Banks ought to come clean on accounts

The capping on interest rates on loans has forced banks to go back to the drawing board to preserve their bottom lines.

Since their right hand that gives loans is now on a leash, they have chosen to be tightfisted with the left hand when it comes to paying interest on ordinary customer deposits; both current and saving accounts, which they have now bundled into transactional accounts, a term created by banks to escape scrutiny.

The financials implications are mind boggling, because, essentially it means bank margins on the “free money” in these accounts, once loaned out, widens from seven per cent to 14.5 per cent.

A closer look at banks’ balance sheets reveals ordinary accounts contribute a huge chuck of money loaned; even after factoring in depletion given that peoples spending and saving habits vary.

For example, the billions of tea and coffee paid to farmers take time to be depleted guaranteeing banks cheap demands on deposits source of funds.

Customer demands on deposits vary thus ensuring the overall net bank balances on ordinary accounts remain fairly stable.

It is, therefore, to the chagrin of millions of customers that banks have unilaterally proceeded to deftly deprive mostly salaried groups, farmers, small savers and SMEs much needed extra coin by reclassifying accounts without customer’s permission.

The ongoing reclassification of customers’ accounts to non-interest bearing segments is a matter that has escaped or been downplayed by our friends in the legal and legislative fraternity and consumer right groups.

If one books a flight ticket that entitles the customer to a business class cabin or books a premium room in a hotel, the airline or the hotel cannot turn around to unceremoniously withdraw privileges mid-flight or midterm.