Bank of Tanzania Towers — Source — Wikipedia

The banking sector in Tanzania has been stressed over the past couple of years, the implications were visible in 2018 with over 5 banks having their banking licenses revoked due to under-capitalization and eventually shutting down. It has also been observed that bank profits are dwindling, different banks are employing different strategies in an effort to turn their ships around.

In mid January , two of the biggest banks by customer base and branch network CRDB Bank Plc and NMB Bank Plc revised their tariffs upwards. Noticeable was nearly a 50% increase in some of the fees, levies and commissions they charged.

Notice to customers from CRDB Bank on change in banking fees.
Notice to customers on key changes to tariff guide 2019.

Customers Reaction.

Customers did not react well to this and shared their sentiment online, you can tell by some of the responses to this tweet .

Tweet by @MsTayanah

Translation "I see you want us to go back to the days of digging holes and burying our money. These charges are too high"

PR Intervention

In an effort to mitigate the harshness from the online community, one of the oldest tactics in the book was put to play — enticing customers by telling them that their accounts do not incur fees, a move I find unethical, but then again the principles of banking have never been ethical to start with.

NMB went first and CRDB followed suit shortly after.

Key to note the services being promoted as FREE are either one-off charges or inward transactions (Mobile and internet banking registration, standing orders, cash deposits, incoming transfers) , this is no different than getting free access to the amusement park only to pay for very expensive rides once you are in.

Nonetheless it worked marvellously considering the reactive nature in which the communication was executed.

Kwetu Bure by NMB Bank Plc
Response by CRDB Bank Plc

Evaluation

In order to get this right you need to understand that non-ledger fee accounts are not free from ledger fees. A non-ledger fee account can turn out to be more expensive, depending on the customer’s frequency of transactions. Transactions may eat out the benefits of holding such accounts.

Banks are here to make money and most will turn to their customers as a ready source of funds.

The purpose of this piece is to determine the affordability of maintaining a bank account considering the prevailing rates, moving beyond the PR gimmicks, and this should guide any bank account holder not necessarily from the two banks mentioned herein.

In order to illustrate this we will assume the scenario of a salaried employee earning TZS 1,000,000 (One million Tanzanian shillings , approx. $430) net of taxes operating an entry level account and transacting on the bare minimum of 5 ATM withdrawals , 4 mobile money transfers from their bank account each of TZS 50,000, 2 Utility payments (Electricity tokens and Pay TV) per month.

Comparison of the cumulative fees for services identified.

Looking at these entry level accounts, they all follow fairly similar structures, with limited differences, mainly on prices and not value. The effort has been to advocate for digital migration yet penalizing their customers painfully for transacting on these digital channels, the impact becoming less beneficial.

The average ledger fee for a Tier 2 bank in Tanzania is TZS17,500 and would have a set of transactions covered within this pricing, with 22,000 and 23,750 respectively it is outright that these entry level accounts are nowhere near cheap.

Best Practice

In Zambia (our neighbours to the south-west), Bank of Zambia — The country's regulatory body issued a directive on the prohibition of unwarranted charges and fees to all financial service providers, which came into effect on Tuesday the 4th of September 2018. The imposition of 26 unwarranted charges and fees were identified as undermining the efforts towards financial inclusion in Zambia.

Press Statement by Bank of Zambia
Press Statement by Bank of Zambia

Independent Review

Reading through the latest financials for both CRDB and NMB, Non Interest Income makes for an indicative 25% of total income of which 80% average is fees and commissions charged.

Now with revision of tariffs and forfeiting of some of these fees, cost efficiency from leaner fees and income lines will deteriorate for players that will not compensate for forgone incomes with other non-interest revenues, and since non-interest income is made up of fees and commissions plus trading income, the latter will be expected to act as an interim buffer to plug the deficit anticipated.

Treasury units will be expected to work twice as hard to boost trading income lines from both foreign exchange and interest rate trading opportunities. Banks will have to review their cost structures to improve operational efficiency to remain competitive.

In extreme circumstances some banks may have to amalgamate or restructure human capital stock to remain cost lean.

On the downside, this could pressurize banks to maximize interest income lines such as investment in bills and bonds which could potentially overcrowd the domestic credit market.

This could also encourage creative repackaging of fees and commissions to other lines which could eventually force interest rates to balloon.

Parting shot

In my opinion banks like CRDB Bank Plc and NMB Bank Plc feel uncomfortable thinking outside their dominant business model. It prevents them from discovering and inventing the future.Business model innovation will be key to unlocking new opportunities in the market.

Lastly, consumers are still in charge, and they can say no to these insidious fees by taking their business to more customer-friendly banking institutions.

How much do you spend on banking ? Are you getting value for your money? Let's discuss in the comments section.