‘Excessive charges driving depositors away from banks’

LOCAL banks have come under fire for digressing from the traditional banking ethos of generating the bulk of their revenues from interest income on loans and investments and concentrating on fees and commissions that now constitute about 80 percent of their business.

Deputy Minister of Finance Economic Development and Investment Promotion, David Mnangagwa, said it was not healthy that 80 percent of the banking sector’s income was now coming from fees levied for various services, adding banks should have diversified revenue streams.

A recent Monetary Policy Statement revealed that foreign currency deposits accounted for 77,09 percent of total deposits as of December 31, 2023 but it is largely believed that a huge amount of money still does not find its way to the formal banking system.

Concerns have been growing over time that high fee charges from banks and other financial institutions were discouraging the general public and entities from keeping their money in banks.

Banks traditionally earn a significant portion of their revenue from interest income, generated from loans, mortgages and investments.

It is not ideal for a bank to derive more revenue and profit from fee income than interest income, as this can indicate heavy reliance on fees that may not be sustainable in the long term.

Analysts say interest income is a more stable source of revenue than fee income, which can be subjected to regulatory changes and consumer trends.

While fee income can be a source of revenue for banks, banks need to have a balanced and diversified revenue stream to reduce risk and increase profitability.

Critically, over-reliance on fee income normally leads to customer dissatisfaction and potential reputational risks if customers feel that they are being levied with excessive fees.

Banks need to strike a balance between fee income and interest income to ensure long-term sustainability and profitability and create value for shareholders.

Deputy Minister Mnangagwa said potential depositors were losing hope in the local banking system given the high fees and these include account maintenance fees, overdraft fees, transaction and ATM fees.

“The issue of trust is quite key, in Government or in the banking sector itself, it is the reason someone is not banking their money because if I put in my $100 or $200, I become poorer than I should have been if I had kept it in my pocket.

“You cannot have banks collecting more than governments in terms of fees, but again, the person who loses out is the person on the street. I think we need to sit down and see how we can positively skew these incomes.

“Right now, I believe it is 80 percent skewed towards fee income rather than interest income, which is unheard of.

So, in that regard, this is a rallying call to the banking sector that we need to change the way that we are going to be doing things. I visit other people, and they show surprise as to how our banking system is structured. Again, it is not out of malice. It is something that happens all the time because of the existential situation at the time,” said Dep Min Mnangagwa.

Analysts say the banking system needs to be inexpensive so that people use more formal banking channels than resorting to cash.

Another school of thought posits that people now keep their money at home and that has been made quite evident by a spat of robberies that are targeting those huge amounts of money stashed by individuals or companies.

“I think there are structural issues that need to be addressed, both in Government and in the private sector, because the Government has taken a stance of having a market-driven private sector economy and you do not want to prescribe to the banks that your fees are just too expensive. Let us go back and go to the traditional world of banking, and not to profiteer. We need to reset factory settings and everybody does their job. The Government should do its job of making policy, and keeping it accountable, creating environments where business people, banks, and financial capital markets can thrive.” – Business Weekly.