by Paul D Kennedy
© Paul D Kennedy, October 2003
This article was first published in the Arab Times in October 2003 in the form of a letter to the editor.
The article was written in response to objections by the banking community in Kuwait to proposals that workers salaries be paid into their bank accounts as a means of ensuring that these salaries are paid on time.
The private sector in Kuwait has a reputation for paying salaries several months in arrears, especially to manual labourers who find it difficult to assert their rights.
I read with barely restrained giggles the article Bankers hit out at 'account order' on page 2 of the Arab Times on October 2nd.
This article states that according to banking sources "opening accounts for expatriate workers earning low salaries is a major setback for the banking industry" and that these 'workers accounts' will increase the "operational cost in banks without any benefit in return", ie the banks will make a loss rather than a profit on these accounts.
Who are these bankers trying to kid? Let's look at the numbers as far as we can discern them.
According to your article, accounts will have to be opened for 700,000 expatriate workers. As these people are all low-earning, they will withdraw their money as soon as their salaries are deposited by their employers and none of them will be able to keep in their accounts the minimum KD100/- balance needed to avoid the monthly bank charge of KD2/-.
This charge will be deducted from their salary money. Thus the banks will generate an extra income of KD1,400,000 per month to operate these accounts. That's not bad – it comes out at extra revenues of KD16,800,000 per year!
The poor banks of course will incur significant extra costs in servicing these accounts, mainly in teller time. Certainly they will have to hire extra tellers. The cost to a bank of hiring a teller is probably KD1,500 per month, counting salary and social costs. So how many extra tellers will be needed?
If each of the 700,000 workers visits the bank once a month and spends an average of 5 minutes at the counter – more than enough time to present a withdrawal slip and take the money – the tellers will be able to serve 12 workers per hour. To simplify the arithmetic, and allow some slack, let's assume the tellers can service 10 workers per hour. This means that the banks will have to provide 70,000 extra teller hours per month.
If each teller works only a 6 hour day on the counter for just 20 days in the month, they will each spend 120 hours a month paying out money to these workers. Thus the banks will need to hire about 600 extra tellers (70,000 divided by 120 = 583), at a cost of about KD1,500 per month. So the extra cost of servicing the workers accounts will be KD900,000 per month.
I think the banks will do all right from these workers accounts:
Extra revenue KD1,400,000 per month
Extra costs KD 900,000 per month
Extra profit KD 500,000 per month
Which, of course, when you multiply by 12, is an extra profit of KD6,000,000 per year. Not bad at all!
Now if these workers are issued with ATM cards so that they can withdraw their salaries without going into a bank, these extra teller costs will be reduced significantly and the bankers will make even more profits. Indeed if just over half the workers are issued with ATM cards and never have to enter a bank once their accounts have been opened, the banks will make extra profits of KD1,000,000 per month.
And of course there will always be a time delay between the time when the employer deposits the salaries and the workers are able to withdraw their money. During this time the salary money will be on overnight at a prime rate of interest and the banks will make even more profits on these workers accounts.
So what's the problem, Mr Banker? Are you objecting to making an extra profit of at least KD6,000,000 a year.
The new law has been designed by a concerned government to help quell visa trading and ensure that workers get the salaries on time. It will also be a nice little earner for the banks, though I'm sure that this wasn't the intent of the legislator. It certainly won't "cause major deterioration in the overall performance of the banking sector" and the implementation of the law certainly won't return the "performance of the banks to the 1950s and 1960s era" as the bankers in your article stated.
So why not quit whinging, Mr Banker, and get on with the job and earn yourself some more profits? And isn't it nice to know that you'll be doing some social good at the same time!
© Paul D Kennedy, October 2003