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LOCAL financial institutions have adjusted interest rates downwards to levels below 10 percent per annum for their performing customers in the productive sectors, a move the central bank said would help the revive industries. In his monetary policy dubbed “Rebalancing the economy through competitiveness and compliance”, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said such development were greatly appreciated and should be intensified.High interest rates had discouraged savings as bank charges were too high. Bank failures in Zimbabwe over the past 10 years have affected people’s confidence in the banking sector, a situation which is detrimental to the sustained development of the country. The fragility of the financial sector, high interest rates and bank charges had affected domestic savings over the years, and hence it was important for the RBZ to come up with new measures to stimulate savings in the country and protect depositors.

“The Reserve Bank would like to encourage those that are on the wrong side of history and still charging interest rates of four percent above the cost of funds per annum to conduct a self-introspective exercise of their risk management philosophy,” Mangudya said.

Compliance by banks to the directive would translate into a lowering of finance costs that are debilitating businesses in Zimbabwe. Reduction in the cost of doing business through addressing finance costs would result in businesses reducing their prices which is necessary for resuscitating and stimulating the economy. The RBZ governor did not however tackle the contentious issue of bank charges, which many suspect to be the major reason for low savings in the economy, although he spoke on the need for banks to revise certain fees for customers.

“Facility fees or arrangement fees of above 2,5 percent are high and interest rates of four percent above the costs of funds per annum for productive sectors of the economy are not sustainable as they are a good breeding ground for non-performing loans which the Reserve Bank is trying to rein in,” Mangudya said. He encouraged financial institutions charging punitive fees to compliment the gesture extended to them by RBZ under Zimbabwe Asset Management Company (ZAMCO), which has been buying non performing loans (NPL) from the sector, and to reflect the benefits to the financial sector of the establishment of the Credit Reference Bureau.

Mangudya told stakeholders at the Zimbabwe National Chamber of Commerce last year that NPLs in the sector amounted to almost US$800 million. Individuals and corporates are forking out between US$25 and US$50 monthly in bank transactions. Commercial banks are charging individuals between US$1 and US$5 for a single withdrawal, while companies pay up to US$9. To be issued with a draftRMO, individuals and corporates are parting with between US$8 and US$15. 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 transfers.

Banks are also charging as much as US$20 for a single deposit of bank notes transaction. The average regional charge for the same transaction is US$7. Some banks are not charging for maintaining clients’ accounts, but others are levying US$4. 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. Mangudya said the US$200 million interbank facility supported by the African Export-Import Bank (Afreximbank) under its trade debt backed securities (Aftrades) became operational yesterday.

The facility would be managed by the RBZ, an agent bank for Afreximbank for the purposes of managing the surplus and deficit participants’ requirements under Aftrades. RBZ said it was lowering the cost of access to banking services after observing that in a number of jurisdictions such as South Africa, India and Canada, conscientious efforts and collaborative arrangements between monetary authorities and banking institutions have allowed for the operation of low cost accounts to make banking more accessible to the public and, specifically, to increase banking reach to all communities.

“In South Africa, for example, the low income transacting account is called Mzansi Account. The Reserve Bank is pleased to note that some local banks are already providing low cost bank accounts to the banking public in Zimbabwe,” he said.

In order to widen such initiatives and promote financial inclusion, the Reserve Bank and the Bankers Association of Zimbabwe have resolved that banks, without low cost accounts, should at least provide the banking public with basic banking services at low or no cost with minimum features such as account opening deposit of US$5,” he said.

He said depositors would now earn interest on balances in their account and that there would be no balance statement fees. Average account balance of US$300 and copy of national Identity Card suffice for account opening will be some of the features.

Source : Financial Gazette