CBK warns banks against changing customer deposit accounts

Commercial banks have been put on the spot of over converting customer deposit accounts into transactional accounts without approval from the Central Bank of Kenya (CBK).

In a circular to commercial bank chief executives, the banking regulator said it had received complaints from customers who had their accounts switched to transaction accounts or had new charges levied.

This has in turn seen customers lose out on the accrued interest on their deposits.

The memo to banks comes barely a month after the enactment of the Bank Amendment Act which capped the interest on deposits at 70 percent of the central bank rate (CBR).

“Approval by CBK of a product means of the features of the product as described by an institution to the CBK. Any change in the features of the product changes the products as earlier approved and therefore the changed product with less, more or otherwise varied features must be approved by CBK prior to roll out,” CBK Director of Bank Supervision Gerald Nyaoma said.

Banks had moved to reclassify deposit accounts to avoid paying the huge interest that would have accrued with the change in the law.

Lenders have been exploiting the narrowest of loopholes as they argue the new law remains vague and subject to interpretation.

However according to the CBK, savings, seven day, call and fixed deposit accounts should not attract any charges and cannot be converted into transaction counts without consent of the customer and approval from the CBK.

“Any conversion of a savings, seven day, call or fixed deposit account product to a transaction account which may have been effected by any institution should be reversed immediately,” Mr Nyaoma said in the circular.

The banking regulator said it would be following up the customer complaints with the banks.

“Appropriate action shall be taken against the affected institution,” CBK stressed.

A number of banks have advised their clients that their deposit accounts would be treated as transaction accounts if they made more than two withdrawals and would not earn interest.

Barclays Bank which runs the Zidisha account had written to its customers saying that customers would automatically be migrated to a non interest bearing account if they made more than two withdrawals in a calendar year.

The Commercial Bank of Africa (CBA) told its clients they would not earn interest on the deposit accounts if they made more than one withdrawal a month.

The central bank has increasingly been offering clarity over the implementation of the Bank Amendment Act as banks exploit the narrowest of loopholes.

Last month CBK governor Dr Patrick Njoroge warned commercial banks against introducing new charges on loan accounts.

“We are the regulator after all. So I don’t think banks would want to attract the wrath of the regulator. They have to work within the bounds of the law,” Dr Njoroge stressed.