Irritating bank fees

Admittedly these are merely a summation of all the possible fees and charges by commercial banks and in no way suggests that all banks charge all these fees. These fees and charges raise a host of questions that must be asked - for instance what is the chronology and rationale for the introduction of each of these fees and charges? When were most of these fees introduced? Indeed, the public hearing held by the Finance and Legal Affairs Joint Select Committee (JSC) at Tower D of the Port-of- Spain International Waterfront Centre appear to have been raising such issues.

The Governor of the Central Bank was quoted as saying that under Section 44A of the Central Bank Act, the Bank, “has a certain amount of power to deal with fees and charges but these are limited really to fees and charges on credit facilities, loans and advances.” Perhaps we can say that, with fees and charges standing at 68, it is time to address this. Legal constraint coupled with limited success in pursuing moral suasion, should suggest to the government that there may be much needed amendments required to the Central Bank Act.

Perhaps even more startling is the suggestion that the increases in these fees and charges were justified. Of course the Governor’s statements are made against the backdrop of the large net interest rate spread experienced in Trinidad and Tobago, which is the difference between the average yield a financial institution receives from loans and other interest-accruing activities and the average rate it pays on deposits and borrowings. Admittedly, based on World Bank data the net interest rate spread has narrowed since 1992 from 8.3 percent to 6.7 percent in 2015. However, it remains higher than the world average (6.2 percent), East Asia and the Pacific (5.0 percent), Arab World (4.2 percent) and South Asia (5.2 percent).

Certainly because of a low interest environment the rate of return for the commercial banks will be affected. It would appear that to maintain an acceptable level of profitability, fees and charges are being used. Interestingly First Citizens Bank (FCB) says it has no intention of increasing the fees it charges customers, even after RBC Royal Bank announced that it will be increasing some fees and introducing new fees to customers. It is left to be seen whether market forces will prevail and we will be taking note of the actions of the other commercial banks in this regard. The commercial banking systems has always been regarded as an oligopoly of sorts and the actions by both RBC and FCB in this instance, leave some room for uncertainty as to how this will continue.

It does not appear that cost of funds is driving the increase in rates and charges. When was the last time a commercial bank raised funds? Would the use of internet, telephone or other forms of banking reduce on overhead cost and thus reduce the net interest spreads - or even better yet lower or eliminate fees and charges? Why hasn’t alternative banking caught on in Trinidad and Tobago? It is good to see a Joint Select Committee raising these issues.