Are you getting a fair deal from the banks in interest rates and was the latest one percentage point increase warranted?
While bankers and Reserve Bank governor Chris Stals says it was, Philip Kilroe of the investment and trust company, Personal Trust, says it was not.
The accusation comes on the heels of concern at the Competitions Board that the banks may have been colluding in putting up their lending rates last week on their own initiative.
Kilroe believes the second hike in lending rates was unwarranted.
"During 1991, when interest rates were last at these high levels, the banks were comfortable with a margin (the difference between borrowing on the money market and the prime lending rate) of three to four percent.
However, when the rates fell between 1992 and 1994, commercial bank margins automatically went up to between four and six percent because banks only reduced their lending rates to customers in tandem with drops in the rate at which the Reserve Bank lends money to them.
Deposit rates at which banks borrow from the public, however, fell daily.
"These increased profits reflected in bank share prices rising sharply.
"To be fair to the public the banks should apply the same logic now of only following the Reserve Bank in putting up rates.
"The margins when the banks made the announcement last Friday were in the same three four percent range as in 1991.
"This leads to the assumption that the increase was made to sustain profitability and support bank share prices."
The Johannesburg Stock Exchange financial sector index peaked on February 16 at 7 369 but had fallen to 6 616 by May 9. Standard Bank, which initiated the latest lending rate increase, has seen its share price plummet from R182 on March 19 to R158 on May 2. This week it was up to R160.
At a media conference at the World Economic Forum conference in Cape Town this week, Stals said the commercial banks could put up a good case for raising lending rates. "The banks were under pressure."
He said commercial banks could get funds from three sources: the money market where rates had been rising since mid-February; the Reserve Bank; and foreign loans.
Some banks had been borrowing from the Reserve Bank at penalty rates of 17,5 percentage points which is above the official bank rate of 16 percent.
Foreign lenders had also raised their rates and the banks had also been hit by the depreciation of the rand.
Henry Shaw, Standard Bank general manager financial services, firmly rejects Kilroe's claims, saying that tight margins were the only reasons.
"Since early February we have seen margins decrease by 2,25 percentage points. The one percentage point in April, followed by the one last week brought us back but we are still 0,25 percentage points short."
However, Shaw says there is no optimum level for margins because there are different influences on fixed costs at different levels, such as the total amount the banks lend out.
For example, if interest rates go up people borrow less so the bank's income from lending reduces but the fixed costs of providing services remain the same.
Shaw maintains that the banks must respond to market conditions in a responsible manner.
"It would be irresponsible for us not to take the interests of all stakeholders into account."
A bank is an intermediary in the financial market and borrowers must reflect the cost of money in the same way as depositors, including savers, who would benefit from a high rate structure.
Shaw says that the country must accept that there is now going to be greater volatility in interest rates because South Africa had become part of the international economy.
If the rand stabilises and foreign investors return then interest rates could come down again.