DO you know that the banks we entrust our money with are effectively “robbing legitimately” their own small depositors, who probably account for 80 percent of total depositors, if we estimate the number based on the Pareto principle or 80-20 rule?
Defining metaphors of robbery
Legally, it’s not robbery being allowed by law and sanctioned by the Bangko Sentral ng Pilipinas (BSP), but, technically, it is a “form of effective robbery”, as hundreds of thousands of depositors feel aggrieved and victimized that their accounts are eroded or slashed by an average of P350 per month if they fall short of the maintaining bank balance.
It is a phenomenon affecting hundreds of thousands or maybe a few millions of small depositors, who are mostly young workers or couples surviving meagerly from paycheck to paycheck, and often forced into the trap of in-between jobs after completing the usual five-month job contracts, popularly known as endo —a colloquial for “end of contract”.
By definition, theft happens when somebody steals from you stealthily without your knowledge. Qualified theft is established when the same person entrusted with the responsibility to take care of your finances or assets steals from you. Robbery happens when money or assets are forcibly taken from you. In our bank case, it is tantamount to both a qualified theft and robbery.
When interests hurt much
Middle and higher income people, more likely the learned, vocal and articulate people when it comes to their rights, have been silent as they have not been affected. Obviously, most of them have fat bank accounts and, therefore, do not experience this problem. For the hoi polloi or the masses, their little savings are systematically siphoned off monthly only because they are poor. For the longest time, the system has hurt them so much, and this speaks a lot about our unjust banking system.
In many banks, a P350 monthly penalty is deducted from accounts falling below the minimum P2,000 maintaining balance, which is about 17.5 percent of P2,000, and if annualized for 12 months, this translates to 210 percent per annum. What is left is less than P1,650; and if you deduct again another P350 every month thereafter, you end up with only P250 on the sixth month, and an account closure thereafter.
Worst, the penalties or effective interest rates slapped on deposits below the maintaining balance increasingly become usurious, much worst than rates of the detested informal loan sharks.
If we proceed with the computations, the next P350 monthly deduction against the remaining P1,650 is a 21.21-percent penalty, and if annualized again, the result is an effective interest rate of 254.54 percent per annum. Subsequently, the third month becomes an annualized effective penalty of 323.07 percent per annum; fourth month, 442.1 percent per annum, fifth month, 700 percent per annum; and on the sixth month, 1,680 percent per annum.
For those who have little in life, these interest rates really hurt. These grievances have been expressed a lot so far in social media, particularly on Facebook.
Burden of proof is ‘fine’?
Banks could readily argue that the P300 or P350 monthly deductions for deposits below maintaining balances are administrative and storage costs on the deposits.
For them, the fine or penalty is the burden of proof itself. With the volume of retail accounts from depositors, banks would claim they have to maintain a big army of tellers and admin people. However, with the advent of computer technology, all this administrative burden can be absorbed at no extra cost. And even assuming admin costs are valid, what amounts or percentage fees are reasonable to the public? Perhaps, this has to be probed for possible legislation.
Let’s analyze this burden of proof if it’s justified and acceptable. Currently, bank lending rates are about 5.5 percent per annum, but interest rates on savings for depositors are only at 0.2 percent per annum. This is a whopping 2,650-percent markup. Isn’t this more than enough to cover the costs of handling money for small depositors. Not lending much for wealth-creation? And because big depositors get higher interest earnings on their deposits and enjoy lower prime rates on their borrowings, perhaps government can tax the incremental difference, not for a cross-subsidy mechanism for small depositors, which is wrong, but to be channeled to solid programs that will make banks lend liberally to inclusive investments for micro-, small- and medium-sized enterprises (MSMEs) and farmers and fisherfolk.
Numerous programs can be designed to address this concern, but this entails a separate discourse. So far, Congress has pushed for a reform of outmoded financing laws through the proposed “Secured Transactions Reform” bill seeking to make other forms of assets besides real estate as bank collateral. Right now, banks still find SME financing unattractive and risky. More so, farmers and fishermen. Thus, banks are circumventing the Agri-Agra law to lend to agriculture by buying government securities as a form of compliance.
And yet banks are so awash with funds with Bangko Sentral ng Pilipinas (BSP) estimates showing that 2015 savings rate was 30.3 percent of gross national income, but actual invested into gross capital-formation rate was only 19.8 percent. The difference is therefore held unproductively by the banks.
Are we lax with tax?
IT is high time Finance Secretary Carlos G. Dominguez III scrutinized this widespread practice of banks, which is among the country’s richest industries. If selling property is taxed a capital gains tax for windfall returns, perhaps by parallelism windfall returns from small depositors must be taxed in the same way.
We need more taxes to catch up with our Asian neighbors, particularly in infrastructure and social investments, like education and health, that enhance the ultimate productive resource—human capital. Dominguez admits investments are only 20 percent of our GDP, while our neighbors are hitting 30 percent to 40 percent.
While more tax revenues are needed, the Laffer Curve theory in economics suggests ironically that more revenues are actually generated by lowering corporate and personal income taxes, which will encourage more compliance and potentially increases the tax base. When tax rates are too high, people tend to dodge taxes or find ways to under declare income and tax payments.
Meanwhile, let’s correct and settle this problem over what is now perceived by many, but pardon me for spelling it out here as an institutionalized “bank holdup or robbery”, which is a wholesale “inside job” and conspiracy.
E-mail: mikealunan@yahoo.com