FEATURE ARTICLE

Editorial Comment: Banks must rely on mobilising savings and lending, not fees

06/06/2012 - The Herald Online
Published: 06/06/2012

 Zimbabwe’s bankers have acquired some very bad habits over the last decade or so, abandoning their old business model of accumulating private savings, and paying interest on these, and then lending these savings out at a higher rate of interest, the gap between the two rates being their income to cover expenses, cost of bad loans, and some overheads. 
Yes, they had fee income, mainly a charge for every line in their ledger, that is a modest charge for each deposit or payment, but that was to cover the cost of the large number of people they had to hire to man counters, process data manually and clear cheques in the days before they embraced atms and converted cheque payments to digital transfers at point of sale or through the RTGS system.
Nowadays banks live off their fee income. They have returned to the late Middle Ages when goldsmiths charged people to look after their money. 
As Reserve Bank Governor Dr Gideon Gono noted recently, leaving your money in a bank is now a sure guarantee that sooner or later it will disappear, even if you do not touch it yourself. Those monthly charges will consume the lot.
We remember that even under the traditional systems bankers did not pay interest on balances in current accounts, although they did not charge storage fees either, and that account holders had to maintain minimum balances in savings accounts, which did attract interest, at least on the minimum monthly balance. 
Then in the 1980s Zimbabwean banks were forced to pay interest on minimum monthly levels even for current accounts, with the bankers screaming that they were being flung into penury. But they submitted and for 15 years managed quite well. 
Many building societies and even the POSB switched to calculating interest daily on their savings accounts, as they computerised and so found it did not matter whether interest was calculated once a month or 30 times a month; the cost was the same.
In some ways technology has not altered legitimate fee collection. A point of sale transaction with a card has replaced cheques for consumers and shops, with a great deal more security for everyone. 
So it is legitimate to charge for a card swipe, although whether 45c is the correct charge is dubious; the Government takes just 5c in taxes on such transactions. ATM charges at some banks are much higher, more than US$2, dwarfing the same 5c the taxman takes. We wonder why.
In any case these charges at these levels simply encourage salary earners to drain their account once a month and pay cash for everything, keeping vast sums that ought to be put to better use in banknotes under the mattress, and defeating every plan to switch Zimbabwe to plastic money.
Banks lose by this, since they get just one fee, for that one ATM use, and have to find the banknotes. The only consumers using plastic money are those worried about pickpockets and muggers, not a serious risk in Zimbabwe thanks to good police work.
But then we have fees that are not so legitimate. Why charge US$5 to US$10 a month to store money? Why charge US$1 to tell a person how much money they have in their account? Why charge over US$5 to make an RTGS transfer? 
Dr Gono should have gone further. Some charges are too high, we agree, but he should have noticed that some charges are totally wrong. 
Transaction costs are now so high that even if someone wants to save, they will find the costs of moving their cash in and out of a savings account are higher than the interest they receive if the sums are small, say US$50 or US$100 a month, the sort of sum that many could put aside. This means the ordinary wage-earner actually loses money by saving, an absurd concept.
We would like to see the Reserve Bank pushing banks back towards their traditional business and costing models. This means that banks should rely more on mobilising savings and lending these out, rather than on charging a fee for everything. 
The switch from high staffing levels and low technology to low staff levels and plastic money should balance out, and the cut in branch numbers and branch sizes gives banks an edge.
This means creating products that the small saver can use. Modern technologies mean that small and large sums can be processed at almost no cost for each transaction by a bank. 
In South Africa we see banks willing to run savings accounts fed by as little as R100 a month, with no fee for those transfers.
It means dumping monthly storage charges; it means having a fixed charge for each account withdrawal regardless of whether it is POS, ATM or RTGS, with that charge set low. An extra sum to see a teller might be fair, since that gives a staff cost, but even there the fee should be in reason.
And banks should be made to return to giving interest on minimum monthly balances in current accounts. That was lost in the inflation era, and we wonder why? 
Was there not a Government directive by then Finance Minister Dr Bernard Chidzero? We do not recall that this was repealed, just forgotten.
The ending of “account maintenance fees” and restoration of interest payments on at least minimum balances would mean that leaving your money in a bank would see the sum grow, not decline. 
Proper savings accounts for ordinary people would encourage them to save for furniture, household effects and school fees, instead of borrowing for these at high interest rates, which bankers admittedly love, and allowing banks to lend more at more reasonable rates to companies who are growing the economy. 
We think Dr Gono’s call for lower charges is a  start, but a small start. If banks could make a           decent living on balance sheet income, rather than fees, for decades they should relearn those skills and do so again, instead of sitting back in their air-conditioned offices snatching a dollar here and a dollar there from their depositors. Dr Gono needs to go further.


 

 

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