In the midst of all this sou sou insanity one thing is abundantly clear, there is a lot of anti-banking and anti-financial system sentiment out there. Some of it is warranted because yeah it have some banks that seem to charge a fee just for stepping foot in their banking hall. In fact I not mentioning any names in this article because I might end up seeing a charge on my statement.
However, there are a lot of misconceptions out there about the purpose of banks and what they should or should not be doing. Lots of people seem to feel a bank in real life is supposed to operate like the one in Monopoly or like a charity. UNICEF is not a bank eh padna.
The biggest complaint out there is that banks are paying little to no interest on deposits. The first thing to understand is that the banks aren’t required to pay interest. Some people feel the banks are some kind of government institution whose role is to help the public. WRONG! While some have government ownership stakes, they are a business like any other and their product is money. They buy money at one price and sell it at another. That’s banking in a nutshell.
Interest on deposits is a function of demand and supply. Banks need deposits to be able to lend them. Therefore when there isn’t a lot of money available in the market (liquidity) they have to pay more interest for those deposits. When there is too much liquidity in the market they pay less interest for deposits. FYI commercial bank excess liquidity was TT$13.4 billion as at September 2020 compared to TT$2.4 billion in January 2019. So guess what that means for interest on deposits. These days you paying them to keep your money.
Another grouse is that banks charge high interest rates on poor people. Actually, banks charge high interest rates on riskier loans. As I said earlier, interest is the price of money. It is the price paid for deposits but also the price charged for risk. The harsh reality is that if you don’t have sufficient cash flows, adequate collateral or a strong history of repayment then you will be charged higher rates. Now, I make no excuses for banks who are quick to raise interest rates when the CBTT raises the benchmark Repo Rate but slow to bring them down when the benchmark rate comes down. You can throw fire and brimstone down on them for that and I will fully support yuh.
The complaint that I agree with is that bank charges eat away at your money. They sure do! Most people get that the bank needs to pay employees and its overheads, doh mind some of them employees does move like they have worms and need Zentel. The question is, shouldn’t that come out of the spread they earn between deposits and loans? Sometimes it feels like banks have a department whose whole job is the come up with brand new charges to hit customers with. “Let’s charge them for cashing our cheques or wearing a blue t-shirt when they know our banking color is purple”.
People also complain about the amount of documentation banks require for transactions, especially loans. While some of it is because of regulations for AML/CFT (Anti-money laundering/Combating the Financing of Terrorism), some of it is to guard the banks against fraud and increase the likelihood of repayment. The issue for me is that if I provide the information to one institution then there should be some central repository (as opposed to the suppository their requirements feel like) for that information that all financial institutions could access. I mean how many times they want me to pay WASA for a bill print out to open another account with them? I do think the IFC is working on this though.
MOST IMPORTANT is that you need to shop around. Different banks have different products with different prices and features. You as the customer have the power. Don’t just accept what your bank is offering like a mook. Don’t be like me and stay in an abusive banking relationship with a certain blue and yellow institution that shall remain nameless.
Anyway, the whole point of this is don’t be hating on the banks because it’s fashionable. Get your info, understand how they work, and hate them for the right reasons if you have to. No sense running your mouth and sounding fully dunce.