Banking sector pros and cons
http://www.theindependent.co.zw/
Friday, 17 June 2011 11:57
MANY recurrently contend that Zimbabwe is overbanked. With such contention,
it is not intended to suggest that excessive usage is made of banks, or that
Zimbabwe’s banks overly dominate the economy, but that Zimbabwe has too many
banks. It is argued that Zimbabwe does not need a plethora of banks as
exist, and that having so many jeopardises the economy’s viability.
That is not so!
The reality is that Zimbabwe is underbanked, in that there is an
insufficiency of utilisation of its banking services. The inadequacy of
bank usage is attributable to a diversity of reasons, of which foremost
are:
A very great proportion of the population, be it individuals or
businesses, are fearful of depositing funds into banks. They have not
forgotten the extent to which foreign currency holdings, in the days of the
deceased Zimbabwean dollar, were compulsorily transferred from the banks to
the Reserve Bank and thereafter were difficult to access, to an extent that,
two or more years later, many have still not had return of their funds by
the central bank.
They fear that the currently bankrupt Government may resort to similar
actions, or that Zimbabwe will suddenly revert to its own currency, with the
Reserve Bank once again unilaterally “borrowing” the private sector’s monies
held by the banks.
The fears of non-accessibility to funds deposited with banks are
exacerbated by the frequency that many banks do not have sufficient currency
holdings to meet depositor withdrawals timeously, due to Zimbabwe’s
inadequate currency holdings. Government, the Reserve Bank, and the banks,
have sought to overcome this by motivating intensified usage of interbank
transfer systems, credit and debit cards, but many require or wish to use
actual currency. As a result, they resort to banking in their wardrobes,
under mattresses, in safes at their businesses, and in their back pockets
and wallets.
Due partially to the insufficiency of deposits into the banks,
partially to the inability of the Reserve Bank to fulfill its function of
“lender as last resort”, and to a major extent to the pronouncedly minimal
international lines of credit available to the banks, almost without
exception the banks are unable to make substantive advances to commerce,
industry, and businesses in other economic sectors. And the reality is that
those much-needed international lines of credit will not be forthcoming for
so long as Zimbabwe is perceived as an abysmally high credit risk. That
perception will endure until there is real and genuine political stability,
under a genuinely, free and fair, democratically-elected government,
unequivocal state adherence to, and respect for, law and order, economic
stability and growth, and substantive reconciliation and collaboration with
the international community at large.
The minuscule rates of interest paid by the banks are a further
deterrent to the depositing of funds with the banks, and yet the constrained
volume of banking transactions substantially contains the ability of banks
to offer depositors conducive interest rates.
Because some banks are under-capitalised, and some other banks (albeit
exceptions to the rule) are mismanaged and engaged in improper and
irresponsible lendings and investments to selective shareholders and
management, their stability and security is suspect, thereby further
discouraging many from usage of the banking system. A prime example, but
certainly not the first, is the recent disclosure by the Reserve Bank of the
circumstances of Renaissance Merchant Bank, with massive advances, mainly
unsecured, to shareholders and their associated enterprises, and previously
there were similar exposés in respect of other banks such as Trust Bank,
Barbican, Royal Bank, and Genesis Bank, although Reserve Bank interventions
ensured their subsequent recoveries.
The innumerable public critics of Zimbabwe’s banks are also appalled by the
gargantuan magnitude of the interest rates applied by the banks to those
limited loans and advances as they are able to make. Those rates are three
and four-fold greater than the rates applied internationally, and most bank
charges are astronomically high. In practice, the banks have little
alternative but to apply such rates and charges, because the very small
volumes of business that they are able to transact do not yield a
sufficiency of revenues to meet hardcore overhead costs.
In the same way as manufacturers must unavoidably increase selling prices
when their production levels are low in order to fund their fixed overhead
costs, so too the banks have no alternative but to do likewise in order to
service their salary and wage bills, rentals, and innumerable other
overheads. They have to charge substantially for each and every service
rendered, and to levy interest charges yielding a sufficiency of revenues to
meet those overheads. Only increased volumes of business will enable banks
to become competitive against others by a lowering of interest rates and
charges.
Many of the understandably unhappy and dissatisfied bank customers argue
vociferously that the banks should fund reductions in charges and in
interest rates by containment of their overheads in general, and by lowering
of the salaries and emoluments of the senior executives.
However, the reality is that those emoluments must be sufficient to compare
with those paid in neighbouring countries, and further afield, failing which
Zimbabwe will lose the services of competent, capable and skilled bankers.
Required for stability and viability in Zimbabwe’s banking sector, and for
the economy and the populace to have confidence in that sector, and for
justifiable assurance of the sector’s security are:
Convincing affirmation by government and the Reserve Bank that not only
will Zimbabwe remain multi-currency based until the economy is wholly
recovered, stable, and enjoying ongoing growth, coupled by absolute
assurance that depositors’ funds will be inviolate and absolutely secure,
readily available at all times.
Restoration of absolute public confidence in bank security and in
consistent, timeous availability of their deposited funds, with
consequential substantially increased public usage of bank facilities and
resources.
Increased competitiveness between the banks, both as to rates of
interest and bank charges, and as to service, inclusive of timeous and
unequivocal responses to loan applications.
Indisputable political and economic stability, nationwide, according
international confidence in the security of lines of credit to Zimbabwean
banks.