South African Bank Fee Charges!

I carried out a research project on:

BANKS APPEAR TO BE GENERATING MORE INCOME FROM CHARGING FEES THAN FROM THEIR MORE TRADITIONAL FORMS OF INCOME

Abstract:
Banks’ strategy is changing in focus from traditional (on-balance sheet) to non-traditional (off-balance sheet) forms of business. Fee charges fall under the category of non-interest income (or non-traditional bank business) which is replacing interest income (or traditional bank business). A comparison between non-interest and interest income is undertaken for the big four banks of South Africa, which confirms that this shift is taking place. Competition is also analyzed based on an international comparison of fees and market concentration. Within the big four banks of South Africa there is very little competition in pricing of fees.

Basically the results showed that the banking environment in South Africa is not competitive in the national payment system (NPS). In South Africa, five of the biggest banks account for 89.2 percent of the value and a further 97.7 percent of the volume within the payment system, showing their dominance of the payment system. Therefore this case shows the clear lack of contestability in the custodian process, which definitely raises fears of cartel arrangements (or Collusive oligopoly).

I mention this because today the Competition Commission’s banking enquiry public hearings into bank fees and the national payment system (NPS) began. Nedbank was the first to present their views. It was interesting that they spoke about reducing their fee charges (but wait last year they charged the highest fees)! So essentially all Nedbank’s reduction means is that they are now in line with what other banks are charging!

Figure 7: Country Comparisons of Number of Banks, GDP Per Capita and Population Density Per sq Km

 

An interesting trend captured by figure 7 is that the developed countries have a lot more banks in their financial systems than developing countries. It is also interesting to note that South Africa is one of the more developed countries of the developing countries and has the least amount of banks after Morocco, indicating that it is perhaps under banked.