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Wednesday, March 07, 2007

Revised National Budget 2007 : Banks say no need for Ombudsman

Banks continue ranting about there not being a need for a Banking Ombudsman in Fiji. They appear to have all come out in full force on this together with its Association confirming the position. However, members of the public and the Consumer Council of Fiji appear to have the opposite view with more people now questioning the high fees and charges and interest rates levied and the resulting high profits recorded by banks.

Here is a story on

"We don't need ombudsman, say banks

Interim Finance Minister Mahendra ChaudharyFinancial institutions in Fiji have rejected Minister of Finance Mahendra Chaudhary's concerns about the high "fees and charges of financial institutions and talks about regulating the increase in these fees and charges and their rationale.

Chaudhary in his revised 2007 National Budget speech last week said there have been considerable complaints received by customers of financial institutions of high fees and charges and has talked about establishing a financial ombudsman.

But banks don't agree. The Association of Banks in Fiji (ABIF) secretary Rasiklal Jogia said there was a very competitive banking market within Fiji and normal market pressures were a well established mechanism for controlling pricing of products and services within any market. He believes direct regulation of prices was most appropriate for markets where there was no effective competition.

For his part, Colonial managing director Laurie Mellsop maintains the bank does not believe there is an absolute need for a Banking Ombudsman in Fiji. Colonial, he says has well established internal processes for managing customer complaints and customers have access to other bodies such as the Consumer Council, Reserve Bank of Fiji, the Fair Trading Act to name a few if their complaint is not handled properly. "Typically, Banking Ombudsmen in overseas jurisdictions handle customer complaints where there is a difference in the interpretation of bank policies and the application of fees and charges rather than the levels of fees and charges themselves," says Mellsop.

Westpac chief manager Fiji Islands David Evans says that banks today provide a wide variety of products and services which includes low cost banking options. Globally, the banking industry is moving to a "user pay" philosophy which is fairer for the consumer, he added. "In the past, bank services were cross subsidized through higher interest margins and charges so I don't believe this comment is correct and is misleading." He believes the appointment of a separate ombudsman will add additional costs to banking services in Fiji which in the end will mean the cost of banking services increases for consumers. On Chaudhary's comments regarding "high fees and charges" Evans says the majority of Westpac's profits come from interest earned on loans and not from fees and charges. Mellsop for his part, believes that the current levels of fees and charges are appropriate for the services that are provided here in Fiji.

The summary key disclosure statement of Westpac for the financial year ended September 30, 2006 reveals that the bank's net profit before tax was $42.5 million, up from $33.2m from the previous year. The bank's fees and commission revenue for 2006 was $15.4m, up from $12.1m over the previous year.

For ANZ, net profit before tax for the financial year ended 30 September 2006, was $61.8m, up from $42m for the same period the previous year. The bank's fees and commission revenue was $30.6m for the 2006 financial year, down from $32m the previous year.

Colonial's key disclosure statement for the financial year ended 30 June 2006 shows that the company's net profit before tax was $11.6m. Its fees and commission revenue was $8.8m up from $10m the previous year, an increase of 3.3 per cent over the prior year, Mellsop said. But he says it is inappropriate to measure the level of fees and charges against the levels of profits. According to him, there are many components to a bank's net profit and those components vary from bank to bank depending on the mix of business they have.

Evans says the bank has worked hard to minimize any increase in fees and charges and over the past year, increases have been minimal. Jogia says the association would work closely with the interim administration to address their concerns in this matter."

Read a letter today to the Editor, Fiji Times, from a member of the public regarding the high interest rates.

"Interest rates

I agree with Inoke Marama (FT 5/3) regarding banks' profits. The Reserve Bank of Fiji needs to answer some questions. According to the banks, the interest rate increase was advised by the RBF to control spending in the economy.

I am wondering if this was so. Why were the interest rates for old loans increased? I ask the RBF to clarify this point as the commercial banks maybe hiding behind the curtains of RBF.

Johnny Singh, Nadi"

And here is the article in today's Fiji Times about Consumer Council of Fiji's position on the subject.

"Council for bank bodies

THE Consumer Council of Fiji has welcomed Interim Finance Minister Mahendra Chaudhry's announcement to establish a financial commission and a financial ombudsman.

The council said the appointment of a financial ombudsman would ultimately benefit both the customer and the financial institutions.

The council's chief executive officer Premila Kumar said the establishment of a commission should be given a chance so that the grievances of the public could be heard and were not silenced.

"This is a pragmatic solution to the many consumer complaints regarding banking and financial institutions," Ms Kumar said. "To say that there is no need for such an establishment is an ill-disposed thought," she said.

Ms Kumar said although the Reserve Bank of Fiji regulated the Banking Act 1995, it was not mandated to regulate the fees and charges of the banks and financial institutions.

"High levels of fees and charges, which are imposed by the banks and financial institutions, is overwhelmingly the most singled out complaint by consumers.""

Government's position has been delivered and we hope that it will stick to it. As evident from all data/statistics that one looks at, banks seem to have had a good joy ride in such desperate times to the disadvantage of consumers. Those days now appear to be seeing their end.

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At 7:21 AM, Blogger laminar_flow said...

Checks and Balances is the building block of democracy. So an ombudsman for banking/financing is long overdue. Ombudsman should report to an oversight board with grassroot representation. Term limits also an issue.


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