Dealing with bank charges
The debate in Parliament last week between Finance Minister Dr Nigel Clarke and Mr Fitz Jackson and Ms Lisa Hanna of the Opposition over the contentious issue of bank charges unfortunately turned into an acrimonious exchange with beards worn-out policies and an unfounded accusation of gender bias.
Although Ms Hanna did not name the National Commercial Bank (NCB) in her claim that a bank has a net income of over $78 billion, it later became clear that the NCB was the subject of her comment. .
Worth noting, however, is the fact that NCB made about $20 billion in net profit last year, and while the bank made more in some years, it was nothing close to $78 billion.
That $20 billion represents less than 9% return on equity and just over 1% return on its assets, which are admittedly significant at $1.9 trillion. Additionally, NCB Group is a bank holding company, making money in many countries across many non-banking businesses, with much of its assets based overseas in Bermuda, Trinidad and elsewhere in the Caribbean. , much of this money is neither made in Jamaica nor banked.
It is indisputable that the failed policies of the FINSAC era have reduced the number of banks to a tightly knit oligopoly capable of fixing interest rates and even the exchange rate.
However, since 2016 the government has commendably reversed this costly policy mistake by granting new banking licenses and dramatically reducing interest rates on public debt.
In addition, after the two debt swaps, banks, in line with global trends, have moved away from the old net interest income model to a fee model, which can be very annoying for businesses and consumers. Indeed, in some cases, these changes go against our vision of fairness.
It seems that there is now a general acceptance that the real competition between commercial banks on lending rates has made them more dependent on fees. However, a comparison of fees in Jamaica with those of the rest of the region shows that this is not just a Jamaican phenomenon.
Macroeconomic stability, combined with the granting of new banking licenses, has created a highly competitive market as banks have been so reluctant to raise interest rates that the spread over the policy rate has narrowed. In some cases, it is below 3%, a level comparable to developed economies and never seen before in Jamaica.
What is needed now to fix the fee problem is more competition. There is therefore a role for public policy, starting with giving back to the Consumer Affairs Commission, for example, the task of examining and publishing the various fees charged by banks. This, we believe, can be combined with a more aggressive promotion of the adoption of various new fintech technologies by the Bank of Jamaica.
With proper verification of national identity, transaction fees could be reduced through competition to truly serve the poor and underserved informal sector.
How to achieve such an outcome would certainly deserve debate, rather than tired regulatory approaches, which should only be a last resort.