BAZ defends high rates

charges.
According to Reserve Bank of Zimbabwe Governor Dr Gideon Gono, banks have been quoting interest rates of up to 30 percent on loans.
Banks charge up to 1 percent of the amount withdrawn per transaction.
But BAZ said only a “few bad apples” were doing this. The RBZ contends this discouraged increase of deposits.
To correct the situation BAZ will, in line with guidelines from the central bank, use “moral suasion” for banks to set reasonable fees, but says it cannot fix the rates and charges.
BAZ said agreeing on common regime on interest rates and bank charges would be tantamount to forming a price cartel.
In an interview with Herald Business last week, BAZ president Mr George Guvamatanga said the interest rates and bank charges were based on economic fundamentals.
He said there were, however, a “few bad apples” who had caused the whole sector to be pained with the same brush by setting unreasonably high rates and charges.
“We have been collecting information (from banks) as BAZ in terms of interest rates and bank charges,” he said. :
“Generally, we found out that they are within what BAZ considers reasonable.
“Due to a few bad apples, this (high interest rates and charges) has been taken to be the position in the entire banking sector. 
“But what we can’t do is sit and agree on interest rates and bank charges.”
Presenting his Mid-Term Monetary Policy Statement last month, Dr Gono threatened to take “appropriate action” against banks that do not rationalise their lending rates and bank charges.
This comes against a backdrop where depositors earn negligible or virtually no interest on their deposits, which, instead of increasing are actually whittled down by charges.
But BAZ argues that interest rates and bank charges quoted by the majority of its members were in line with trends in the region.
Mr Guvamatanga said a number of economic factors were considered in arriving at the prevailing interest rates and bank charges.
He said interest rates were based on such economic factors as the cost of capital, funding, the risk premium and operating costs, which include expenses of recovering advances.
For instance, banks who obtain funding from multilateral lenders at 10 percent, in turn may add 2 percent for administration costs and 7 percent risk premium before putting their own mark-up to arrive at the final lending rates.
Risk premium is meant to cover the possibility that certain loans may never be repaid, which becomes an expense to the bank.
BAZ said this scenario explained why interest on loans from local banks was quoted between 15 and 30 percent per annum.
The prevailing service charges were also determined by operating costs, such as high utility charges, cost of electricity, expensive banking software and hardware, such as ATMs.
“When you see an ATM, it does not mean it is simply acquired, put and left there,” said Mr Guvamatanga. “It has to be maintained and runs on a banking platform. Banks have to pay licence fees for it.
“Software costs between US$15 million and US$25 million. Whether you transact or not you pay the fees. Fraud monitoring systems are also paid for and you cannot ask for quality service and get it for free.”
The cost of replacing soiled and old notes, as well as transporting imported currencies used under the multi-currency regime adds to the cost of banking in Zimbabwe, he said.