EXTRA FEES LOCK LOAN SEEKERS OUT OF BANKS

The latest study on bank charges confirmed complaints that financial services are costly to most Kenyans.

The research commissioned by the Central Bank of Kenya, the country’s banking regulator, also confirmed the results of the Financial Access Survey released early this year, which revealed that 38 per cent of the country’s bankable population is excluded from financial services and related products.

Charges billed on customers for operating savings and current accounts are high and interest charged on loans and other extra fees that accompany the package, lock out many potential clients.

According to the study by a research firm Research International and public relations company Tell-Em, interest rates on loans charged by the country’s top banks are yet to decline sharply as was expected due to economic growth, only varying between 15 and 19 per cent.

This has led to increased number of savings and credit societies which offer loans at low interest rates compared to established financial institutions.

Major source

The study, which sampled 1,100 customers in Nairobi, Kisumu and Mombasa, also revealed hidden charges customers have to bear when seeking loans.

The extra charges commonly known as hidden fees include commitment, processing, negotiations and valuation fees, which many first-time customers seeking loans are not aware of, making repayment a costly venture.

In some banks, for example, customers seeking a modest loan of Sh50,000, give out as high as Sh30,000 to cater for the extra fees that many bank adverts and promotions do not reveal.

“It is interesting how the other fees charged by a bank can significantly change the total cost of a loan for a customer,” says Ms Melisa Baker of Research International.

The extra charges have become a major source of income for banks in the recent times and according to the Central Bank, the fees accounted for nearly a third of the industry’s revenues estimated at Sh94 billion.

Among the major banks, the research says, Consolidated Bank offered the cheapest loans at 15.5 per cent interest rate followed by Barclays Bank of Kenya (16 per cent), K-Rep Bank (16.5), Standard Chartered Bank (18), Equity Bank (18), Kenya Commercial Bank (18.11) and Cooperative Bank (19).

Borrowing money is most expensive at City Finance, Oriental, Fina, Commercial Bank of Africa and National Bank of Kenya. However, the rates are minus the extra fees, which vary from one bank to another.

Ms Baker cautions that some of the banks offering cheap loans cannot be easily accessed by majority of the bankable population as they operate fewer branches countrywide.

“As a result, those living in rural areas cannot benefit from their services as they are not widespread.”

Kenya Bankers Association chairman Ndegwa Wachira argues that banks also incur high costs in transacting various services to customers.

Unlucky customers

“The high cost of communication due to the state of infrastructure in the country makes some of the services expensive,” noted Mr Wachira who is the Consolidated Bank managing director.

Beside the pain of banking charges, it takes an average Kenyan six-and-a-half weeks to secure a loan in established financial institutions, the study says.

However, some unlucky customers have to wait beyond the stipulated period.

According to the research, only 21 per cent of the bankable population found it ‘very easy’ to secure a loan, while 48 per cent said the process was ‘fairly easy’.

“A minority (21 per cent) found the loan service received from the banking staff as very good,” says the survey which focused on bank charges and lending rates. It means that most banks need to focus more on customer relations to satisfy their clients.

Barclays Bank managing director Adan Mohammed says at times, banks have no alternative but to prolong the process when information received from potential customers is scanty and questionable.

“We have to verify some of the information received to ensure it is correct because we are in a sensitive sector,” adds Mr Mohammed.

The banker urges those seeking loans to ensure information given is adequate and current.

In terms of monthly costs paid by savings account holders, the research cites Chase Bank as the most expensive financial institution charging a monthly fee of Sh1,750 followed by Imperial Bank (Sh899) and Barclays Bank (Sh868).

Others are National Industrial Credit Bank, Fidelity Commercial Bank, National Bank of Kenya and Consolidated Bank.

Niche markets

The study notes that it is cheaper to operate a savings account at Diamond Trust, Equatorial, Standard Chartered and East African Building Society.

Bankers welcomed the findings but argued that charges alone could not be used to assess various financial institutions.

“There are many things that one needs to consider when studying the banking sector and pricing is only one aspect of it,” says Mr Mohammed.

NIC Bank managing director James Macharia supports Mr Mohammed’s position noting that it is not easy to compare banks on the basis of charges as some cater for particular niche markets.

“For example, customers don’t look at pricing alone when dealing with financial institutions that provide asset finance,” says Mr Macharia.

But Mr Mohammed denied that Barclays Bank had the most expensive savings account with a minimum balance requirement of Sh30,000.

“It is not true. The Sh30,000 minimum balance is for those who want to earn interest on their savings. We do not have a minimum balance,” he says.

In fact, in the bank’s bonus savings account, no minimum balance is required, but like any other sweetener they is a catch.

A customer is only allowed to withdraw money once in three months and if one contravenes the rule, a Sh500 fee is charged on every extra withdrawal made.

Standard Chartered Bank also operates a similar service referred to as the Safari Account for which one must maintain Sh2,000 as minimum balance.

And like in Barclays, the same rule applies - a customer can only withdraw money once every quarter, which translates to four withdrawals a year.

The bank argues that the service is cut out for clients who intend to save money for a long time.

It encourages those who want to withdraw money regularly using an ATM card, to open the All Instant Access Account, which has a minimum balance tag of Sh5,000.

The study says it is easy to access a loan at Equatorial, Equity and Cooperative banks and it is fairly difficult at Bank of Baroda.

Central Bank governor Njuguna Ndung’u, challenges the banking sector to disclose extra fees charged on credit products to enable potential customers to make informed decisions.

Prof Ndung’u says it is unfortunate that established banks still serve a very small population of Kenyans and advised them to team up with the micro-finance institutions to reach more people.

He says the banking fraternity should came up with new products to save the public from the operators of pyramid schemes and unscrupulous moneylenders. “The schemes are capitalising on information asymmetry and the perception by the public that current formal financial services are expensive.”

“There is need to develop a basic competitive no frills account that can be offered by all banks. Such an account would have low or nil minimum balances as well as minimal charges if any,” he added.



SOURCE: DAILY NATION