu also indicated that large corporate entities can negotiate more favourable interest rates with their banking partners, utilising the size of their deposit holdings as leverage.

The imposition of exorbitant bank charges and reluctance to pay interest on deposits has been identified as a significant factor discouraging individuals from saving.

This has severely affected the national savings culture, contributing to the erosion of savings, and in some cases, resulting in the complete wiping out of deposit balances.

“The lack of interest on deposits, coupled with high charges, has created a deeply unfavourable environment for savers,” economic analyst Mr Carlos Tadya said.

“This is a major concern for long-term capital formation.

“The situation highlights the need for a comprehensive review of the banking sector’s role in supporting savings and investment. Policy interventions are needed to incentivise savings and protect depositors’ interests.”

An analysis by the central bank reveals a significant reliance on non-interest income, which constituted a substantial 87,57 percent of the sector’s cumulative income in the six months to June 2024.

The primary drivers of the non-interest income were identified as net gains from the revaluation of foreign currency assets and investment properties.

While the gains contributed significantly to the sector’s profitability, the heavy dependence on non-funded income raises concerns about long-term sustainability.

According to the RBZ, fluctuations in foreign exchange rates and property values can bring volatility and unpredictability into the sector’s earnings.

A more balanced income structure, incorporating a greater proportion of interest income from lending activities, would likely enhance the sector’s resilience and stability.

Dr Mushayavanhu said the stability of the ZiG, which has remained firm on both the official and parallel markets, should instill confidence and encourage individuals to deposit their funds in banks.