Reduced bank fees could collapse banking sector

This was the defence of Republic Bank Limited’s corporate manager of its Corporate Business Centre, Venus Frith, of the fees and lending rates charged by, not only his own bank, but banks across the industry which has been subject to increased criticism from a public struggling to stay afloat in an ever-deepening recession.

Frith issued the defence in response to a question from the audience gathered at the headquarters of the Couva/Point Lisas Chamber of Commerce at the end of its Understanding Banking forum held in collaboration with the Banking Association of Trinidad and Tobago (BATT).

Frith said a close look at the financial statements of local banks shows a precarious position that makes reducing fees unwise. A cut in one percent could lead to a halving of profits while two percent could lead to losses, he said.

“When we cut rates by the way it is being suggested, and this is even after fees are already in the financial statements, then you are heading towards the collapse of the banking economy.” Speaking with Newsday after the event, Frith explained even though service fees account for a small percentage of income on a financial statement – 16 and 17 per cent, according to the BATT’s letter to Opposition Leader Kamla Persad-Bissessar in March this year - the real value of those fees are higher because the nominal values are also invested by the bank to earn more money.

As such, because most banks make less than the value of the fees they earn, cutting or removing fees totally would result in net losses for banks, said Frith. “And you don’t want that to happen in the economy because it is the banks that provide that support for business to continue to move forward and actually facilitate economic growth.” Frith suggested small businesses develop stronger relationships with their banks by delivering financial statements on time, separating their business income from their personal accounts, and by working alongside their bankers to develop solid business plans before being granted loans. With a stronger relationship, a small business could then negotiate on an individual basis for lower lending rates.

Also defending bank fees yesterday was Nigel Romano, BATT director and CEO of JMMB Bank. Romano said banks use other people’s money to make money. “We (banks) are stewards of that money and we take that stewardship very seriously.

We have an obligation, a duty to ensure that we use that money wisely and productively.” Romano said the public must remember that 19 per cent of money deposited into banks are held in the Central Bank, earning nothing.

With the remaining money, the bank must now hold deposits, issue loans, provide services and protect its customers’ money against cyber crime with expensive technology. All these need to be considered to understand the logic behind bank fees and lending charges, said Roma