adminscarce to secure, those with savings expect a decent return from their deposits as a reward for keeping their money in an unimpressive interbank market. In our case the bank charges that we have are not necessarily out of touch with reality, a survey in most Sadc states will prove, however, there is still room for improvement.
A week ago, I visited Kingdom AfriAsia Bank to withdraw US$1 000 and was charged a nauseating US$10 fee.
The justification for such a charge boggles the mind. With about 150 registered micro-finance institutions and 22 banks and an aggregate deposit base of about US$4 billion against 800 000 formally employed citizens in the country, we should be concentrating on promoting a healthy credit economy.
The ever-widening spread between savings rates and lending rates cannot be corrected given the absence of a defined interest rate regime, disregard of inter-bank developments in the source countries of our currency and the sovereign risk which is not adjustable in the short to medium term. The Confederation of Zimbabwe Industries is poised to meet Reserve Bank of Zimbabwe officials and bankers to discuss the interest rate charges currently prevailing in the market.
It is my firm belief that they are aware of the “rational expectations” phenomenon where their request might rather spike than moderate the out of reach charges we are witnessing daily. In a dollarised environment, a command economy is not imaginable; the financial sector is one of the modern day drivers of economic growth in some instances ahead of the foreign sector, but behind the real sector.
Any attempt to stifle the growth prospects of this very sector can be suicidal.
CBZ Holdings’ impressive set of results released recently should not be a springboard to venture into the interest rate argument knowing very well that the bank can access cheaper lines of credit as compared to an average Zimbabwean bank.
CBZ holds a greater chunk of Government funds without discounting the positive managerial skills at the helm of the banking institution. The primary reasons for high funding costs include the cost of importing currency, a dysfunctional interbank market, high cost of infrastructure, mendacious systems of pricing financial assets and thin capital bases by most of the financial institutions.
A significant loan loss provision impacts negatively on the capital base of a bank and this can be induced by sub-economic rates, which can raise the level of non-performing loans. This means the prospects of raising domestic supervision standards to Basel II will be delayed and the inward approach to banking practices being preserved thereby opening up more opportunities for regional and international banks such as Ecobank, Stanbic and Standard Chartered.
Ecobank is bound to experience significant growth domestically given its bottom upward approach coupled with an emerging market stunt. In fact, by 2016 it will be bigger than the CBZ if current growth matrices are factored in. There has been a clamour from some quarters to see the Libor+premium model being applied in charging interest rates.
It is essential to note that a determination of premium in a dollarised environment can bring an unacceptable spread.
Poor risk management practices are promoting non-performing insider loans, long- term non-performing assets are sometimes recklessly funded through short-term liabilities and this is fatal notably in this environment of unpredictable interest rate movements. Zimbabwean banks are like stand-alones and this continues threatening the stability of the sector as an incapacitated central bank will aggravate the liquidity risk.
In order to shield themselves from the threat of falling under, they put an abnormal premium. Paradoxically, non-interest income is still dominating ahead of the funded income regardless of the disturbing lending rate charges.
This could be evidence of an extremely narrower deposit base, which is equally a symptom of an unbanked populace. Let us grow our economic cake and the transmission mechanism of such an economic buoyant growth will depress the lending rates.
Gone are the days of manipulating interest rates in a negative direction and it is also time for the supervisors to monitor the banking behaviour to see to it that the banking public is not ripped off.
Christopher Takunda Mugaga is an economist. He is also the Head of Research at Econometer Global Capital, a regional finance and economics research firm. He can be contacted on +263 772 340 353/+263 776 266 062 and he can be contacted on email: [email protected].
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