1 December 2012

Uganda: Choking On Bank Charges

Revealed: Uganda's cheapest and most expensive banks for salary earners:

Today, most salary earners have been forced by their employers to get paid through commercial banks. But the large sum of money deducted by the banks in charges has become an issue of great concern to salary earners. A mini survey by The Independent on five of Uganda's biggest banks shows that salary earners lose an average of Shs 24,000 per month in bank charges, most of which are unnecessary and unwarranted.

This is because some banks don't make it known to their customers that the charges are being made, which is a contravention of Bank of Uganda's Consumer Protection Guidelines that were launched last year.

While commercial banks and the government are keen on maximizing savings by inculcating 'a saving culture' in the population, these exorbitant charges are now being seen as a disincentive to save as customers are being forced to withdrawal all their money in one go to avoid some of the charges.

We set out to find out which is the cheapest and most expensive bank for a new salary earner who opened a new bank account, got a new ATM card and made three withdrawals via the ATM. Also, he/she made two over-the-counter withdrawals in a period of one month.

At the same time, the customer made five balance inquiries on the ATM while requesting a mini-statement each time.

The mini survey found that Crane Bank is the cheapest bank for salary earners. This is because Crane Bank does not levy a 'monthly service charge,' which in other banks is as high as Shs 15,000. Also, at just Shs 2,000, Crane Bank has the lowest salary transaction charge - the amount of money debited on the customer's account every time the employer remits the salary to the account.

Crane Bank would have been even cheaper if it did not make its customers incur a Shs 15,000 charge for a new ATM card, unlike other banks such as Stanbic, Standard Chartered and Centenary whose ATM cards are free of charge.

At Shs 22,000 in charges, Centenary Bank is the second-cheapest bank for salary earners - among the top five banks surveyed. This is because in addition to its free ATM card, it does not levy a salary transaction charge, though it charges the highest monthly service charge of Shs 15,000. Also, salary earners in Centenary Bank should be wary of requesting an ATM mini -statement as it is charged highest among the five top banks (Shs 600 per mini-statement).

Mixed bag

At Shs 23,000 in bank charges, Barclays Bank is the most affordable international bank for salary earners among the five top banks surveyed. The bank does not levy any ATM charges, which means that ATM withdrawals as well as balance inquiry requests and mini statements are all free of charge.

However, their ATM cards do not come on the cheap - costing Shs 10,000 each, while a customer incurs a charge of Shs 2,500 for a salary transaction and a monthly service charge of Shs 4,500.

If it were not for its hefty over -the -counter withdraw charges (Shs 6,500), Stanbic would ideally be the cheapest bank for salary earners. While the initial ATM card is free and its ATM charges are the lowest among the five banks surveyed, Stanbic's undoing is the salary handling charge, which at Shs 3,000, is the highest among the five top banks. This means Stanbic's salary account customers incur average charges - not high and not low.

While Standard Chartered Bank's ATM card is free of charge as well as its ATM inquiries, the bank charges a hefty Shs 15,000 monthly service charge while an ATM withdrawal costs Shs 800 - the highest among the five banks surveyed. Also, you will incur a Shs 2,500 charge - the highest among the five banks - every time your employer remits the salary on your account.

It's not clear whether the relatively low charges are the explanation for Crane Bank's tremendous growth in recent years. But in a recent interview with The Independent, A.R Kalan, the Crane Bank managing director, underlined the popularity of Uganda's biggest indigenous bank, saying their strategy was to ensure that the bank is accessible to as many Ugandans as possible in line with their reputation as the 'people's bank.' "We want to see it as the Number One bank in Uganda," he said, adding that their goal was to have at least 50 branches by 2015 and 40 branches by the end of next year.

Daniel Nsibambi, Stanbic Bank's Communication manager, said their charges vary from product to product and are often revised from time to time. He boasted that Stanbic has the "lowest" ATM transaction costs in the market and the biggest number of ATMs countrywide, which makes it almost unnecessary for a salary earner to transact over the counter.

He said that means Stanbic is the most affordable bank for salary earners, which was a deliberate decision since the bank holds salary accounts for thousands of low income public servants such as teachers and soldiers to whom every shilling matters.

BoU standards

Jan Tibamwenda, the Bank of Uganda director of Communications, suggested that the Central Bank could not dictate charges banks should levy because Uganda is a liberalized economy, which means that commercial banks, being private businesses, negotiate their terms with their willful customers.

He said, however, that BoU has put in place measures aimed at protecting the interests of customers. "BoU came up with guidelines to sensitize the public but we cannot dictate for the commercial banks because this is their business," he said.

BoU publishes all charges levied by each of the 25 commercial banks in the print media every three months to enable customers know which commercial bank is more affordable.

Last year, BoU issued 'Consumer Protection Guidelines' that were sent out to all commercial banks. The key principles of these guidelines were to ensure that financial services providers are "fair, reliable and transparent while dealing with their customers."

According to the guidelines, a commercial bank is supposed to provide a consumer with the schedule of fees and charges, which it must "display prominently at all its branches." However, The Independent found out that only Crane Bank had complied with this guideline by displaying its bank charges on its notice boards.

Indeed, a cross section of salary earners from the five banks who talked to The Independent expressed dissatisfaction with the arbitrary charges they are charged by banks without proper explanation.

A marketer who declined to reveal his name and his bank said he doesn't understand exactly how much he is charged for his ATM transactions and is often "baffled by the inconsistencies" in the same. He said he did not understand why his bank should charge him monthly for keeping his money yet they also lend it out at a high interest rate and with no benefit to him in return. "Is it any wonder anyway that banks are the most profitable business in Uganda?" he asked sarcastically.

Reservations like Kasibante's means more work for BoU, which has launched a Financial Inclusion Project in which it wants to work with other stakeholders to promote financial inclusion and financial literacy campaign aimed at increasing the number of people who participate in the banking system.

The Central bank has been organizing workshops and public education awareness seminars for various stakeholders such as the business community and other organized groups at which topics such as protection of customer interests are discussed.

As a matter of fact, the bank charges have been going down over the last few years, but it is not clear whether it is the Central bank's efforts that are beginning to bear fruits or if the banks are responding to the stiff competition in the financial services sector.

However, there has been very little impact on the savings culture. Estimates show that just about 11% out of a population of 34 million have a bank account - most of them imposed by their employers. But even those with bank accounts don't keep their money on the accounts, which has forced banks to launch multi-million shilling promotions to encourage people to deposit money on their accounts.

Comparatively, the number of account holders in Kenya has more than tripled in recent years, which has mainly been attributed to lower bank charges and opening more branches. In Uganda, while the number of banks has increased, more people are now said to be opting for mobile money, whose charges are relatively lower and more predictable.

Charges incurred by salary earners at Uganda's top five banks in the first month

Bank Cost of ATM card Salary Deposit Charge Cost of three ATM withdrawals Cost of two counter withdraws Monthly service charge

Cost of 5 Balance Inquiries

Cost of 5 mini statements Total


Crane Bank 15,000 2,000 1,800 600 nil 1,250 1,250 21,900

Barclays Bank 10,000 2,500 Free 6,000 4,500 Free Free 23,000

Standard Chartered

Free 2,500 2.400 8,000 15,000 Free Free 27,900

Centenary Bank Free Free 1.000 2,000 15,000 1,000 3,000 22,000

Stanbic Bank Free 3,000 900 13,000 6,000 500 500 23,900

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