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Politicians churn the banking fees debate

25. 08. 2008, autor: Tomáš Zdechovský
Politicians churn the banking fees debate
Christian Democrats' election campaign addresses high charges

The Prague Post, August 20th, 2008 issue

Banking fees in the Czech Republic: Unfair exploitation? Financial necessity? Political opportunity? The rhetoric surrounding this contentious issue is heating up, and is often as convoluted as the fees themselves.

To retail banking customers, fees charged for minor transactions often seem to appear from nowhere, guided by the arcane logic of phonebook-sized terms and conditions.

“I was getting ridiculous fees all the time,” said Andrew Whitlaw, a UK citizen who opened an account with Česká spořitelna earlier this year while working at a hostel in Prague. “Fees that, to me, had no explanation — 200 Kč [$12.50] for reissuing a bank card or 50 Kč for changing your PIN.”

There is no question that fees play a significant role in the Czech retail banking sector: In 2007, Czech banks reported 45 billion Kč in “fees and commissions” out of total transactions of 133.5 billion Kč.

While average annual fees paid for personal account management in the EU amount to 14 euros ($20.86/334 Kč), fees in the Czech Republic range from 14 to 60 euros per year — with most falling in the higher end, according to a European Commission report.

The issue of fees is especially publicly salient here, since most locals are legally required to have a bank account in order to be paid by their employers.
“We’ve made opinion polls, and 66 percent of people said that [bank fees] are a very important issue,” said Tomáš Zdechovský, an expert with the Institute of Political and Economical Studies, an organization affiliated with the Christian Democratic Party (KDU-ČSL).

Banking fees have become something of a cause celebre for the KDU-ČSL, which senses a political opportunity, as it preps for this fall’s Senate election.
“[We] have had many complaints,” said Jiří Jirsa, spokesman for KDU-ČSL European Parliament member Zuzana Roithová. “This is an issue that is somewhat painful for Czechs, and their politicians should respond to it.”

Earlier this month, Roithová and the KDU-ČSL decried high fees and introduced a plan for driving them down.

Consumer education is one component of that plan.

“Education doesn’t exist,” said Zdechovský. Without understanding the basic principles of banking — such as interest and credit — Czechs have no means of determining whether they’re being ripped off, he said.

To help solve the problem, the party has been working with experts to prepare educational materials for students, which should be available later this month.
However, even an economics professor may have a hard time divining the fees applicable to the average Czech savings account.

“At this moment, transparency is quite low,” said Jirsa. “You really don’t know how many bank fees you are paying. There’s no single sum.”

To address this issue, the European Commission is currently examining a proposal to introduce an EU-wide system of standardized bank statements that carefully detail the fees being applied to an account.

Competition among banks must also be increased, said Jirsa, so that a small group of large financial institutions no longer sets fees for the rest of the industry.
“The top five banks dominate a large proportion of the market,” he said. In 2005, the Anti-Monopoly Office (ÚOHS) found a “coordinated approach” existed among these banks to keep fees relatively high, although these institutions had not violated any laws.

Although the top five local banks are all owned by West European companies, fees for basic transactions are typically much higher here than in Western Europe.
Faced with this paradox, Česká spořitelna (ČS) — the largest local bank in terms of clients — defended its transaction fees as different but no worse than those employed by banks in other countries.

“The truth is that the fee structure is different,” said ČS spokeswoman Klára Gajdušková. “While Western banks may be less oriented on revenue from transactions, they earn more from more sophisticated products like asset and portfolio management.”

Gajdušková said fees account for 30 percent of ČS’s operating revenue. By comparison, banks in the United States obtain an average 27 percent of revenue from noninterest sources such as fees, according to a U.S. Government Accountability Office report.

Still, banks are taking note of the public pillorying of add-on costs. Earlier this year, Unicredit and ČSOB lowered ATM withdrawal fees.

The Polish-based mBanka, which opened late last year, bases its entire strategy on a virtually “no fee” approach. The bank does not charge for basic account management services, withdrawals, or the closing or opening of accounts.

This suggests the situation is improving, said Patrik Nacher, head of Bankovní, a Web site critical of the retail banking industry in the Czech Republic. “Some of the banks already canceled some of the absurd fees, like fees for the cancellation of a client’s account, or fees for incoming payments,” he said.
But it will be too late for Whitlaw: He transferred his money to England and closed his ČS account when he went home in May. The fee? 1,300 Kč.

By Adrian Chen