Relief for bank depositors

via Relief for bank depositors – DailyNews Live 8 July 2014, by John Kachembere

HARARE – Reserve Bank of Zimbabwe (RBZ) says it will continue monitoring bank charges in an effort to protect depositors and promoting financial inclusion in the economy.

John Mangudya, the central bank chief last week told Parliament that RBZ would engage the Bankers Association of Zimbabwe (Baz) consistently to ensure that financial institutions do not rip off depositors.

“We are going to continue with the policy we had when Baz and RBZ had a memorandum of understanding (MoU) and we would be meeting quarterly with banks chief executives to review the bank charges,” he said.

Mangudya noted that enforcing bank charges should be “more of a moral suasion” rather than strict market controls.

“We believe in engagement and that’s the way we will be dealing with banks into the future,” he said.

Last year, Zimbabwean banks operated under an MoU with the central bank that put a cap on lending rates and bank charges.

The MoU — which came into effect on February 1, 2013 — required, among other things, that lending rates be capped at 12,5 percent, above each respective bank’s weighted average cost of funds.

The institutions were also ordered to charge up to 0,5 percent of cash withdrawal amount subject to a minimum charge of $2,50 while ledger fees, maintenance and service fees would cost up to $4 per account.

Although the MoU was cancelled with effect from December 1, 2013, Charity Dhliwayo, the then acting RBZ chief early this year directed that banks should justify increases in charges or interest rates from the October 2013 levels before approval is granted by the central bank.

Dhliwayo said this was necessitated by the need to avoid unjustified increases in charges and interest rate by banks, and to promote informed decision making by the banking public.

“This will assist the regulator in monitoring ‘‘collusion’’ on pricing as well as evaluating banks’ cost structures in relation to bank charges,” she said.

Nonetheless, bankers felt the requirement to seek approval before increasing charges was introducing controls clandestinely.

Giving oral evidence before the Parliament’s Portfolio Committee on Finance and Economic Development in March this year, the then vice president of Baz, Sam Malaba said the central bank should allow the banks to determine their interest rates according to their cost build-up.

He said an application for interest rate increases was equivalent to controls hence detrimental to market forces.

“This is equivalent to controlling the charges that banks are setting.

“We are working in terms of market operations and we don’t believe it’s necessary for the banks to be regulated with regards to charges and interests rates.

“We live in a competitive environment and banks compete against each other and so banks would not unnecessarily increase charges in a competitive environment,” said Malaba.

Banks are currently charging lending rates ranging between 6 percent and 35 percent per annum.

“We don’t believe we are an irresponsible sector that would unjustifiably increase prices without justification and if that were the case there would be no need for us to seek prior approval,” noted Malaba.