charges, zero monthly charges,” it was not without precedent.

It was a product of a thorough research into Uganda’s banking industry which discovered that thousands of people felt they had been ‘pick –pocketed’ by commercial banks through mysterious service charges and penalty fees.
You want to put money into your account through the ATM? The bank will charge you. Withdraw it? Your bank will charge you. Send money to a relative‘s account? Again the bank will take some of it. And, have you encroached on your minimum balances? Your bank will be offended and penalise you as a result.

As long as you transact business through the bank, you will be charged, sometimes beyond what you were told at the time of opening the account.
Does the current proliferation of commercial banks in the country say something about this? Yes. It is clear that Uganda’s banking sector offers avenues for making quick bucks, thanks to the gullible customers.

A Ugandan bank customer will pay 25% and above on a bank loan, but will earn between 2-3 % per annum on their savings in the bank. Little wonder then that these banks have carefully crafted loan schemes ranging from wedding, salary to land loans that have ensnared the desperate and not so critical customers.

The result, however, has been lack of enthusiasm by Ugandans to save, with statistics showing the country’s saving rate at just about 10% of GDP—one of the lowest in developing countries.
As a result of availability of quick money to be made in the short-term, new banks continue to open business in Uganda.
By December 31, there were 20 banks in the country—all jostling for a foothold for mere 3.5 million people, mainly urban dwellers, who have reason to hold a bank account.

Hidden charges

Recently, prominent commercial banks; dfcu, Baroda, Stanbic and Centenary published lists of people who had abandoned their accounts. Most of these accounts were held by low income earners like teachers, small-scale traders, lower-rank civil servants whose incomes could not sustain a constant flow of deposits.
For instance, teachers in government-aided schools opened up these accounts because it was the only channel through which they could be paid their salaries. Some were forced to abandon these accounts because they could not afford the service charges. Many of them who had savings accounts could not meet the minimum balance requirement.
Most account holders are often jolted when they either discover that their balances have gone incredibly low at the end of the month or can’t access their money as service charges, including minimum balances, gobble up huge chunks of their deposits and savings. Although the Central Bank and the commercial banks cannot divulge how money is made off charges, independent investigations by The Weekly Observer indicate that these financial institutions use hidden charges to profit from the customers. Some depositors lose as much as Shs 70,000 per day in charges.
According to a survey done in 2007 by Steadman Research Group, only 16% of Ugandans hold bank accounts. This means with the proliferation of new banks, there are about 4 million active accounts.

According to our investigations, almost 9 out of 10 of the banks pay interest of 0.5-2% on credit balances. This allows the banks to make a huge profit by lending the money at higher rates. The interest rates stand between 25-28%, except for mortgages which are between 18-19%, according to Bank of Uganda records.
Banks claim that the interest is high because most of the loans are risky and the cost of recovery is high.

Bank charges range from opening accounts, acquiring check books, withdrawal over the counter, cheque charges, ATM withdrawals and deposits; interest earned on balances in accounts, overdrawn accounts, penalties for overspending on credit facilities, protection insurance, and the mortgage processing fees. These have all left a bitter taste in the consumers’ mouths.
For instance, some commercial banks charge as much 10% on foreign currency withdrawals. That means that if someone withdraws $10,000, the customer will pay $1,000 as bank fees for handling the transaction. Others even charge 1% on foreign currency deposits—meaning that you will be charged $100 to deposit with the bank $10,000.

The recently published Bank of Uganda commercial bank charges indicated that on average all banks in Uganda charge Shs 1,000 on ATM deposits and withdrawals. Some banks will charge you as much as Shs 120,000 to withdraw cash on uncleared and bounced cheques. Others allow cash withdrawals despite availability of insufficient balance and where this happens, customers who sometimes may or may not be aware, are penalised with some charges.

Murky insurance

Commercial banks have been enticing people to borrow, sometimes, even beyond Bank of Uganda’s recommended 40% of their net income. For the banks and loans sales agents, it makes sense as they make more money in commissions and interest which stands at 27% in most commercial banks respectively. According to Bank of Uganda’s published records, before a loan is approved, it is subjected to a lot of fees which carry different tags. These include application fees, commitment fees, arrangement fees, processing and administration fees, monitoring fees, insurance fees, legal fees, stationery and discharge fees, among others. All these, when added up, almost take up 10% of the money applied for. Incidentally, when one is desperate to get a loan, they are unlikely to scrutinise some of these fees prior to the signing of the agreement. Many customers encounter these technical terms midway the transaction, when it is virtually too late to wriggle out of the deal.

Before a loan is granted, one is urged to pay for protection insurance. Loan insurance is sold alongside loans, mortgages and car finance agreements. Unknown to the desperate borrowers, the terms of loan insurance are tightly drawn to the advantage of the insurance company and the bank.

In fact, while the borrower pays the cost of insurance, the policy is clearly tilted to protect the bank in case of the borrower’s death. In other words, the insurance will not cover you, the borrower, if you cannot work because of an accident or illness, or if you are made redundant.
It won’t cover you if you were retired when you took it out.
It won’t cover you if you have to stop working because of a medical condition that you did not mention, or were not asked about, when you took the insurance.
However, the insurance sold by the banks is ridiculously poor value, with any potential benefits far outweighed by the huge cost. The banks very often can predict the highly risky and non risky customers; therefore insurance is sold to clients who will never be able to claim on it. Customers lack the information they need to choose the best deal.

Mortgage fees

Mortgage services had hitherto been dominated by Housing Finance Corporation (HFCU) Uganda. The dash for better homes and the increasing growth of middle income earners has attracted more banks such as Stanbic, dfcu, Barclays and Standard Chartered Bank to the mortgage service industry.

As many people warmed up to this hitherto rare service, few of them knew that they were jumping for a poisoned chalice. For instance, if one applied for a Shs 70m mortgage for 15 years, which could even be just 30% of the value of the property, the bank may end up releasing Shs 60m. The difference is gobbled up in insurance fees, arrangement fees, application fees and legal fees. However, the interest which ranges between Shs 16-19 per annum is paid on the original amount applied for (Shs 70 m). Competition, especially in interest rates (better deals), has compelled some consumers to switch mortgage providers and many banks have been targeting people in this category. What is not explained in these deceptive adverts about switching providers is that there is a big price to pay.

There are mortgage exit administration fees levied on borrowers when they switch mortgage providers, or pay off a mortgage before the end of the term. In the end, it looks like digging one pit to cover another. Although, most of these mortgages are insured and the borrower pays for this every month, insurance would not cover you when you cannot pay because you have lost a job or become redundant. There are several exclusive clauses which are never explained and couched in legalese that is too difficult for the ordinary mind to comprehend. Instead, penalties will be imposed on your mortgage and sometimes, the customer may end up losing the property to the bank.

Bankers react

The chairman of Uganda Bankers Association, Emmanuel Kikoni, said that he had had some of these complaints before, but blames it on the docile bank clients.
“The clients have a right to question whatever deductions that are made on their accounts. They are entitled to monthly statements on the debits on their accounts,” he said.  He however disagreed with the view that banks hide their tariff structures and take advantage of desperate customers.
“Whatever the bank does—be it charges—it is within its operational procedures. All these charges should be known to the customer,” Kikoni maintained.

But one of the customers bruised by bank charges unleashes his ire on Bank of Uganda. He says BOU has arm-chair technocrats with no capacity and interest to supervise banks to the satisfaction of consumers.
“Bank of Uganda does not have the human resources and skills to supervise the sophisticated banks. In fact, that supervisory role should be given to another body,” said the customer who did not want to disclose his identity. He said Uganda needs an active consumer protection group which would ensure that the markets serve the customers well by promoting transparency and vigilance.

People default

The newspapers have been awash with news about prominent banks putting many businesses under receivership and ultimately selling off their property at forced values. Greed on the part of the bankers and some dishonest borrowers, has worked against people’s ability to meet their financial obligations to the banks. Some customers’ eyes have had huge appetites than their stomachs could handle. Ideally, individuals should not borrow more than 40% of their net income. However, research has shown that in the absence of a credit reference authority, many borrowers collude with bank officials to cook books about their incomes to the extent that they have borrowed almost 80% of their net incomes, leaving only 20% to cater for their basic needs like food, rent and school fees, among others.

Those who stake property for collateral, usually inflate the value in order to get money above their financial ability to pay back. Others lose their jobs and are unable to pay or their businesses are hit by disasters, such as political violence. Unfortunately, the insurance is unable to cover these defaults.

Sticky points

. Poorer customers are the most vulnerable because they tend to shoulder the most charges for overdrawn accounts.
. Fees are too complex, unclear so customers are often in the dark about when they will be incurred until they turn up on their statements.

The article originally featured in the Weekly Observer newspaper, a Ugandan weekly newspaper.

This e-mail address is being protected from spambots. You need JavaScript enabled to view it