Interest on deposits hailed
DEPOSITORS have welcomed the decision by the Reserve Bank of Zimbabwe to engage local banks on revising interest paid on deposits as this will incentivise domestic savings critical for the sustainability of the local banking sector and economic development.
The Central Bank has ordered local banks to review interest paid on deposits and also submit proposal rates of interest they intend to pay on deposits by March 31, 2017.
Analysts have noted that most of depositors have developed a consumptive culture of withdrawing their cash as most banks are making a killing from charging exorbitant bank charges which goes against promoting a savings culture.
They say a substantive interest on deposits would incentivise banking in an economy that is highly informal with very low levels of financial inclusion.
“When we deposit money in banks we expect it to generate interest so that after about six months the money will be close to double of what I would have deposited.
“This used to happen in the past, but today if I go to collect the money I would have deposited a month ago, the bank charges me almost US$5 and I will be left with nothing.
“I hope they will give us some form of interest,” said Kelvin Chipuriro, a retail trader.
Another depositor interviewed by Business Post at a local banking mall, said she no longer saw any benefit of banking when most of her money was being lost through high bank tariffs whenever she swipes or make balance inquiries.
“We are being given a raw deal by local banks. We need to be incentivised to deposit our money because we are not benefitting anything.
“The bank is retaining almost 10 percent of my money,” she said.
Presenting his Monetary Policy Statement last week, Reserve Bank of Zimbabwe Governor, Dr John Mangudya, said there was need for incentivising savings considering that the bank was still laying a cornerstone for a solid financial inclusion strategy to spur the economy forward.
“The Bank is cognisant of the fact that low interest rates make it less attractive to hold savings resulting in the emergence of a consumptive driven culture.
“Healthy savings rates are therefore important to the economy as they make an important contribution to long-term household wealth.
“It is also committed to promoting greater household savings in the Zimbabwean economy.
“Against this background and to ensure that the banking system continues to serve as a vehicle for building savings, all banks are required by 31 March to review interest paid on deposits and to submit a report to the Bank detailing their deposit profiles and proposed interest rates on deposits,” he said.
Total banking sector deposits increase by 6.10 percent in the last quarter last year from US$ 6.14 billion as at September 31, 2016 to US$6.51 billion as at December 31, 2016, but of particular interest was their overall depositors’ distribution which raised concern for improvement of savings.
Demand and Time deposits accounted for more than 80 percent of total deposits, while savings deposits only constituted four percent.
Economic analysts, Dr Gift Mugano, said national savings were a key component to a healthy banking sector especially at a time when domestic capital mobilisation was crucial for the support of productive sectors amid low foreign investment inflows.
“Encouraging domestic savings will not only help depositors at household levels, but it will also spur the economy forward as this capacitates more domestic lending to various productive sectors of the economy.
“Ensuring sustainable interest rate are paid on deposits will also help particularly the Small and Medium Enterprises sectors and all other businesses to sort of self-mobilise funds for recapitalisation of their business enterprises,” added Dr Mugano.