Banks have requested a six-month relief to implement government's proposed reforms, which among other measures seek to lower fees and compel banks to pay an interest on deposits.
In his national budget statement last year, Finance minister Tendai Biti said banks should, starting this month, not levy fees on deposits of less than US$800, pay interest on deposits of at least US$1 000 held over 30 days at 4%per annum.
But the Bankers Association of Zimbabwe (Baz) argues its members, whose income ratio is 40%, will incur huge financial losses.
Analysts say Biti's proposals are a form of price control and history shows that market forces cannot be controlled without dire consequences. If anything, margins have been trimmed and this will work against efforts being made by players to mobilise resources to meet the new capital requirements set by the Reserve Bank.
In a position paper, Baz says it needs a temporary suspension in order to allow banks to change their models to the new requirements.
The association notes the solution lies in changing the banking model to one which promotes and encourages card usage and e-banking.
"Naturally, this will need time and resources to allow banks to change to this model, which will phase out most of the bank's brick and mortar operations," Baz said.
However in the interim, the association is proposing a special low-cost account to be called Zim Transact, which will be for maximum deposits of US$300.
Banks are proposing the creation of a spread fixed deposit account for 30, 60, 90 and 120 days to attract a higher rate of interest depending on the quantum. They also want a higher spread to clients with a high-risk profile or those who borrow to purchase luxury items on the spread of loans; capitalisation of the RBZ to perform lender-of-last-resort function; that the Finance ministry continues issuing Treasury bills but at market rates; EcoCash and other similar mobile banking providers be included to ensure a level playing field.
The association said 70% of individual banking customers earn less than US$800 per month which would imply free banking for a majority of Zimbabweans and banks currently generate 60% of their income from loans and advances, and 40% from non-interest income.
"As at September 30, 2012 banks' overall profits were in the region of US$90 million and therefore a reduction of US$72 milion revenue annually will create severe viability and sustainability challenges for the banking sector," Baz said.
Concerns were raised that because of the low level and transitory nature of deposits, banks would not be able to generate sufficient income to meet operational costs and absorb the level of non-performing loans, which currently stand at 13% if the spread on loans has a ceiling.
In his budget statement, Biti noted 40% of internally-generated money comes from Old Mutual and Nssa and should not exceed 10% per annum when being on-lent.
However, Baz argues many banks do not access funding from Nssa and Old Mutual and therefore it is not correct to use their rates as the benchmark for the likely movement of rates.
Baz said the 4% interest on term deposits of US$1 000 is a positive development, which will improve banking habits and instil a savings culture. Baz members are currently paying 2-10% interest on term deposits.
Baz says it will implement a self-regulating framework to be reviewed in conjunction with the RBZ and the Finance ministry on a quarterly basis to ensure bank charges and interest rates are at acceptable levels.