A report on the nature and extent of competition in the commercial banking sector, has identified the Jamaica National Building Society (JN) as one local entity that could potentially give some amount of competition to the Big Two, National Commercial Bank (NCB) and the Bank of Nova Scotia (BNS).

The report was done by the Fair Trading Commission (FTC) and the results disclosed at a press briefing called by Minister of Industry, Investment and Commerce, Karl Samuda at his Kingston offices yesterday.

After disclosing the results which indicated that the commercial banking sector is ‘highly concentrated’ and that the two largest banks, NCB and BNS together operate 85 of the 130 branches islandwide, account for approximately 74 per cent of the sector’s deposits and approximately 73 per cent of the sector’s gross revenue, Minister Samuda stressed the need for increased competition in the sector.

The FTC and the Ministry recommended that in addition to regulation which ensures that banks provide adequate and timely information on their services and the attendant fees to customers, an increase in competition from an entity with a large enough reach should be considered.

“If Jamaica National Building Society, the country’s largest building society, entered the commercial banking sector, its entry is likely to enhance competition in the sector,” The FTC report stated.

This led Samuda to speak at length about the virtues of the Jamaica National Building Society (JN) in this regard, an entity that does not as yet have a commercial banking licence. JN applied to the Central Bank for a commercial bank licence in 2008 but was then denied.

He said, unlike JN, the commercial banks had not invested in the resources necessary to serve their customers in a very personalised way. According to Samuda, the large banks “have no capability of monitoring a small business loan” and therefore must rely on the assistance of small agencies to do that work for them.

“Whereas Jamaica National, because of the type of business they manage they have a network across the country that is constantly in touch with their customers. So this organisation is the kind of organisation that may offer the level of competition to the existing banking structure that would be welcome,” Samuda said.

“I single out JNBS an indigenous financial community that has taken the time to invest in the infrastructure necessary to and they focus primarily on small business. The commercial banking community has not made such an investment,” he said. Minister Samuda said the FTC’s recommendations will be submitted to the Ministry of Finance for action.

When contacted on Thursday, Earl Jarrett, general manager of JNBS said JN has always been interested in operating a commercial bank.

“Yes, we intend to continue to pursue it because its been a while now and the conditions have changed,” Jarrett said. However he declined to comment further saying he had not as yet received a copy of the FTC’s report.

In his presentation Minister Samuda stopped just short of calling the perceived imbalance in the commercial banking sector collusive, but the hint was definitely there.

According to the findings of the FTC, it was concluded that: “It is unlikely that any individual bank, without collaborating with at least one other bank, could hinder competition.”

However, whether there is collusion between the Big Banks, the FTC also found that because of their size, expansive branch network and the services offered- which accords their customers greater convenience and accessibility- without a similar network of branches, other banks will not be able to compete because “smaller banks exert limited competitive restraints on the larger banks”.

“The two larger banks have blanketed the country more or less,” said Samuda. “The other banks have so far it appears been able to make a good living because of the type of portfolio that they have and the investments that they make. Without the kind of coverage that these two large banks have, the introduction of a new bank would have to contemplate enormous capital to be able to have that kind of coverage and to create a network across the country that would form any kind of competition for the two larger banks,” he said.