Time to smash bank charges racket

English: Headquarters of China Construction Ba...

English: Headquarters of China Construction Bank at Beijing, China (Photo credit: Wikipedia)

Chinese government gets tough on bank charges. Others should do the same.

BEIJING – South Africans are right up there with Chinese consumers in paying exorbitant, hazy bank charges. The difference is that the Chinese government has heard the voices of discontent and is set to implement rules aimed at preventing banks from charging excessive fees.

China wants to make bank charges more transparent and less complicated. Chinese consumers are fed up of trying to figure out how their bank charges are levied – and the huge profits banks are making on their backs has been a growing source of irritation.If only the South African authorities would consider doing the same.

What we need is some firm, fast, Chinese-style government action.South Africa’s shockingly high bank charges have long been a bone of contention. It is clear banks can’t, or won’t, jack up their act on their own.In spite of the occasional shock report or exposé that reminds customers how hard they have it in South Africa, banks continue raking in easy money through retail bank charges.

This has been brought home to me living outside South Africa and watching bank charges being continually deducted while there is next-to-nothing going on in my accounts back home.

In one case, an ordinary Big Four personal cheque account – a requirement for taking out a mortgage with that bank some years ago – costs more than R150/month. And that’s before there’s any movement in my account, like a request for an annual interest statement that hasn’t arrived in the post or transfers to make payments.

Add up all those monthly instalments for a year and I’ve got enough to pay for an out-of-season budget flight on the high traffic Beijing-London route. This is more than most people earn in a month in South Africa.

Tally the basic charges on two accounts and I could soon have enough for a return air fare from Beijing to Johannesburg. That really seems like money-for-jam for the Big Banks involved, which there’s no point naming because they’re all the same.

Looking at it another way, my life assurance which is deducted from that same bank account costs roughly the same each month as my basic bank charges. The financial planner who sold me the insurance cover is counted among that group of intermediaries regularly chastised for doing a job once and getting paid a steady income stream indefinitely.

Yet, my bank is doing exactly the same, and arguably worse. I get nothing back from the bank, really, other than a place to facilitate five monthly electronic payments. There’s no interest being earned on my credit balance, so the bank gets my cash for free.

At least there’s a potential financial benefit at the end of the R150/month life cover – which, incidentally will include various fees, like commissions, that are deducted behind-the-scenes.

Banks usually like to tell us that their bank charges are going up less than the rate of inflation, so are in effect declining in real terms. We’re supposed to be grateful that we’re being squeezed a little less than the banks have in their power to do.

It is hard to shop around because the fee structures vary, and are being continually re-arranged. And, even if you do, you can’t really expect significantly different treatment from your current bank’s nearest competitor.

It is a similar picture for Chinese consumers. But, these are times in which growing social unrest globally and nationally are giving the ruling Communist Party of China clique the heebie-jeebies. Growing consumer unhappiness about hefty bank charges is an obvious problem to nip in the bud.

The Chinese government has drafted regulations to compel banks to follow government-directed prices in some cases and in others to be more transparent in setting out market-related prices. Three banks – Industrial Bank, CITIC Bank and Postal Saving Bank of China – have been given large fines for levying excessive charges.

One money-spinner entailed charging every time individuals re-set their secret passwords. That apparently netted not far off ¥6m (about R6m) for the banks involved (shhh: don’t tell our Big Four.)

Bank fees contribute about 20% in revenues for China’s banks. These banks already take a juicy income on the back of a guaranteed gap between lending and deposit rates.

China has some of the biggest, most profitable banks in the world. This includes ICBC – which owns a sizeable chunk of South African blue chip Standard Bank, listed on Johannesburg’s stock exchange (JSE: SBK).

ICBC was the world’s most profitable bank in 2011, according to China Daily newspaper. It is rated in the top 10 most valuable banking brands in the world, with Brand Finance also including other Chinese banks in the world’s top 20 (ICBC: 8; China Construction Bank: 10; Bank of China: 17).

South Africa’s banks don’t look too shabby, though. Moody’s, a ratings agency, gave the South African banking sector the thumbs up in a report in late 2011. And, Standard Bank and Absa (JSE: ASA) are rated among the top 100 most valuable banking brands internationally; Nedbank (JSE: NED ), Investec (JSE: INL) and FNB (part of JSE-listed FirstRand ) are in the world’s top 200.

There is a well-worn saying in some circles that you are likely to enjoy a better return if you buy a life company’s shares than give it your money to invest on your behalf. The same credo could be applied to South Africa’s major banks as well as China’s big banking organisations: it probably makes more financial sense to buy their shares than be one of their customers.

* This is an edited version of a column first published by South Africa’s moneyweb.co.za and reposted 24th February 2012 on www.bankmonitor.co.za. Write to freelance journalist Jackie Cameron at jackiecameron.uk@gmail.com.

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