Editorial comment: Bank interest rates

Published May 20, 1998

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Personal Finance has over the past three weeks exposed that banks have, since the beginning of the year, reduced the amount they pay you on deposits while keeping the rate at which you borrow at higher levels.

This makes most of us poorer and impacts on critical issues such as employment growth and the creation of small business.

Against this banks have reported big increases in profits recently.

First National Bank and Nedcor profits are up by 28 percent on the previous year and Saambou by more than 40 percent.

The reaction from most banks, working in the main through their self-interest protection club, the Banking Council, has been two fold. These are:

* Some rather naive attempts to bully Personal Finance. These attempts have only strengthened our resolve to look at how banks are treating customers; and

* To offer some rather convoluted arguments about how bank profits are under pressure.

What is worrying about the Banking Council's role in this saga is it appears the banks are operating in concert, which would be illegal. They definitely do not give much evidence of competition on the lending front.

On deposit rates there does seem to be a little more competition but this is probably a result of the entry into the market last year of money market unit trust funds and Pick'n Pay's foray into financial services with competitive rates.

There is nothing wrong with profits. If companies did not make sound profits savers in general would be at a disadvantage, but the banks should not attempt to bluff us that they are on our side when quite clearly all they are attempting to do is sock us.

Statistics show the South African banks have high cost structures when compared with foreign banks and what we pay for services provided also comes at a premium.

Maybe rather than pushing the charges to us to what must be close to the level where keeping money under a mattress becomes a better option, they should look to trimming their costs and becoming more efficient and competitive.

For us, as their customers, the best thing to do is shop around every time you need to borrow or deposit money.

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