News / National
Banks plunge into fresh crisis
15 Feb 2019 at 09:35hrs | Views
THE Reserve Bank of Zimbabwe (RBZ) shot down an urgent request by commercial banks to raise interest rates and transaction charges at a crisis meeting held in Harare last week, arguing the move would trigger inflationary pressures, the Zimbabwe Independent can report.
In the face of rapidly rising costs after bank workers demanded and won a 42% hardship allowance to cushion them from the spiralling cost of living, the banking sector approached the central bank for permission to increase fees.
Some banks have backdated allowances to January after the Zimbabwe Banks and Allied Workers' Union (Zibawu) threatened to withdraw labour, citing biting economic pressures.
Prompted by concern that the 42% wage increase would eat into banks' static earnings, the financial institutions called an urgent meeting with the central bank.
Banks' income emanates from core lending activities and other non-funded sources such as fees and commissions.
Sources close to the developments say the RBZ was firm in its stance and shot down the proposal from banks to increase fees and interest rates, noting that such a move would
result in spiralling inflation, currently hovering above 40%.
Although the central bank is yet to give monetary policy direction on interest rates, exchange rate and the currency crisis, judging by its decision on banks' requests, interest rates may remain flat.
Central banks tend to tweak interest rates and other monetary policy tools to achieve various economic objectives.
The RBZ in March 2017 capped key interest rates at 18%, set mortgages at 12% and lowered charges on electronic transactions, a key source of income.
Productive loans attract 12% interest per annum. The static interest comes against a background of a rising rate of annual inflation, currently officially computed at 42% although leading economist Steve Hanke says it is way above 230% that had eroded purchasing power.
Bankers fear the failure to tame inflation could threaten the viability of the financial services sector.
Inflation is mostly being fuelled by the weakening of the bond note against the United States dollar that has seen retailers adjusting prices in line with the parallel market rate.
The central bank created a huge stock of electronic money, issued Treasury Bills and other instruments, clocked up massive domestic and foreign debt and ran a current account deficit, resulting in the weakening of the bond note.
In light of rising costs, banks felt they could cushion themselves by addressing income lines in the volatile economic environment.
Although Bankers' Association of Zimbabwe (BAZ) president Webster Rusere denied that banks had requested an interest rate increase and a hike in charges, highly placed sources in the banking sector maintain a request was indeed made.
"The RBZ's position is that it was not advisable for banks to hike charges and interest rates. The RBZ was of the view that inflation would be kept under control. The idea was to keep interest rates and charges at current levels, although the position is subject to review," a senior banker told the Independent this week.
While the proposal was not approved, bankers insisted that they would continue to lobby the central bank to increase bank charges, the sources added.
Another banker said: "Obviously it will put pressure on the banks. Interest rates have to go up. There is a bit of a squeeze. Remember banks are holding on to Treasury Bills which are fixed-income instruments, so banks have to take losses."
Banks are hoping the RBZ will review its position on the interest rates cap and bank charges.
"Generally, charges and rates are capped yet inflation is going up. So it is going to be a challenge for most banks to remain profitable. We therefore implore the central government to look into a possible review in the upcoming Monetary Policy Statement," the banker said.
Central bank chief John Mangudya said he had not received any formal proposal from the banks.
"We have not seen any form of proposal from the banks. I would welcome any bank which wrote to us to present that proposal," Mangudya told the Independent yesterday.
In the face of rapidly rising costs after bank workers demanded and won a 42% hardship allowance to cushion them from the spiralling cost of living, the banking sector approached the central bank for permission to increase fees.
Some banks have backdated allowances to January after the Zimbabwe Banks and Allied Workers' Union (Zibawu) threatened to withdraw labour, citing biting economic pressures.
Prompted by concern that the 42% wage increase would eat into banks' static earnings, the financial institutions called an urgent meeting with the central bank.
Banks' income emanates from core lending activities and other non-funded sources such as fees and commissions.
Sources close to the developments say the RBZ was firm in its stance and shot down the proposal from banks to increase fees and interest rates, noting that such a move would
result in spiralling inflation, currently hovering above 40%.
Although the central bank is yet to give monetary policy direction on interest rates, exchange rate and the currency crisis, judging by its decision on banks' requests, interest rates may remain flat.
Central banks tend to tweak interest rates and other monetary policy tools to achieve various economic objectives.
The RBZ in March 2017 capped key interest rates at 18%, set mortgages at 12% and lowered charges on electronic transactions, a key source of income.
Productive loans attract 12% interest per annum. The static interest comes against a background of a rising rate of annual inflation, currently officially computed at 42% although leading economist Steve Hanke says it is way above 230% that had eroded purchasing power.
Bankers fear the failure to tame inflation could threaten the viability of the financial services sector.
The central bank created a huge stock of electronic money, issued Treasury Bills and other instruments, clocked up massive domestic and foreign debt and ran a current account deficit, resulting in the weakening of the bond note.
In light of rising costs, banks felt they could cushion themselves by addressing income lines in the volatile economic environment.
Although Bankers' Association of Zimbabwe (BAZ) president Webster Rusere denied that banks had requested an interest rate increase and a hike in charges, highly placed sources in the banking sector maintain a request was indeed made.
"The RBZ's position is that it was not advisable for banks to hike charges and interest rates. The RBZ was of the view that inflation would be kept under control. The idea was to keep interest rates and charges at current levels, although the position is subject to review," a senior banker told the Independent this week.
While the proposal was not approved, bankers insisted that they would continue to lobby the central bank to increase bank charges, the sources added.
Another banker said: "Obviously it will put pressure on the banks. Interest rates have to go up. There is a bit of a squeeze. Remember banks are holding on to Treasury Bills which are fixed-income instruments, so banks have to take losses."
Banks are hoping the RBZ will review its position on the interest rates cap and bank charges.
"Generally, charges and rates are capped yet inflation is going up. So it is going to be a challenge for most banks to remain profitable. We therefore implore the central government to look into a possible review in the upcoming Monetary Policy Statement," the banker said.
Central bank chief John Mangudya said he had not received any formal proposal from the banks.
"We have not seen any form of proposal from the banks. I would welcome any bank which wrote to us to present that proposal," Mangudya told the Independent yesterday.
Source - the independent
