Nations Trust Bank - Unethical giving only 1.5% interest to depositors when they want to withdraw!

Nations Trust Bank which was once involved with Famous Seagull Scam in 2006 as official banking partner from Mount Lavinia Branch has recently started another Unethical Banking activity for the first time in Sri Lanka.

Bank offers 12.5% for Red Carpet - Inner Circle Fixed Deposit holders but when depositors want to withdraw funds bank had said for the next few days bank will only offer 1.5% interest to them.

No Bank in Sri Lanka do this type of unethical offers for customers.

Central Bank needs to investigate this!

Following are the extracts from a letter sent to a customer.

Dear Mr. (Name Private for Privacy),

Please find the below calculation which is related to your FD redemption -

Interest paid on 18/03/2013 - 9972.60

Interest deduction for premature redemption is done like below

1000000.00 - 9972.60 = 990027.40 + ( w1)1931.51 = 991958.91

(w1) 01MN * (47 days / 365 days ) * 1.5% = 1931.51


1.5 % rate was calculated as = (2.5% + 0.5%) - 1.5%( the penalty rate) = 1.5%

Thanks & Regards,
Name (Deleted for Privacy)
Inner Circle Ambassador,
Main Branch.
+94 (0)11 4 711411

Union Bank offers the annual rate (13%) for early withdrawals. They have a special scheme for this. This is the only bank that does not reduce interest rates for early withdrawals.

Wouldn't it be cheaper to borrow on the FD and settle on the maturity date

When SEYB was having problems they didn't want FDs to be withdrawn. So some decided to borrow agains the FD

Ethical or unethical as far as an investor point of view NDB is doing good for their share holders is the main question?

Redbulls wrote:Ethical or unethical as far as an investor point of view NDB is doing good for their share holders is the main question?

This is not about NDB...(National Development Bank) ...this is about NTB (Nations Trust Bank- partly owned by John Keells Holdings PLC)

Most banks have some sort of penalty for premature withdrawal of FDs.
The best solution would be to take a loan from the bank, as rainmaker has suggested, with the FD as security.

ShafrazShauk wrote:

Redbulls wrote:Ethical or unethical as far as an investor point of view NDB is doing good for their share holders is the main question?

This is not about NDB...(National Development Bank) ...this is about NTB (Nations Trust Bank- partly owned by John Keells Holdings PLC)

Sorry I meant NTB. (typo error)

There must be an agreement between the bank & deposit holder with stipulates the conditions on interest payable on maturity & early redemption of the deposit.
Disallowing the withdrawal of the deposit is really unethical unless there is special conditions set in with the consent of the deposit holder at the time of placing the deposit. I guess certain regulations are well placed protecting the investors by-
a) Central bank
b) Commercial law
c) Civil law ( if I am not mistaken)
However, such unethical activities in practice from banking sector would deteriorate the confidence built of banking sector listed.

worthiness wrote:There must be an agreement between the bank & deposit holder with stipulates the conditions on interest payable on maturity & early redemption of the deposit.
Disallowing the withdrawal of the deposit is really unethical unless there is special conditions set in with the consent of the deposit holder at the time of placing the deposit. I guess certain regulations are well placed protecting the investors by-
a) Central bank
b) Commercial law
c) Civil law ( if I am not mistaken)
However, such unethical activities in practice from banking sector would deteriorate the confidence built of banking sector listed.

Most of us are emotional and not reading the small prints. This does not mean the banks are ethical or fair, but we as a customer need to be careful before starting any type of business with the financial organizations.(even with insurance sectors)

This is the way, banks do for premature withdrawal
There is nothing can be done
Bank deposit timing is critical, banks need to do maturity match ( rather duration match)

I remember I heard a portfolio manager did something ridiculous to avoid this. He invested 10M LKR every day on a rolling one month FD (interest rate was good because of the higher amount). So on any given day he could just request 10M.

A better way is to invest in an overnight repo and get the interest credited every day to your savings account.
If you need the cash just give a letter and the funds will be in the account by 11am the following morning

Most bank portfolio managers have a central account where collections for the day will be invested on an overnight repo and on the following day larger collective investments would be made. If short term needs arise, they will go on lien (borrow against the FD).

As some said there is always a penalty for Premature withdrawals.

Each bank/company has it own rates for premature withdrawals. For FD some companies might even state on the certificate that withdrawals are not allowed or the decision is with the company to allow such.

Now the penalty rate charge can be very high as there is no specific regulation on it as far as I know. I also believe it is the depositers responsibility to read fine prints when you deposit are ask question to avoid such situations.

I am not defending NTB as this is a poor rate but , I do not see it as unlawful.

Rainmaker,
What I do
1. Invest in money market/ fixed income fund
2. Obtain a loan against FD

salt wrote:Rainmaker,
What I do
1. Invest in money market/ fixed income fund
2. Obtain a loan against FD

This is probably the best solution.
Banks typically charge 25% more: e.g. if they give you 10% p.a. on an FD, they will charge you (10% x 1.25) 12.5% p.a, reducing balance, for the loan.

Antonym wrote:

salt wrote:Rainmaker,
What I do
1. Invest in money market/ fixed income fund
2. Obtain a loan against FD

This is probably the best solution.
Banks typically charge 25% more: e.g. if they give you 10% p.a. on an FD, they will charge you (10% x 1.25) 12.5% p.a, reducing balance, for the loan.

You can leverage to the max by buying 1 M of LKR bonds (A)
Then go lien for 90% with principal + interest at maturity. (B)

Take the 90% and invest it in NSB for a 1 year FD. You can settle at maturity (C)
Take a loan of 60% against the FD and invest it in a higher yielding deposit (D)

Interest on (D) > Interest on (C) + (B) .... is profit
Interest on (A) ... is profit

Maturity (D) + (C) + (B) > all outstanding debt principal ... effecitive yield is higher because 1M has become 1M*1.90*1.60 and all have been on interest .........

Get it ????

It is unethical on your part to withdraw a 1yr FIXED deposit in less than 2 months and ask for a good interest. The maximum any bank will give is the S/A rate but it's their decision

rainmaker wrote:

Antonym wrote:

salt wrote:Rainmaker,
What I do
1. Invest in money market/ fixed income fund
2. Obtain a loan against FD

This is probably the best solution.
Banks typically charge 25% more: e.g. if they give you 10% p.a. on an FD, they will charge you (10% x 1.25) 12.5% p.a, reducing balance, for the loan.

You can leverage to the max by buying 1 M of LKR bonds (A)
Then go lien for 90% with principal + interest at maturity. (B)

Take the 90% and invest it in NSB for a 1 year FD. You can settle at maturity (C)
Take a loan of 60% against the FD and invest it in a higher yielding deposit (D)

Interest on (D) > Interest on (C) + (B) .... is profit
Interest on (A) ... is profit

Maturity (D) + (C) + (B) > all outstanding debt principal ... effecitive yield is higher because 1M has become 1M*1.90*1.60 and all have been on interest .........

Get it ????

What if you skip A,B,C & go for D with 1M?

ShafrazShauk wrote:Nations Trust Bank which was once involved with Famous Seagull Scam in 2006 as official banking partner from Mount Lavinia Branch has recently started another Unethical Banking activity for the first time in Sri Lanka.

Bank offers 12.5% for Red Carpet - Inner Circle Fixed Deposit holders but when depositors want to withdraw funds bank had said for the next few days bank will only offer 1.5% interest to them.

No Bank in Sri Lanka do this type of unethical offers for customers.

Central Bank needs to investigate this!

Following are the extracts from a letter sent to a customer.

Dear Mr. (Name Private for Privacy),

Please find the below calculation which is related to your FD redemption -

Interest paid on 18/03/2013 - 9972.60

Interest deduction for premature redemption is done like below

1000000.00 - 9972.60 = 990027.40 + ( w1)1931.51 = 991958.91

(w1) 01MN * (47 days / 365 days ) * 1.5% = 1931.51


1.5 % rate was calculated as = (2.5% + 0.5%) - 1.5%( the penalty rate) = 1.5%

Thanks & Regards,
Name (Deleted for Privacy)
Inner Circle Ambassador,
Main Branch.
+94 (0)11 4 711411

This customer take action against to this bank???