This week, the Zimbabwe Taxpayers Platform (ZITAP) wrote a formal letter to the Reserve Bank Governor Dr John Mushayavanhu asking for the central bank to engage the banking sector regarding the steep cost of banking in Zimbabwe. They ask for moral suasion and leadership to open up the banking sector to the majority of people which is crucial for national development.
The letter notes that globally, the contract between banks and depositors is simple. Bank’s primary business is to lend money. They borrow money from depositors at an interest and further lend it to the economic sector at a higher interest rate and profiting off this interest rate differential. Interest income ought to represent an average 80% of bank’s income. The two other sources of income are capital markets income, and fee-based income. Fee based income ought to be the least contributor of bank incomes, other things being equal.
However, in Zimbabwe, banks are increasingly relying on fee-based income. These fees on depositors’ balances include Automated Teller Machine (ATM) tax, Intermediary Money Transfer Tax (IMTT) of 2%, Point of Sale (POS) purchase fee, ATM withdrawal fee, Card management fee and Monthly Management fee. The combination of these taxes and fees is the biggest driver of “pillow banking”, and for large scale operations – keeping cash out of the banking system.
The monetary policy targets of financial inclusion, local currency stability and economic growth are all threatened by this cost-push effect which “pushes businesses and citizens” out of the banking system.