Banking in Zimbabwe is upside down. This is something we have talked about multiple times. Zimbabwean banks are so risk averse they will do absolutely anything before they try core banking activities. Now, we reach a point where the Ministry of Finance has to demand that they ease up on the charges.
What have they done now? I hear you ask.
How the chapter started
The Zim govt announced that civil servants would be getting their bonuses in USD. Of course, economists had thoughts on that move but it’s not what we are here to discuss. The USD bonuses were announced and that’s that. Knowing that the Zimdollar salaries they have been getting all year are too low, the US$700 bonuses were somewhat commendable.
Problem is, bad habits are hard to break. Zim banks have been left to charge their customers like there is no tomorrow. For years, Zimbabweans have complained about high bank charges, especially in the context that there is no option to exclusively use cash. We are all forced to use banks to receive payments and to transact on the daily. There simply isn’t enough cash to break out of the system.
So, the banks have been surviving on these exorbitant charges. Most Zim banks earn more from bank charges and commissions than they do on what should be the main source of income – lending activities.
Banks vs civil servants and pensioners’ bonuses
You saw this coming. Some banks saw the US$700 bonuses and drooled all over themselves. Thinking how much of that they could take for themselves. After all, every single one of the civil servants and pensioners has to get that money from a bank. They had them in a trap, civil servants could complain all they want but the banks were set to make a killing. In USD no less.
Do not think for a second that these charges they take ever flow back into the economy to drive growth. The RBZ has been imploring them to lend out the US$1.7 billion sitting idle in foreign currency accounts. $1.7 billion just gathering dust in vaults whilst the economy is full of undercapitalised business failing to get loans.
So, back to the $700 bonuses. Some of our beloved banks thought to themselves, ‘what do these civil servants need USD for? Let’s give them Zimdollars at the bank rate and keep the USD for ourselves.’ So they did just that. Instead of getting their lifeline, civil servants were shortchanged by their banks.
There is insult to the injury. Those banks saw the opportunity to introduce, in the words of the Finance ministry, ‘some arbitrary charges’ to maximise on their takings. The ministry says some of these banks are taking ‘significant portions’ of the bonuses in charges.
So first, they forcibly convert the bonuses to Zimdollar at a low bank rate and then they charge fortunes in bank charges when the civil servants try to cash those Zimdollars out. The e-word cannot be used lightly, but in this case it’s accurate to say this is pure evil.
Mthuli Ncube to the rescue
The Finance ministry released a statement today telling banks to desist from this behaviour.
- Civil servants are to get their bonuses in USD in full.
- There are to be no deductions or levies on the bonuses
- Govt and banks to agree on charges for these bonuses and it is to be minimal. (Note though that the agreed charges will apply only to these bonuses. Outside of that, expect the same high charges you are used to, for the moment at least.)
We’re still mad at the govt
While we are mad at banks for the high charges, we are also forced to understand why they are reluctant to lend out the over US$1.7 billion sitting idle. We grudgingly concede that the Zim economy is tough and that our history teaches that lending that money out could be a huge mistake.
The banks indeed have told the govt the assurances that they would need before they start lending out. They want to know that if they lend out in USD they will be able to collect in USD. In the past, they lent out in USD and then we introduced a new currency and new policies that put one over them.
Borrowers were told they could pay back their USD loans in bond notes because in the eyes of the govt at the time, there was literally no difference between the USD and the bond note. The banks took losses on those loans and so it’s no wonder that they are loan-shy now. They do say, once bitten, twice shy.
Back to the charges though. Seems we are paying for the sins of those that got USD loans before the bond note was introduced. However, the govt knows about this state of affairs and yet does nothing about it. They know the bank charges are too high in this cashless economy.
The problem is, the banks would be in trouble if it weren’t for bank charges. Yet, the govt needs these banks to survive because they believe they are essential for the stability and success of the economy. So, the govt turns a blind eye to the exorbitant charges.
They also know that they cannot give banks the assurance that if they lend out in USD they will be able to receive that money back in USD. They want the option to move away from the USD to remain on the table. So it’s a stalemate when it comes to lending.
Zimbabwe is a frustrating country. You are forced to sympathise with predatory behaviour because in the end, the economy itself is the biggest, top-of-the-food-chain predator.
We don’t even know what the USD situation is like in the background. Did the govt provide the USD to these banks in time? Or are they to use the ‘idle’ funds they are sitting on?
All in all we know the bonuses will cost US$90 million. I wonder what impact that will have in the economy. Remember, Econet had to pay back their $73 million debt over a few years because the RBZ worried that US$73 million injected into the economy at once would cause damage. What of a US$90 million liquidity injection?
Welcome to Zimbabwe, if you just landed.