BSP’s Fleming clarifies misconception on loans

The National Business

By DALE LUMA
THE capitalisation figure appearing on a customer’s loan statement is not a “fee” but the “interest” due for that month, says Bank South Pacific (BSP) chief executive officer Robin Fleming.
Fleming clarified this in response to growing complaints from customers who did not understand why the figure was appearing on their statements.
“To explain this a little more clearly, we should compare two different ways loan interest is commonly calculated flat balance interest and declining balance interest,” Fleming said.
“Some financial institutions calculate loan interest on a flat balance basis where the interest is calculated on the opening balance of the loan.
“If a loan is for K10,000 for a term of 12 months at an interest rate of 18 per cent, the interest would be calculated as 18 per cent multiplied by K10,000 (K1,800),’ he said.
“This interest is added to the K10,000 (a total of K11,800) and monthly loan repayments would be K983.33 over 12 months with the borrower repaying a total of K11,800.
“In contrast, BSP calculates loan interest on a reducing balance.
“The monthly loan repayment includes a portion that covers the interest for the month calculated on the daily balance of the loan and a portion that covers the loan principle.
“On a K10,000 loan for 12 months, the loan repayment based on BSP’s interest rate of 27 per cent, would be K960.17.
“The interest portion of that repayment amount would be K225 at the end of the first month.
“For month six, the interest portion of the loan repayment would be K138.49 and in the 12th month interest would be K21.13.
“The reducing level of interest payment reflects the declining loan balance.
“Capitalisation amounts shown on loan statements simply equates to the interest calculated for the month.”
Fleming said the interest was calculated daily and charged monthly and the loan repayment which includes a portion for interest and for loan balance reduction offsets the “interest capitalisation”.
“Over 12 monthly repayments of K960.17 a customer repays the loan principle amount of K10,000 plus interest of K1,522.09 (K960.17 x 12 = K11,522.09).
“This comparison also shows another important piece of information customers should understand before applying for a loan.
“Lenders who advertise interest rates at say 1.5 per cent per month or 18 per cent actually charge the borrower more if the interest is calculated on an opening balance or flat interest rate.
“This is compared to say 27 per cent calculated on a declining balance loan of the same amount for the same term.”

9 comments

  • Just refuting the first paragraph by Fleming, “the capitalisation figure appearing on a customer’s loan statement is not a ‘fee’ but the ínterest’ due for that month”. But he didn’t mention the fact that this ïnterest” is added onto the declining loan balance, which effectively increases the loan balance.
    If I get a loan and agree to pay K500 every fortnight, why charge monthly interest on loans and term it as capitilisation fees? We sign loan agreements with the bank without knowing this trick that BSP plays on customers. We end up paying more than the amount initially stated in the signed agreement.

  • Spot on Tristan. Yes, i totally agree. That is where banks are smarter and continue to steal from us. A law must be enacted to counter this evil corporate culture that is killing all the interest in businesses. great stuff Tristan

    • Casper bro am one of the victims of this BSP shit. Somebody needs to take this up with ICCC or whatever regulatory body available to take this issue up with BSP.

  • The bsp bank employees or so called accountants….loan officers have to explain each and every figure or words in the loan application to every customers applying for their loans. Hence the process should be explained step by step…

  • Interest added on every month is a day light robbery! BSP its better you stick to your normal fortnightly deductions. Customers have already paid K500 capitalization fee at the first place! Stop stealing from your own customers.

  • BSP can this capitalization or whatever needs to be stopped!! for we are your very own costumer and yet you are stealing from us..STOP STEALING FROM YOUR OWN COSTUMER.

  • THE capitalisation figure appearing on a customer’s loan statement is not a “fee” but the “interest” due for that month, says Bank South Pacific (BSP) chief executive officer Robin Fleming…This is really a joke.

    Than what fee is the fortnightly deduction??? Mama oh mi die…BSP is a great thief.

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