Zimbabwe’s inflation is further expected to spiral upwards after local banks hiked transactional charges by as much as 900% as pressure mounts on the financial intermediaries to pay the United States dominated payments to services rendered by their offshore suppliers.
The country’s inflation has since last October been trending upwards on the back of a weakening domestic currency and subdued export earnings. Independent estimates show that annual inflation stood at over 500% in January, a figure that cannot be verified after the government stopped releasing the key stats.
The shock abandonment of the multicurrency system by government has seen many companies facing bottlenecks in accessing hard currency on the formal banking system. Banks are also required to pay foreign currency to suppliers of their backbone ICT platforms. Resultantly, this has seen the domestic currency losing ground against major currencies.
The sharp rise in service charges this week infuriated long-suffering depositors who said the charges and fees banks were charging were a bitter pill to swallow.
And it seems to be working out for them.
While almost all other sectors in the country are teetering on the brink due to a sluggish economy, the local financial institutions have prospered regardless, according to recent financial statements and this is being achieved through usurious charges and interest rates on loans and services to vulnerable depositors.
The central bank recently slashed interest rates from 70% to 35% and some analysts predicted a squeeze on profits. But, it hasn’t happened yet.
Instead of hurting the lenders’ profits, they have strengthened. Several players in the sector say banks also sneak in a range of other fees.
A snap survey by Business Times this week revealed a general consensus among depositors that punitive charges have been detrimental to both deposits mobilisation and a fragile economic recovery process.
It is now being feared that the punitive bank charges could further diminish confidence in the turbulence financial services sector, which is critical in allocating resources in an economy.
This has resulted in several people who are gainfully employed now seriously considering receiving their salaries through other electronic platforms whose charges are much lower.
Zimbabwe is presently grappling with the unprecedented financial crisis but, the punitive charges are translating into jaw-dropping margins for banks, and significantly huge costs for depositors.
In November last year, most banks were charging withdrawal fees of about 1% of the amount being withdrawn. The minimum charge was about ZWL$3 and the same amount for withdrawals done on automated Teller Machines (ATM) for cash of up to ZWL$300.
Monthly maintenance fees were about ZWL$5 for individuals and ZWL$20 for corporate.
But now, a depositor is parting with about 3% for a withdrawal made in the banking hall, which translates to about 140% increase from 1% which the banks were charging in November last year. Corporates were this week paying hefty charges, the minimum amounted to ZWL$200 from ZWL$25. This translates to about 900% increase of the amount withdrawn, according to a snap survey conducted by Business Times.
Some banks were charging slightly less, but overall, all have increased their withdrawal charges by huge margins.
Even international payment charges have gone up because of the high costs of settling international card transactions.
For instance, a cash withdrawal fee for international debit cards has gone up from 3% to 5% per transaction, with a minimum charge of US$3.50 per transaction for those using MasterCard.
Finance Minister Mthuli Ncube recently said banks were playing a part in driving away depositors through punitive charges for their services and products while they don’t offer meaningful interest on savings.
While most foreign-owned banks, which get liquidity support from their parent companies abroad, have benefited in a bigger way from their ownership, with cash availability unmatched by the other players, indigenous banks seem to be the worst hit by the crisis as the majority of them have switched off their ATMs, with long queues being the order of the day in their banking halls.
Most were not feeding the ATMs with cash forcing depositors to withdraw cash from the banking halls.
Depositors with Ecobank were this week forking out 3% for any withdrawal from about 1% last November in the banking halls. At the ATMs, they were charged 2.5% from1% last November. Monthly maintenance fee shot up to ZWL$20 from ZWL$5. Corporates are now charged a minimum of ZWL$200 from ZWL$25 charged in November 2018.
Nedbank was charging 3% for withdrawals in the banking hall translates while those withdrawing from ATMs were charged about 2% of the amount withdrawn.
The government-owned POSB and Agribank were also charging about 3%.
FBC was charging about 3% for individuals and ZWL$30 monthly service charges. Businesses were being charged 3% for the amount withdrawn and ZWL$50 for maintenance fees.
CBZ and ZB were changing 3%for individual withdrawals while businesses were being charged a minimum of ZWL$200 per withdrawal. Maintenance fees for individuals were ZWL$25 and ZWL$300 for individuals and corporate respectively.
Depositors at First Capital Bank and NMB Limited were this week charged 3% as well and ZWL$30 maintenance fee.
BancABC was charging the same for withdrawals but ZWL$35 as monthly maintenance fee. Stanbic was charging every account holder ZWL$50.
Analysts warned this week that the situation could undermine efforts to encourage domestic savings and rebuild the shattered economy as the astronomical charges were eating into depositors’ already low incomes, hence leaving them poor. Bankers Association of Zimbabwe president Webster Rusere, could not be reached for comment while his deputy, Ralph Watungwa declined to comment yesterday.
Bank executives argued this week that the harsh operating environment has increased costs of keeping their units viable, which overheads could be recouped from the banking public. For example, most foreign-owned banks are being forced to import cash with the cost of doing so being passed to onto the customers.
Depositors are infuriated.
In response to the plight of depositors, the executive director of the consumer watchdog, the Consumer Council of Zimbabwe (CCZ), Rosemary Siyachitema yesterday said: “we are conducting research”.
“There is a perception that bank charges are high but unfortunately I can’t comment much right now because we are conducting research on that. Check with me on Friday,” she added.
The results of the independent survey by CCZ could result in the watchdog securing meetings with the Reserve Bank of Zimbabwe and BAZ to highlight the plight of depositors.
Financial analyst Evonia Muzondo said high bank charges are a result of high inflation as prices generally chase the greenback.
“Information costs are paid in foreign currency and obviously suppliers benchmark against the black market rates,” Muzondo told Business Times.
Banks, Muzondo said, get the bulk of their money from lending. But, there was little lending due to the economic crisis. She added that few individuals were creditworthy.
“As a result, banks increase charges to take advantage of transactional fees especially given most deals were in the informal sector. They want to maximise on that.”
Muzondo said while increasing bank charges may be justified in line with inflation, there was now an element of profiteering. These high charges were deterring financial inclusion, she said.
Economist Brains Muchemwa said the bank charges were justified given that financial institutions use systems and pay for annual license fees and user fees in US dollars.
“The banks need to find foreign currency and you are aware foreign currency is not coming easily. The costs are not much,” Muchemwa told Business Times.
“It’s unfortunate the costs are coming to poor people. But, if you look at it it’s not a lot of money but the systems that support those transactions are expensive.”
Zimbabweans, as a result of the rising bank charges, can no longer afford banking services, but they have no choice given the acute cash shortages that are in the economy.
“They are between a rock and hard place, if you decide to use cash, you will end up coming back to the banks,” Muchemwa said.
Most of these distortions, added Muchemwa, are a reflection of the decaying economic conditions. The underlying issue that needs to be addressed is the macroeconomic fundamentals where consumer incomes are being eroded daily because of ever-increasing inflation.
“Most goods and services are bench-marked on the US dollar so they will continue to increase, but unfortunately, wages are not pegged against the US dollar.
“Consumers are the biggest losers, and what needs to be addressed is the ever depreciating macroeconomic conditions and the exchange rate is the biggest one,” Muchemwa said.