The difference between the lending and borrowing rates of banks in different countries cannot be compared for several reasons, the Banking Council says.
Bob Tucker, executive chairman of the Council, was responding to an article which appeared in Personal Finance two weeks ago, based on research by Fleming Martin Asset Management.
Their research revealed that local bank margins (the difference between lending and borrowing rates) are at record levels compared with other countries.
Fleming Martin added that deposit rates (call rates) had fallen by about two percent this year while the prime rate had been lowered by one percent.
The prime rate (the rate which banks give their best customers only), is 18,25 percent.
Fleming Martin said the difference between lending and borrowing rates was 5,25 percent, compared with banks in the United States, where margins are 2,9 percent, and Australian banks with margins of about four percent.
Tucker argues that the Fleming Martin comparisons with United States banks are incorrect.
He says the comparison of South African retail banks has been made with money centre banks in the US which have no branches and deal chiefly with wholesale borrowing and lending.
He says his comparisons show that South Africa's retail banks are operating "at much the same level of margin as comparable retail banks in the US, on average 4,5 percent."
"Margins are only part of the profit calculation and it is profit which really counts," he says.
The other components are non-interest income, the operating costs and the losses which are incurred in doing business.
"It is significant that in spite of a number of new banking licences issued to foreign and local banks in South Africa over the last three years, not one of them have moved into retail banking even with the apparently attractive margins at which retail banks are able to operate. This is because of their assessment of the costs of doing retail banking in South Africa at this time," he says.
Foreign banks could be surprised by the cost of doing business in South Africa, coping with inefficient telecommunications and generally poorly educated staff," according to a banking survey published last year by accounting company KPMG.
The Banking Council agrees that at the end of the day it is the market place which should prevail and which should be given free rein.
"No amount of media criticism, investigations by the ombudsman or regulatory interventions by the government can substitute for vigorous competition for profitable business."
"But if the market does not regard the business as profitable, then media comment that banks are profiteering does not take the issue any further," he says.