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- Dubai 05:26 06:39 12:34 15:52 18:24 19:37
Raising revenue may well be the buzzword in banking circles these days but the effect is hurting the ordinary customer's pocket, with banks raising service charges across different segments for services provided during the past few months.
Banks have defended their service charge increases given the current economic climate.
"There is significant cost associated with most of these features, making it difficult to maintain in the current economic climate. Rather than scaling back on our features and compromising on our customer promise, we have opted to make minor revisions to some fees and charges to ensure that we continue to provide quality customer service," said Burhan Khan, RBS' Head of Regional Markets, the UAE, in an e-mailed response to Emirates Business enquiries.
However, according to analysts, growth in revenue streams is under pressure for banks. A wide disconnect between borrowing and lending rates is causing the banks to focus on non-interest income streams. "Banks are being squeezed by tough lending conditions and increasing provisions against non-performing loans [NPLs]," Ian Munro, Head of Research, Mac Capital Advisors, Dubai, said.
Financial institutions in the country charge miscellaneous levies under different heads, such as minimum balance charges in case of current account; charges for going below minimum balance for the current account; loan processing charges; early loan repayment charges; no-liability letter charges; telegraphic transfer charges; cheque issuance charges; fee for issuing duplicate bank statement; and annual charges for credit cards, among others.
"Fees such as ATM charges form one of the biggest chunks of non-revenue streams," said Shuaa's Sofia El Boury. "In 2010, there might be a pressure on net interest spreads, which could be leading banks to adopting ways to increase their non-interest revenue stream, hence an upward revision," she said.
With the prospects of retaining the earlier profitability levels thinning and the fear of NPLs looming large, banks are said to be looking at new avenues of earnings.
According to a recent Central Bank statement, NPLs for 2009 went up to 4.4 per cent of the total outstanding loans in 2009, and are expected to climb to 6.4 per cent in the current year.
There is another factor – loan-deposit gap – that has triggered banks to look for alternative revenue streams like increasing service charges and replenishing their eroded deposit book.
Although their capital adequacy ratio is well above the Basel II requirements, banks in the UAE are seeing a big gap between their loans and deposits. According to the latest data from the Central Bank, for December 2009, the total deposit base of banks in the UAE stood at Dh982.6 billion (up from Dh922.5bn a year ago), while total loans and advances in the same month reached to Dh1017.7bn (from Dh993.7bn in December 2008).
"The growth of banks' deposit book has slowed down. It was hovering around one or two per cent average last year. With a decline in deposit books, banks need to look to offset the losses in their interest income," Munro said.
Analysts expect that as 2010 trades through, with the money supply expected to grow by five to six per cent and loan growth expected to move up in single digits, banks need to shield their earnings from going down.
"We believe increasing rates will continue this year, until we see some stabilisation in the banking sector and confidence in the real economy, so that banks could refocus their loan books back on lending and generate income that way," Munro said.
Many banks have reduced their staff strength as part of their strategy to cut their operational cost. Central Bank statistics show that until October 2009, UAE banks have laid off more than 2,300 direct employees. Banks believe that by increasing existing charges and introducing new ones, they can generate additional income.
Asked whether the Central Bank needs to step in and relook at the revisions, Barry Judge, Director of Marketing, Ethos Consultancy, Dubai, said: "Increase in charges need to be done in a transparent and open manner. If increases are surreptitiously or avariciously introduced, banks risk compromising their relationship with the customer. This compromise can really affect consumer trust, and it's this lack of trust that will stop consumers choosing to move beyond cash saving to other forms of financial service.
"Trust is the foundation of the relationship, building a positive relationship is a serious business. Organisations that take this seriously will not only have to spend less to replace customers they have lost but they will also be free to select the customers that meet their business plans rather than those they need to make up the numbers," he said.
According to the Central Bank's Circular No 12/93, issued on February 23, 1993, interest rate, fees, commissions and charges pertaining to transactions at banks and finance companies must be clearly written in Arabic and English on a board measuring at least (80 x 100 cm) and fixed in a prominent position in the banking hall.
Further, the circular said, fees/commissions on purchase/sale of currency notes, travellers cheques, demand drafts, and telegraphic transfers for major countries, must also be clearly written in Arabic and English on a board of an appropriate size to be fixed next to the exchange rate board in the banking hall at banks' branches.
Service with an (extra) charge
- Royal Bank of Scotland introduced a Dh10 monthly maintenance fees on its 'free-for-life' credit cards beginning this month.
- Dubai-based Mashreq is tipped to follow suit with the Dh10 monthly maintenance charge on some of its credit cards (with no annual fees) from March onwards. HSBC UAE, on the other hand, introduced a Dh25 fees on December 1, 2009, for making over-the-counter credit card payments, arguing that customers could well use machines for cash and cheque deposits.
- A few months earlier, in September 2009, HSBC introduced a charge of Dh10 for receiving paper statements for accounts and credit cards. Moreover, effective February 1, the monthly finance charges on all transactions (purchase and cash advance) for HSBC Premier Credit Cards has been revised to 2.25 per cent per month.
- Last year, Dubai Bank introduced a Dh4 monthly SMS charge for updating customers about account activity through text messages to customers' registered mobile numbers.
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