Before the Great Recession, there was a brouhaha in SA about bank charges. In 2008, the Jali Commission, appointed by the competition regulators, said that the oligopoly banking market was bad for consumers.
It made recommendations, from lower bounced debit-order charges, to ATMs that must display the cost of using them. Not much of that was implemented by the banks, but an undeniable consequence has been a dramatic fall in the money banks collect from fees.
This is seen in the banks’ latest results. Last week, Standard Bank showed that the money it earned from fees on retail client transactions stayed flat, which means actual fees fell because there was higher volume. Income from cheque and savings accounts at Absa fell slightly.
Nedbank was unusual in that its retail transaction fees grew 7% over the same period. FirstRand has not yet reported, but First National Bank (FNB) has been most vocal in cutting its fees, so I expect to see the same pattern.
Are consumers better off? No. The banks have shifted their growth focus to interest income instead. You can see this in the numbers, which show all the banks increasing their net interest margins. In the retail space, this has been done by pushing more customers into unsecured lending, where margins are higher than asset-backed finance (what the banks call their "loan mix").
On top of that, margins for mortgages and other loans have been pushed up dramatically (what the banks call "loan pricing"). The result is that in retail banking, the lack of fee income is more than compensated for by the growth in interest income. Absa, for instance, added 16 basis points by changing its loan mix, and one basis point for its loan pricing, to end on a net interest margin of 391 basis points (3.91%).
Standard did even better, gaining 15 basis points for its loan mix and 19 basis points from pricing to end up on a margin of 412 basis points. Nedbank wrung 20 basis points out of mix and pricing, landing it on 358 basis points. We have not yet seen FNB’s numbers but it has been growing its unsecured lending.
So, while noninterest revenue grew as a proportion of the banks’ revenue for many years until 2008, that slowed and has now reversed. Is this a good thing? Clearly higher interest margins have a relatively greater effect on borrowers than other bank customers. In fact, one of the factors that have negatively affected margins is that banks have had to pay depositors more to attract their funds. The shift in bank behaviour is helpful if you do not borrow and if you have large cash balances.
It follows that banks have left the rich and the poor better off, but have negatively affected the middle class, which is still in the phase of debt-financed accumulation. The middle class is a pretty powerful political lobby. The general attack on unsecured lending is the first wave of backlash. At some point, mortgage costs will fall under the spotlight too. It is never easy being a banker.
BY STUART THEOBALD
STUART THEOBALD is a Rhodes University Graduate
Article Source: Business Day