OPPOSITION spokesman on finance and planning, Audley Shaw, says that it is time for Jamaica’s commercial banks to start aiming at single digit interest rates, and reduce the spread between their deposit and lending rates.

Shaw told the House of Representatives on Wednesday, during debate on six banking regulations linked to the effectiveness of the new Banking Services Act, that, while he is not promoting more regulation of banks, there is need for the Government to start discussions with them on how the spread can be reduced.

“The commercial banks’ lending rates are not following the trend of any aggressive fall in interest rates. That is a problem, and that is something that will have to be dealt with,” Shaw said.

The Opposition spokesman said that he has pointed out on several occasions that the developed world is surviving on spreads between deposit rates and lending rates averaging three per cent. He said that, for example, the average spread in the USA was 2.96 per cent.

“Yet our commercial banks demand an interest rate spread of 12-14 per cent between the rate they pay on deposits and the rate at which they lend money.

“Now where do we get off in Jamaica insisting on a spread of 12-14 per cent, when the developed countries are at three per cent?” Shaw argued.

“In the Caribbean the average spread is six per cent, so the Caribbean region is twice that of the developed world, but we are four to five times and counting, and twice where the rest of the Caribbean is. What is it about us?” Shaw asked.

“So in this raft of regulations that we have here now, the question is, is there any capacity that the BOJ might have to seek to begin a process of influencing the commercial banking system to say, ‘listen, these kinds of spreads are good for your profits, but they are not good for generating investment and growth in the Jamaican economy’,” he concluded.

Minister of Finance and Planning Dr Peter Phillips, in response, agreed with Shaw that the proposals were “a debate which we need to have”.

“But, I want to remind the House that we are talking here today more narrowly of the approval of the regulations that are before us,” Phillips said.

Dr Phillips said that, while Shaw had raised an important point, there is a need to change the culture of banking in Jamaica, and the major contribution needed to be to return the banks to the business of banking.

“Finding good projects and assessing the risks and extending credit is going to come by the State not operating as it did in the past — being the main borrower of funds and allowing the institutions to simply be the lender of first resort to the State, and therefore having no need to go out and seek credit,” Phillips said.

“I dare say that the first task in changing this culture is well under way, in that we have not become the borrower of first resort for all the banks in the system,” he added.

The Banking Services Act, which was passed in 2014, aims at modernising the regulatory framework within which local banks operate. The Act consolidated three statutes governing deposit taking institutions — the Banking Act, the Financial Institutions Act and sections of the Building Societies Act. It constituted a single Banking Services Act which requires the promulgation of various regulations before it can become effective.

The regulations are required to deal with specific issues including: the establishment of branches; licence fees; hours of opening; capital adequacy; and amalgamation and transfers. The effectiveness of the Act is one of the structural benchmarks to be met under the Memorandum of Economic and Financial Policies, as agreed with the International Monetary Fund.

Phillips says that the Government expects the commencement of the Act by the end of this month, and the regulations are essential for the Government to be able to name a date for the Act to come into force.