Spanish practices stand up to public scrutiny

Banco Santander has fought its campaign to buy Abbey with promises of lower charges and better service to the millions of UK customers it hopes to gain through the deal. But questions have been raised over whether the bank is really more efficient than its British rivals and whether it does offer customers a cheaper deal.

On a corporate efficiency and profitability level, Santander does seem evenly matched with the UK banks. Its costs as a proportion of revenues come in slightly better than the main banks in the UK, based on estimates from the stockbroker Bear Stearns. Its return on equity is marginally lower at 17.4 per cent, but its net interest margin - the measure of how profitable it is lending money - is better than the UK banks, at 2.35 per cent.

When assessing the plethora of often opaque and complex charges employed by UK banks, the benefits of Santander's system are more difficult to establish. The Spanish consumers' association, Ausbanc, has, however, backed up Santander's claims, saying British banks are overcharging customers. This is despite the fact that Santander, like most Spanish banks, charges a monthly "maintenance fee" of €0.02 per month to customers. It also charges €0.5 for transactions, which most of the mainstream UK banks do not.

A spokesman for Ausbanc said: "The fact that there are no charges to manage a current account in the UK does not necessarily imply that banking services have reasonable charges." The organisation has hit out at the high charges on overdrafts in the UK, which it says do not exist in Spain. Which? magazine recently calculated that UK banks rake in £3bn a year in fees from unauthorised overdrafts, made up not only of high interest rates but also additional charges of up to £25 per day for transactions that occur while overdrawn. In Spain, money transfers are cleared within one day, whereas in Britain this can take three days. This can lead to spiralling overdraft charges.

Banks in Spain, according to Ausbanc, must charge no more than 2.5 times the central bank's base rate on overdrafts, which would put the current maximum charge on overdraft interest rates at about 9.5 per cent. It also says charges on overseas transactions are lower in Spain.

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