Banks to start paying interest on savings accounts

ZIMBABWE'S banks have agreed to scrap punitive charges and start paying interests on savings accounts and fixed term deposits in a landmark deal that could see customers trooping back to make longer term savings and boost the on-lending war chest to industries.

Before the deal announced by Reserve Bank of Zimbabwe (RBZ) governor John Mangudya in his mid-term monetary policy statement last Thursday, banks had enjoyed a free ride, charging high transaction fees and other costs on accounts, while offering no interests on savings.

Out of a combined $15,1 billion in net profits posted by the sector during the first half of 2021, a significant share was generated from transactional fees and charges after banks maintained their cautious lending strategy, which last week courted concern from George Guvamatanga, the permanent secretary in the Finance and Economic Development ministry.

Without straying out of normal banking processes, the financial system earns most of its revenue from interest income — the profit that banks charge on loans to customers.

The free ride enjoyed by banks has flourished under the watch of the Consumer Council of Zimbabwe, the watchdog that has reduced itself to making price surveys without raising a voice against rampant consumer rights violations on the market.

Mangudya said banks began computing interest on savings from July 1, after a fresh round of talks with the Bankers' Association of Zimbabwe (BAZ).

"In recognition of the role played by savings and deposits in the economy and the need to support financial inclusion and development, the bank engaged the Bankers' Association of Zimbabwe on the need to comply with Statutory Instrument 65A of 2020 on the payment of interest on savings accounts," Mangudya said.

"As a result, effective 1st July 2021, banking institutions scrapped bank charges on savings accounts and fixed term deposits and also agreed to offer minimum interest rates.

"The bank, in consultation with the Deposit Protection Board, is exploring mechanisms to protect foreign currency deposits."

Under the deal, banks agreed to pay 5% interest per annum on Zimbabwe dollar savings accounts and a minimum of 1% per annum interest on United States dollar savings.

The central bank said banks would also pay a minimum of 10% annual interest on Zimbabwe dollar indexed fixed term deposits, while United States dollar denominated fixed term deposits would attract 2,5% annual interest.

But banks had paid dearly for their "zero interest on savings, punitive charges strategy".

Consumers held on to their funds at home, sparking a liquidity crisis that has been amplified by a thriving currency trade on the streets.

It has been a "no win situation" across the economy, with companies struggling to access credit lines to import raw materials and industrial equipment.

Payments of interest on deposits has been a sticking issue since ex RBZ boss Gideon Gono was at the helm of the financial system between 2003 and 2013.

Gono was a lone voice in slamming banks' determination to loot.

To force banks to pay interests on deposits, government issued Statutory Instrument (SI) 65A of 2020, but in Thursday's announcement, Mangudya appeared to say the ad hoc law had also been ignored.

Banks were sitting on US$1,7 billion in domicile liquidity as at July 31, which may not be offloaded soon, as Mangudya said the cautious lending would continue.

The banks deal was one of a few new developments announced last Thursday, as Mangudya chose to stick to current policies, saying they had worked well in frustrating inflationary pressures and keeping money supply growth in check.

But the crisis confronting the Zimbabwean consumer is that banking now appears to be a complex process.

Without honesty on the part of the financial system or constant follow up by authorities to see if banks would be sticking to their word, the July deal could become another empty promise.

The central bank chief said the banking sector posted a combined $15,1 billion net profits during the first half of the year, after riding out headwinds posed by the deadly Covid-19 pandemic.