UOB Mulls Annual Fees On Unused Secured Overdrafts

Source : The Business Times, August 14, 2007

No immediate plans at OCBC; no changes at Citibank, DBS

(SINGAPORE) Bank customers could be charged an annual fee on unused secured overdrafts - a first for Singapore.

United Overseas Bank told BT that it is considering charging for unused secured overdrafts. But OCBC Bank said it has no immediate plans to do so.

A DBS spokeswoman said that DBS does not charge a fee for unutilised secured overdrafts, nor is there a plan to do so. 'We will have to consider market acceptance and industry standards if we do eventually decide to put up this fee,' she added.

Citibank said that it does not charge customers for secured overdrafts, regardless of whether they are used. Secured overdrafts are among the most flexible credit lines because the customer only pays - by way of quite high interest rates - for what is used.

Banks encourage customers to take out overdrafts secured on their property so that when they need extra funds, such as to buy shares, take a speculative punt on a property or even buy big-ticket items like expensive jewellery, the money is there. Repayment schedules for secured overdrafts are flexible, unlike term loans which require monthly instalments.

Customers feel they have nothing to lose as there is no charge for not using the facility. The global trend is for banks to impose more charges to bump up fee income to make up for volatile and thinning profits from loans.

Kevin Lam, head of loans at UOB, explained why the bank is considering charging for secured overdrafts. 'Under the new Basel II risk management framework, credit lines granted to customers, used or not, will attract a capital charge,' he said. 'We are monitoring the situation and reviewing the option of introducing a fee to cover the capital cost of making the credit line available to customers who do not utilise the credit line.'

Getting an overdraft secured on a property also incurs other charges such as legal fees and a valuation report, which can amount to between $2,000 and $3,000, bankers say. Even for a property which is already mortgaged to the bank.

Another grouse of borrowers is the repricing fee charged by banks when they ask customers to convert to a lower interest rate following a drop in interest rates. Sometimes called an administrative fee, UOB and OCBC charge between $500 and $800 to reprice a home loan.

But DBS Bank has been asking several thousand dollars to reprice a home loan, which is sometimes lowered after some hard bargaining. DBS declined to comment on its repricing policy.

Citibank said that the repricing fee varies. Tan Chia Seng, the bank's business director, said: 'Citibank charges an administrative fee for repricing, and it varies from client to client depending on the client's total relationship with the bank.'

Another area where banks charge high fees is unsecured credit. Besides high interest rates - typically 24 per cent per annum - these unsecured loans attract charges such as processing fees, annual fees, disbursement fees and statement fees. There is also a late penalty fee.

Gan Ai Im, UOB's head of cards and payment products, said that providing services to customers costs money. 'So charges and fees are levied for these services rendered. In a sophisticated and competitive market like Singapore, consumers will only pay fees for services that are of relevance to them and are competitively priced.'

Wong Chung Yee, OCBC's head of consumer unsecured lending, said that fees are necessary to cover administrative, funding and processing costs.

A bank analyst said that it is easier for banks to levy fees as customers think these fees are 'administrative' in nature. But will customers here revolt against new fees - as they have elsewhere?

In the UK, the Office of Fair Trading is due to complete a nationwide probe at the end of this year on bank charges and pricing after complaints from millions of consumers on overcharging and unauthorised charges.