Fuss over banking fees much ado about nothing — NCB
MUCH ado about nothing is what National Commercial Bank's (NCB), deputy managing director makes of the recent discussions about banking fees.
And as for NCB, the fees aren't substantial to its financial performance.
"Banking fees don't represent a major contributor to our net profit as people might suggest, when you look at the numbers you realise that it's driven primarily by things such as our interests on loans outpacing interest on securities," said Dennis Cohen, who is also head of the Group's finance.
Furthermore, that gap is expected to widen because of a reduction in repurchase agreements as a result of the introduction of unit trust products.
For the three months ended December 31, 2013, the commercial bank made $2.9 billion in net profit an increase of two per cent over the comparative period the year before. The result reflects the strength of a diversified business model, loans, deposits, net interest income and cost to income ration, which were all improved.
"It's important to note that these results match our pre-National Debt Exchange (NDX) profit," Cohen said at the company's investors' briefing on Friday.
Operating income for the quarter under review was $1.3 billion an increase of 14 per cent year over year as a result of an increase in premium income due mainly to the inclusion of general insurance premiums coming from the acquisition of Advantage General Insurance Company Limited early last year.
"This is clearly a business that is in transformation; a few years ago, a big part of our earnings came from government securities, both in terms of the interest earned and the trading of securities," said Patrick Hylton, NCB group managing director. "The earnings now reflect a more normal, sustainable path and of course last year we had a couple of significant events, there was the NDX and more specific to the bank, the write-off of the initial public offering as well as costs associated with a major redundancy cost."
Cohen pointed out that the discussions about banking fees are mixed with fees related to credit cards which are volume driven. He also said that the fees related to cashing cheques are small in the context of the overall performance of the bank -- NCB just made $12 million from fees related to cashing cheques after taxes are paid, according to the head of finance.
Furthermore, branch transactions, which represented 20 per cent of the banking group's gross operating income, remained stable year over year during the quarter ended December 2013.
"We note the point but I think it's being overdone and if there is greater analysis of the fees people will recognise that," said Cohen.
Moreover, he said that banks should not be denied the right to de-incentivise certain behaviour that seek to prompt another behaviour that ultimately drives efficiency.
"There are options for customers to carry out certain transactions, people are sceptical to use new methods of banking in one instance and after a while it becomes the norm," he said.
NCB instituted the "Bank on the Go" initiative, which features multifunction automated banking machines and banking kiosks to reduce time spent waiting in lines to carry out transactions and allow for more interaction with customers' about their financial well-being.
It's a huge investment, infrastructure alone would cost the company half a billion, Cohen told Sunday Finance.
"I don't have the exact numbers but I will say to you that its quite a bit and just the infrastructure work is probably going to cost of north of $500 million," he said.
Adding that the work includes setting up the kioks, modifications to the branches, analysis, testing, system implementation and design.
With the new intelligent ABMs, customers can lodge and change cheques, a change from machines that dispenses only cash.
The Multifunction ABMs are used for cash deposits, bill payments, and transfer of funds to own accounts. At the same time kiosks will enable updating of records, transfer to any NCB account, and international wire transfers.
To build and mainatin the performance Hylton said the company would focus on leaner and greater efficiency; enhanced technology, enhancing the customer experience and regional expansion.