The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian commercial banks are generating an ever-increasing share of their income from the fees detested by many consumers, which now account for more than $1 out of every $5 in earnings.

The Central Bank of The Bahamas, unveiling its latest half-yearly fee assessment for the six months to end-December 2021, noted that fee income as a percentage of total commercial bank earnings steadily increased over the decade to 2021.

This coincided with the reverse trend for net interest income, which declined as a percentage of total earnings over the same period, and will likely further fuel Bahamian consumer suspicions that the commercial banks have hiked fee income to compensate for reduced returns on their loan portfolios due to relatively high delinquency levels.

“After interest earnings, fees on the products and services prove to be the second most important source of revenue for banks. As such, fees also compensate for structural gaps in banks’ revenue streams, representing an expanding share of the receipts over the last decade,” the Central Bank report said.

“While the net earnings margin from lending activities provide the bulk of gross returns, amounting to an average of 77.3 percent of the total in the last decade, the ratio fell steadily on average from just above 80 percent in 2012 to around 70 percent in 2021. Instead, gross fee-based receipts averaged 18.6 percent of earnings (net of deposit costs), rising on average from just under 15 percent in 2012 to approximately 23.7 percent in 2021.

“Although a smaller share of the total, commission and foreign exchange income also increased in relative importance since 2012. In the meantime, the diminishing importance of the net interest margin coincided with a decade-long elevated average non-performing loans ratio as compared to the lower averages in the prior decade.”

The Central Bank’s data shows that, between 2012 and 2021, net interest margin for the commercial banks remained relatively steady and came in at $139.53m in 2021. This compares to a decade-low of $127.53m in 2012. In contrast, fee income has more than doubled, jumping by more than 100 percent from $23.14m in 2012 to $47.27m in 2021.

Meanwhile, several of the Canadian-owned banks were shown to have charge the highest fees and penalties. The Central Bank compared its licensees’ fees across three scenarios - a student with under $200 in their account who does two transactions per month; a retiree with a balance of $400 per month receiving a pension, and who does two transactions a month; and someone with checking and savings accounts below $1,200 and who does four monthly transactions.

“Based on the December 2021 fee structure, a profiled retail banking customer making maximum assumed use of digital or electronic services options would incur average monthly charges ranging from a low of $2.53 to a high of $15.21,” the Central Bank said.

“Students received the most concessions, followed by retirees. Compared to June 2021, most estimates firmed except for the average on the student profile. Meanwhile, checking accounts continued to be the mostly costly to operate, with adult savings accounts in the middle of the cost range.”

As for physical banking, the Central Bank said: “Overall, profiled customers, who either preferred or were constrained to less efficient physical channels for deposit services, would as of December 2021 incur average monthly charges ranging from a low of $9.08 to a high of $23.02.

“In the estimates, the rankings placed the student-profiled costs as the second lowest as opposed to being the lowest in June 2021, with the retiree profile experiencing the lowest as compared to the second lowest in the six months prior. In this regard, the averages were firmed for student accounts and adult savings facilities, but reduced for retirees and adult-profiled chequing facilities.”

When it came to which bank was cheapest, the Central Bank said: “Student transactions conducted optimally via digital services channels were simulated as being the least costly at Commonwealth Bank, with First Caribbean International Bank (Bahamas), Scotiabank and Royal Bank (Bahamas) providing the identically competitive second lowest cost options.

“However, the Commonwealth Bank option does not make ATM cards available to student account holders. Costs at FirstCaribbean were exclusively the lowest for retires using digital services channels; it was similarly the case of being cheapest at FirstCaribbean for both students and retirees who made maximum use of in-branch access and other physical channels.

“For non-preferential adult clients who made use of digital delivery channels, Bank of The Bahamas offered the lowest cost for adults with a chequing account, while FirstCaribbean offered the lowest cost arrangements on the equivalent savings accounts. Fidelity Bank, however, maintained the advantage for both simulated chequing services and savings account services, when choosing physical services delivery.”

Looking at the opposite end, the Central Bank said: “Simulated customer profiles consistently placed adults with both savings and chequing accounts at Scotiabank as the costliest. This was the case with both clients that fully exploited the digital channels and a typical customer with significant reliance on physical transactions.

“Scotiabank costs also averaged highest for retirees and students who relied heavily on in-branch visits. Meanwhile, RBC ranked at the upper end of costs for retirees who used digital services channels, and costs at RBC FINCO were at the highest for students using similar channels.”

Turning to late payment fees, the Central Bank said: “While there was less variance across lenders for delinquency costs on personal loans, Fidelity Bank was simulated as being the least costly in all three categories, and matching the estimated penalty for Bank of The Bahamas in the case of late or missed credit card payments.

“Regarding the higher end of costs, RBC placed highest for credit cards and matched RBC FINCO for mortgage penalties. Meanwhile, above certain thresholds of principal and interest payments, Commonwealth Bank would have ranked highest for arrears or late penalties on personal loans.”