Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

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Banking sector pros and cons

Banking sector pros and cons

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 

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 

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 

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 


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