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Banking your future… on what ?

19 juin 2014, 00:50

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 Banking your future… on what ?

I simply loved reading the report entitled “Banking your future”, published under the aegis of the Bank of Mauritius. I had just digested a 15 minute show of the british comic John Oliver and was looking for something to follow it up with. This produced a savoury fit indeed.

 

This exercise is meant to be an independent job and is presented as such, 3 members being employees of the Bank of Mauritius and 4 members being from the “general public”. Very commendable indeed, then, that the chairperson, the chief of legal services of the Governor’s office, should thank the governor without whose “vision and determination to achieve a fairer banking sector, this report would not have existed”. That much is now clear.

 

Next, on to the key (and somewhat slippery) word “fair” that underpins most of this report.

 

The task force attends to that particular “task” with some “force” on page 23 of the report: “Defining fairness has not been easy”, they state, which begs the conclusion that if it was not “easy”, it has nevertheless been nailed?

 

Indeed, after “careful consideration and discussion”, the task force’s seven members actually concluded that “fairness IS ACHIEVED” (the capital letters are mine …) when:

 

– Banking is accessible to all (more on that one on another day)

– Fees and charges are FAIR

– Terms and conditions of the contract are FAIR

– All terms and conditions of the contract, including fees and charges are set out in a (…wait for it ….) FAIR manner

 

And we learn that the task force recommendations on FAIRNESS will rest on eight pillars (where have we seen this one before? Was it last to be seen next to “hubs” or something?), which are:

 

– Pillar 1 : Banking is accessible to all (same as above)

– Pillar 2 : FAIR fees and charges (surprised? !)

– Pillar 3 : FAIR terms and conditions of contracts

(Are we on to something?)

– Pillar 4 : FAIRNESS in the way terms & conditions are set out (fair enough…)

– Pillar 5 : “Treating customers …..(you guessed it)… “FAIRLY” (who the quote is from is not made known)

– Pillar 6 : Protecting customers (one can suppose that this is, implicitly, “against unFAIR practices”)

– Pillar 7 : Treating bankers …FAIRLY (now, who do you suppose thought of that one? an irate customer?)

– Pillar 8 : Empowering customers (it is not specified if this means empowering customers to run the banks through the Central Bank’s increased powers, but a whiff of a suspicion did float around my office at that point. Quite unexpectedly, must I confess!)

 

So, there we have it for today. We now have the definitions and background against which I will, hopefully over the coming weeks*, attempt an objectively FAIR analysis of the recommendations, some of which are certainly commendable, some of which are non realistic, some of which are close enough to what already exists and others plain daft (see recommendation n°44** in particular) unless the quasi nationalization of banks (possibly without paying for same – which would be smart indeed !) is what is being sought.

 

*The deadline for public comment being the 6th October 2014

 

** The power of the Bank of Mauritius to regulate fees and charges should be complemented by the power to regulate interest rate spreads.

 

***

 

Banking your future… on what ? (II)

 

Having grappled with the definition of the word “fairness” (l’express 12/06/2014), the above named report calls for “Fairness: first and foremost’’ and no one will disagree with that objective in view of some of the practices of some banks and some of the examples that are happily quoted.

 

However, the report is itself unfair towards banks, in general, for at least three main reasons: (1) The sample of “customers’’ which the task force has interfaced with to write its report is not spelt out. Members of the public were invited to testify to the task force and such an invitation usually titillates customers who have an axe to grind and teeth to gnarl rather more than the satisfied ones.

 

This makes for an obviously biased sample. It is presumed that the Task Force has also had access to the correspondence received by the Bank of Mauritius some time back, when it invited anybody with a complaint to write to the Central Bank. In this case too, only those who wanted to underline what they felt was wrong actually wrote in. Such “samples’’, with anecdotal evidence at best, do not make for a fair and balanced view of the banking service in the country and, on the other hand, general “satisfaction’’ surveys in the past have usually scored the banks quite positively. This would be as expected in a country where competition is quite high, banking penetration quite comprehensive and where the 2008-2009 world banking crisis found no grip! Of course surveys asking borrowers and depositors if they are happy with their interest rate will, quite possibly, end up with… non bankable views.

 

In such circumstances, it is to say the least surprising that the task force then feels itself empowered to talk in the name of “bank customers’’ instead of “some bank customers’’ and to patronizingly state that the report is a first step towards “restoring the rights of the banking customer’’ or an opportunity to “rebuild the trust that befits the role of a bank’’, especially when this may look like an indictment of the regulator of banks itself. In the two years this task force investigated, did it not find time and reason for a statistically meaningful survey of bank customers? Or was this NOT the object of the exercise?

 

(2) The other unfair facet of this report lies in the fact that it is target-anonymous. The Central Bank can, of course, deal with individual banks directly, if it wants, but is this what it wants? By not stating WHICH is the bank that, for example, requires its borrowing customer to notify the bank in writing of any subsequent credit facility that the customers and guarantors may obtain from another lending institution, for example, (an amazing demand for sure), the report ends up casting doubt on ALL banks, the bigger the likelier! This surely cannot be the objective, can it? , but it certainly is the result…

 

(3) It does not seem that the views of banks were sought. The report is thus one-sided which suggests it is purpose-built. This having been stated , very close to 50 of the 100 suggestions made by the task force are non controversial, or self evident or desirable and banks should find it easy enough to take on board if they are not already practiced. But there remain some very real issues, amongst which the conflicting expectations/intentions of free competition versus standardization and control. Until further notice, the local economy that we “sell” to investors, both local and abroad, is of a liberal type and believes in free competition. We even have a Competition Commission mandated for that purpose. The Task force report, though, wants to restrict competition by, amongst others:

 

(a) Recommending that banks only charge for services and products that appear on a “Bank Smart Window’’, presumably formatted and controlled by Central Bank. Any innovative product or service that the customer might want (we are not talking of Whitedot stuff here!) cannot be launched until “licensed’’ (see recommendations 43 and 50)

 

(b) Recommending “uniformity’’ of treatment or in approach , be it under the Borrower’s Protection Act, the way banks define fees and commissions, the manner in which they draft their contracts

 

(c) Recommending that the Central Bank, besides regulating fees and charges, can also regulate interest rate spreads, which is tantamount to price control (recommendation 44)

 

(d) Inviting the industry to “reach a consensus on which banks will offer these (GO) accounts’’ (paragraph 67)

 

In paragraph 96, the Task Force does state, otherwise, that “Competion is vital in a well functioning market’’ which surely begs the question : Do we have a well functioning market (of which the Central Bank is the trustee, by the way) or is the word “vital’’ being revisited here?