BANK of Jamaica (BOJ) Governor Richard Byles is turning up the pressure on commercial lenders to reduce borrowing costs, following the central bank’s decision to cut its policy rate by 25 basis points to 5.75 per cent — its fifth reduction in nine months, totalling 1.25 percentage points.

Despite the signals, commercial banks have been slow to pass on savings to consumers through lower loan rates, prompting Byles to announce direct intervention, even if it’s only through the use of moral suasion.

“We are going to be meeting with the commercial banks,” Byles told journalists at Wednesday’s monetary policy briefing, making clear his dissatisfaction with the delayed response. He said for now, that is what the central bank will be doing as it lacks other “legislative power” which, in any case, he said might not be conducive in a market economy.

The governor framed the latest cut — implemented even before the US Federal Reserve has considered easing interest rates — as a particularly strong message to financial institutions.

“This rate cut… we see this as a signal, a powerful signal to them that we want rates to jump down, to come down,” Byles emphasised.

Speaking directly to both banks and the public, the governor outlined his expectations, especially for consumers whose loan rates went up in recent years.

“To the public: We think the conditions are there for commercial banks to look at those loans that experienced an increase or that were put on at a higher rate than other loans,” he said. “Look at those and see whether you can give some relief to your customers.”

Then, in a pointed message to lenders, Byles added: “Let me say: They are your customers. Can you give them some relief? The Bank of Jamaica has cut 1.25 per cent; you should be in a position to make a cut also. Those customers, I think, are eligible for a review of their rates because we have cut rates now, cumulatively, one and a quarter per cent from the high of seven per cent,” he said.

The unusually direct appeal comes as the BOJ attempts to stimulate economic activity through cheaper credit while facing resistance from a banking sector that has been slow to adjust rates downward in line with central bank moves.

Byles — seeing this and outlining that the central bank, while not satisfied with the pace at which banks move to follow its signal — reiterated that it is working on a fix but admits it may take “a little while” to be implemented.

Questioned about the role greater competition in the banking sector might have on banks being more willing to respond more quickly to the central bank, Byles pointed out that five new lending institutions were added to the system in the last 15 years, bringing the total to 11, but said that has not helped as up to 60 per cent of deposits are held in only two banks — National Commercial Bank (NCB) and Bank of Nova Scotia (BNS).

“So the central bank and the country have let in several new financial institutions — banks, commercial banks — but that has not shifted the competitiveness by any significant amount,” he acknowledged.

“Sixty per cent of all deposits are with two banks — and that has not changed. And in the banking business, he who controls the deposits controls the loans. If you don’t have the deposits, you can’t make the loans. If your deposits are more expensive than somebody else’s, you can’t be competitive in how you lend,” he said.

“So it’s not a matter of letting in more institutions, it’s a matter of giving consumers the freedom to move from one institution to another, and one of the hurdles in doing that is the KYC [know your customer] issue — and the way in which we are going to address that is to have a centralised digital database of KYC information. That information will belong to each individual bank’s customer. It doesn’t belong to the bank, it belongs to the customer, and the customer can take that and walk to any bank that they want. So, if I am at Bank A and I don’t like their deposit rate, I can take it and walk to Bank C and open an account without a lot of trouble, [and] in that way create a lot more fluidity of customers from one bank to another bank.

“Similarly, with loans, if I am not happy with the rate that I am getting or the condition of the loan, I can port my business to another bank more efficiently,” Byles argued.

That apart, he pointed out that if commercial banks are not responsive to rate cuts they could see their share of the loan market being eroded by securities dealers.

“The non-banks have been very responsive to rates going up and rates coming down. And what I think the banking community needs to look out for is the non-bank community starting to lend to their customers around them. In other words, if I can’t get a rate reduction from my commercial bank and my rates are, in my opinion, high, am I open to a security dealer doing a bond on my behalf and paying out the commercial bank? That’s the risk I think that they run if they are stubborn in not being sensitive to rates coming down.”