A number of brokers and deposit-taking institutions (DTIs) have begun to specify that customers must invest ‘new’ funds into fixed income products in order to benefit from higher interest rates now being offered.

The Bank of Jamaica (BOJ) has increased its policy rate over the last year from 0.50 to 7.00 per cent as it aims to maintain financial stability and temper point-to-point inflation which has trended from 9.3 per cent in September to 10.3 per cent in November. The policy rate is what the BOJ pays DTIs on overnight balances held in the current accounts at the central bank.

The rise in the BOJ’s policy rate also increases the cost of funds for financial institutions as lenders, depositors or investors demand higher rates to reflect the current environment. As a result, a commercial bank may have higher costs from its interest expense liabilities. While the interest rates on deposits from customers might not have moved by much, it may have a material impact on the spread earned since deposits are the cheapest source of funding for a DTI.

JN Bank Limited is currently offering a “sweet savings” deal of up to seven per cent for deposits exceeding $500,000; however, the commercial bank notes that it is applicable only to new deposits and that funds should fixed for one year. The promotional bands only show funds amounting to $10 million and above earning the seven per cent rate relative to the existing rate of 2.75 per cent.

In the case of NCB Employees Co-Operative Credit Union, they are currently promoting a “deposit bonanza” that allows members to earn higher rates on funds from the three offerings now available. The dream deposit promotion states that a minimum investment of $1.5 million for a period of 12 or 24 months can earn seven per cent per annum. The partner plus promotion and golden harvest promotions require a minimum of $15,000 with an interest rate of five per cent per annum for a minimum of 12 months. Interest is paid semi-annually for all promotions.

However, the rate on offer is only extended to new money, which is defined as funds which have not yet been deposited into the credit union.

This scenario is not isolated to DTIs as some customers of securities dealers and other brokers have been told that the higher rates being offered are only applicable to funds from outside of their purview. This comes at a time when securities dealers such as Barita Investments Limited have increased the rates offered on repurchase agreements to 7.50 per cent for funds ranging from $1 million to $9.99 million over a year.

The reason posited by an executive at a DTI for this stipulation is that no financial institution wants clients to move funds from lower-rate products to higher-rate products, which would inevitably increase their interest expense. As a result, the interest rates on different fixed-income like products will increase, but the financial institutions will attempt to contain the increased cost on those new funds.

Last week the BOJ posted the deposit rates offered by commercial banks in an effort to inform consumers about more favourable deposit rates in the market. JMMB Bank (Jamaica) Limited had the highest weighted domestic currency savings rate of 1.46 per cent while JN Bank had the lowest at 0.08 per cent. FirstCaribbean International Bank (Jamaica) Limited had the highest weighted demand deposit rate of 1.06 per cent while JN Bank had the lowest rate of 0.24 per cent. Citibank NA had the highest weighted timed deposit rate of 7.25 per cent while The Bank of Nova Scotia Jamaica Limited (BNSJ) had the lowest rate of 0.42 per cent.

“Having our clients’ best interest at heart, JMMB Bank Jamaica seeks to ensure that our interest rates are among the most competitive in the market. In the case of interest rates on deposits, JMMB Bank has consistently remained among the market leaders, offering (in a number of instances) the best interest rates among local banks. Guided by the Bank of Jamaica’s (BOJ’s) policy interest rate, we commit to continue monitoring the interest rates being offered on the market to ensure that we remain among the market leaders,” said JMMB Bank in an e-mail to the Jamaica Observer.

When the Business Observer reached out to First Global Bank Limited (FGB), they responded, “FGB has offered multiple interest rate increases on fixed deposit products and will continue to do so as the market dictates. We are exploring interest rate increases on the other deposit products in the new year.”

While the BOJ has spoken about the increased policy rate being one aim to encourage savings, an executive highlighted that individuals who are seeking high yields or returns from fixed-income instruments in the current market are checking securities dealers and not commercial banks or DTIs in general. An example is Victoria Mutual Investments Limited’s $5.8-billion bond which has fixed rates of 10.50 and 11.75 per cent per annum or the Mayberry Investments Limited $5-billion bond being offered in four tranches from 9.25 per cent to 12.00 per cent.

Sagicor Bank Jamaica Limited (SBJ) is increasing its deposit rate by 2.00 percentage points on January 26 after its deposit product guide shows that it was last updated in August 2019. No other commercial bank has made a public announcement about an increase in their deposit rate, but others have increased the interest rates on variable rate and existing loans to customers.

National Commercial Bank Jamaica Limited (NCBJ) has already announced an increase on existing business interest rate loans for February 1 from 0.23 to 1.75 percentage points. However, NCBJ will also be increasing the interest rate on variable rate loans for personal customers by the same range on February 1.

Despite not making an announcement in 2022, BNSJ will be increasing the interest rate on variable rate loans for customers on February 1. An e-mail from the bank indicated a loan increase by 1.00 percentage point.

FirstCaribbean, JN Bank and JMMB Bank have not publicly announced any proposed changes on variable rate loans for 2023 as yet, with the Business Observer waiting up to press time on a response. FGB and SBJ are increasing interest rates on variable rate loans by 2.00 per cent and 2.50 per cent in the first quarter of 2023. There was $1.12 trillion in loans and advances and $1.50 trillion in deposits as of October 31 as per BOJ data.

“On August 1, 2022, JMMB Bank increased the interest rates on all our variable rate loans by 1.5 per cent. While we have not yet aligned on the specific interest rate increases for 2023, we will certainly advise our clients of any adjustments, within the required notice period, and provide them with the necessary guidance that they will need, as we partner with them to navigate these challenging economic times,” said JMMB Bank on an increase in its interest rates on variable rate loans.