Having worked in the executive of a bank for a couple years I got used to hearing complaints about the business. Most were unjustified, but occasionally a client raised something indefensible. Judged on the view expressed here by Graeme Codrington, Standard Bank’s latest move – charging a fee on unutilized overdraft facilities – falls firmly into the latter category. Dr Codrington, holder of five degrees, author of four books and advisor to global companies, is no empty vessel. He concludes with practical advice for the bank’s clients. Not the kind of reaction Standard’s brains trust might have expected. – AH
By Graeme Codrington*
Standard Bank’s current advertising campaign asks: “When last did you feel this excited about banking?” The honest answer is: before I became a small business owner. But actually, honestly: probably never. Certainly not when they treat business people like they have this week. Maybe its advert is directed at shareholders, and not customers.
On Tuesday, as business people around South Africa had to deal with the news that the economy had contracted 0.6% in the first quarter of this year, those with business banking facilities at Standard Bank also received an sms informing them the bank would now be charging “a fee of 1.2% on all unutilised overdraft facilities”. No further information was given, except to phone the business banking call centre if one had queries.
Those customers who did phone encountered bemused and clueless call centre operators who took a few minutes even to confirm the information with their supervisors. Apparently, no-one in the business banking decision making department had thought to tell anyone else in the business banking division about this interesting new approach to charging customers for services they did not need to use.
Standard Bank then started pointing its clients to a website which explains that due to “the new Basel rules, banks are required to raise the quality and quantity of the regulatory capital base.”
This much is true, although the particular requirements referred to only start in 2018. It was recently certified that all major South Africa banks have already complied with all of the capital requirement levels in the Basel accords, even though the first of them will only start to be phased in from next year. This is good news for our banks and our country. But it does leave one wondering why Standard Bank felt the need to now start charging people for facilities they don’t use.
The truth lies further down Standard Bank’s press release: “As a bank, we are obliged to hold capital against the overdraft facility, regardless of whether it is used or not. Unlike most other financial institutions, Standard Bank have not previously charged a fee to offset the cost of holding this capital, but the new regulatory environment has necessitated the introduction of this fee.”
@alechogg then eventually withdraw o/d without notice and then bounce a payment when you think it exists & levy penalty fees
— Kevin Leo-Smith (@kevinleosmith) May 29, 2014
There’s good, bad and ugly in that paragraph. It is true that Standard Bank needs to hold capital funds for all approved facilities. It’s less true that other South African banks have charged a fee for this. In fact, most do not. FNB were quick to let people know today that they have not and will not do so. And most importantly, it’s not true at all that it is the new regulatory environment that has necessitated the introduction of the fee. Standard Bank have worded this in such a way as to make it seem that they had no choice but to do this. That is just not true.
It’s important to note that Standard Bank, like all other banks, charges both an overdraft usage fee as well as interest the moment a business uses its loan facilities. This is not about the entirely correct notion that using a service should incur a cost. That happens already. Nor is this about insurance in case you cannot repay your loan. They have both insurance and sureties in place for almost all business loans.
The real reason they need to start charging businesses a fee for facilities they’re not using is that banks and their shareholders have become used to eye-wateringly high profits and revenues, quite a lot of which are paid out in sky-high salaries and bonuses.
It is disingenuous for banks to hide behind little-understood international regulations to introduce new costs to customers without adding any benefits at all. It’s too easy for banks to blame regulators, when what they’re mainly trying to do is profiteer.
It’s even harder to swallow this when the South African economy is in the state it is in, and what we need now more than ever is growing businesses and developing entrepreneurs. One wonders as to the timing of this announcement, coming when the government and its ministers are in flux and transition, and not quite keeping a close eye on what’s happening in the markets.
— Adriaan Grové (@entegral) May 30, 2014
For businesses, the action steps are obvious:
- Review your overdraft facilities and reduce them to the levels you absolutely need.
- Look for alternative methods of funding cash flow requirements.
- Move your business to another bank, or at least threaten to do so. Like most banking facilities, it is likely that if you’re a good customer this additional fee might be negotiable.
- Buy more banking shares. It looks as if they’re going to continue their glorious tradition of making money no matter what happens to their customers or the economy.
* Graeme Codrington is a board advisor, author and speaker on disruptive change and the new world of work. He is co-founder of strategic insights firm, TomorrowToday.