Beware of those well-concealed charges as you choose a bank

For a long time, banks have been fleecing borrowers with little or no information on how expensive the money they are borrowing is. PHOTO | FILE

What you need to know:

  • Although FSD estimates that banking penetration in the country currently stands at 87 per cent, some banks have fewer branches than others while some lack enough ATMs. This is crucial in that other banks charge you more when you use their ATMs.

As banks declare super normal profits for a year that saw the whole economy struggle, consumers are becoming more aware that this performance may be driven by hidden charges and high interest rates.

And with an average middle aged Kenyan operating more than one bank account, a Savings and Credit Co-operative (Sacco) account and a mobile money account, mobility has become much easier.

The 2016 household survey conducted by Financial Sector Deepening (FSD) estimates that with 18 per cent of the population using new mobile banking services such as M-Shwari and KCB M-Pesa, the proportion of bank account users has now risen to 38 per cent,   a 10 per cent  increase since 2013.

For a long time, banks have been fleecing borrowers with little or no information on how expensive the money they are borrowing is.
Central Bank Governor Patrick Njoroge has been urging Kenyans not to feel “trapped” by their banking institutions and should use the information provided by the regulator to make wise choices when selecting bank products.

“Our view is still the same, commercial banks need to lower their rates in a proportionate way. This is where people need to vote with their feet, I mean why do you feel trapped? If you think it is a high rate why not move to another bank, vote with your wallet,” he said during a press conference at the end of last year.

The CBK boss added that customers should also exit banks that offer poor services instead of complaining all the time.

Interest Rate Advisory Centre (IRAC) managing consultant Mr Wilfred Onono says Kenyans should look at the average lending rates published by CBK and compare them with the interests banks pay back on client deposits to choose the right bank.

“In Kenya interest rates are decided by the market, so the only thing borrowers can do is to be informed so that you do not go to banks that charge so much,” he said.

So how do you choose a bank or credit union to house your money?

COMPETITIVE INTEREST RATES

Interest rates work both ways; that is, the rates you receive on your money on deposit with the bank, and the rates you pay when borrowing via a loan.  Ideally, you will find an account that pays higher-than-average interest on your deposits and charges lower-than-average interest on your debts.

According to CBK, on average, banks pay as little as 1.56 per cent on a savings account, a deposit rate of 8 per cent but charge as high as 18.3 per cent to give loans. This did not include other charges such as administration fees, processing fees, valuation fees, legal fees and commitment fees.

Most of the Kenyan banks however charge higher. For instance a personal loan of between one and five years will attract an interest of 25.7 per cent from K-Rep Bank, the most expensive credit as at mid-December 2015. It was followed by Consolidated Bank which charges 25.4 per cent for a similar product.

According to the average lending rate published by CBK, Housing Finance and Family Bank had the lowest loan rates in the last quarter of 2015 while Middle East Bank and Guaranty Trust Bank were the most expensive.

Monthly fees

You should be able to find an account that does not charge you any fees for basic account transactions including monthly fees ledger fees.

A new survey, using a model customer in formal employment who is married and has two children of school going age, and who uses two 50 leaf cheque books a year, does eight ATM withdrawals per month and uses six bankers cheques for school fees payments per year, showed that the average Kenyan is paying Sh12,515 per year in bank tariffs.

The individual is also charged a monthly ledger fee and salary processing fee on the account.

The survey by Think Business magazine conducted last month shows that Standard Chartered, Bank of India and Habib Bank Ltd are the most expensive financial institutions to bank with.

On the other end of the scale, Prime Bank charges the lowest tariffs at Sh5,100, followed by Equity Bank at Sh6,340 and Credit Bank at Sh6,580.
The industry average increase in the tariff costs between 2015 and 2016 for retail banking customers is 4.5 per cent, while that of SME customers is 5 per cent.

NETWORK OF ATMS

Although FSD estimates that banking penetration in the country currently stands at 87 per cent, some banks have fewer branches than others while some lack enough ATMs. This is crucial in that other banks charge you more when you use their ATMs.

A safe and secure money transfer platform on mobile and online is a must-have for Kenyan banks today. There is a need for convenience in making regular money transfers and you should make sure your bank is equipped to process those transactions quickly and easily.
Customer service

Kenyan banks are increasingly becoming sensitive to customer service from having seats in banking halls to responding to social media inquiries and even extending seasons greeting and wishing clients happy birthday. What is crucial in customer service however is how fast your problem or question is sorted out without having to queue for hours on end at the bank.

Minimum balance

Banks are also slowly moving away from minimum balances or even reducing the amount of money you are required to leave in the account at all times.
Avoid accounts that require you to maintain a minimum balance before they begin charging account fees or make sure any minimum balance requirement is something that you can comfortably afford.