Banks defend themselves

IN a recent article in The Namibian headlined ‘Banking inquiry reveals shocking fees’, a South African expert was quoted as saying that some bank charges seem to have no basis in actual services delivered.

She also said there seems to be little direct competition between banks.In response to this article, we asked the Bankers’ Association of Namibia (BAN) President Mpumzi Pupuma to respond to some of the claims made.On the issue of fees, he said there is a fundamental misperception in the public of why banks here charge fees at all. In a recent article by a local monthly magazine, bank charges were compared between local banks and those in the UK.It emerged that banks in the UK hardly have any service charges. But Pupuma says this is down to a fundamental difference in how banks there operate.He said people in the UK ‘don’t have access to their money in the first 14 days after depositing it’.Local banks need to make money available for withdrawal almost immediately, which means they have to support a much larger infrastructure. The 14-day period allows UK banks to earn interest on the client’s deposit which can be used to offset the costs of handling money.Pupuma said ‘if we don’t charge, we will not have a branch in places like Arandis’, as the infrastructure costs would be too high. He also said that lack of competition in the banking sector was a myth.’Competition between banks is brisk and hot,’ he said. He said the fixed and variable costs inherent in the industry allowed banks only a small margin to ‘play around with’, but competition ensures no banks are allowed excessive market power.’If you overcharge, see how many customers you have,’ he said. On the question of why individual charges are necessary, Pupuma said people often underestimate the hidden costs that go into running a bank. In, for example, a cash deposit, a teller needs to take in the money. As the bank usually lends this money straight out again, it might have to be transferred to another branch where someone is withdrawing money. If the bank does not have enough reserves to cover the transaction, they might have to get some from their reserves at the Bank of Namibia (BoN), which incurs costs.All of this, said Pupuma, is why ‘fees are actually required’. He said banks ‘are like any other business’ and ‘have to make some money’.On the high fees incurred by rejected debit orders, Pupuma says part of the problem is that banks have very little control over who places these orders as more and more companies give out credit to the public.He said the fees are meant to penalise the customer for an ‘unauthorised overdraft’.’The customers are actually benefiting by using the bank’s money to pay for goods they cannot afford,’ said Pupuma, which is why a penalty was necessary.He said banks are currently in the process of revising their fees downwards, especially to less well-off customers.On the recent comments by BoN Governor Tom Alweendo that the prime lending rate charged by banks should come down more in line with the repo rate set by the BoN, Pupuma said there would be ‘an engagement between the Government and the industry on the issue’.