Monday, January 17, 2022

Banks investigated for exorbitant charges

The Bank of Botswana (BoB) has launched an investigation to establish if local commercial banks are over charging their clients. The Reserve Bank’s supervision annual report (2014) states that a third party study has been commissioned to investigate whether banks were levying charges and fees that had been approved by BoB.

Commercial banks have also appointed a consultant to conduct a similar study to determine how bank charges in Botswana compared with those prevailing in other countries in the region. In a bid to foster cost-effectiveness of banking services, BoB imposed a two-year freeze on upward adjustment of bank charges and fees with effect from January 1, 2014. The report says this was in response to growing public concern about the high level of bank charges and fees, which are considered not commensurate with the quality of banking services and products.

The report says that the results of both studies will provide a basis for charting a way forward on bank charges and fees in general. The report shows that a review of the banks’ internal controls by external auditors, as highlighted in the management reports, indicated that there were noted incidences of internal control deficiencies at banks.

“The deficiencies noted across the banks generally included reconciliations not performed in a timely manner, thereby resulting in long outstanding items in banks’ books, which could lead to misstatements in banks’ reports,” reads the report in part.

According to BoB there could also be incorrect recording of interest rates and charges for some customer accounts, thereby leading to over-charging customers; and non-deactivation of user profiles of some staff members who had left the banks, which could lead to irregular or unauthorised transactions. On fraud and other criminal activities prevalent in the banking sector, the BoB notes that incidents of fraud were reported across the banking sector. 

“Most of the cases related to presentation of falsified documents by fraudsters and customers withdrawing funds against uncloaked cheques, against accounts with insufficient funds,” reads the report.  

The report expressed worry about the increasing incidents of identity card theft and card fraud, as well as falsification of documents in support of application for loans. Banks have been implored to enhance operational risk mitigation strategies to ensure safety of customer funds. On profits, the BoB says the banking sector profitability was subdued in 2014 with after-tax profits amounting to P1.5 billion, down from P1.8 billion recorded in 2013.  

“Nevertheless, banks remained adequately capitalised and complied with the minimum capital requirements. The sector’s liquid asset ratio of 14.5 percent continued on a downward trajectory as the amount of outstanding Bank of Botswana Certificates (BoBCs) held by banks declined; historically, BoBCs constituted a larger proportion of banks’ liquid assets,” says the report.

The report found that funds which used to be invested in BoBCs were channelled into lending and/or offshore investments, thereby exerting pressure on the liquid asset ratios of banks.  

“Be that as it may, the industry liquid asset ratio remained above the 10 percent minimum statutory requirement. It is evident that the Botswana banking sector is transitioning from a period of historically high levels of excess liquidity and high interest rates,” the report says.

It says that the sector was characterised by rapid growth in bank balance sheets and high profits, against the backdrop of high interest. BoB notes that in compliance with a two-year freeze on upward adjustment of bank charges which began in January 2014, no bank submitted any tariff schedule for review, save one newly licensed bank that submitted its initial tariff structure for approval in April 2014. However, banks were allowed to introduce new products and services and their specific charges were reviewed and approved. BoB says banks continued to be largely compliant with the minimum public disclosure and statutory requirements on bank charges by publishing, on a monthly basis, interest rates payable on deposits on their websites, as well as in at least two newspapers widely circulating in Botswana.  

“This arrangement is intended to assist customers in making informed decisions, as they will have access to information on the cost of banking services in Botswana,” said the report.


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