The debate in Parliament last week between Finance Minister Dr Nigel Clarke and the Opposition’s Mr Fitz Jackson and Ms Lisa Hanna on the contentious issue of banking fees unfortunately descended into an acrimonious exchange with hackneyed political barbs and an unfounded charge of gender bias.
While Ms Hanna did not name National Commercial Bank (NCB) in her claim that a bank is making in excess of $78 billion in net income, it became clear later that NCB was the subject of her comment.
Of note, though, is the fact that NCB made approximately $20 billion in net profits last year, and although the bank has made more in some years, it was nothing remotely close to $78 billion.
That $20 billion represents less than nine per cent return on equity and a just over one per cent return on its assets, which are admittedly large at $1.9 trillion. Furthermore, NCB Group is a bank holding company, earning money across many countries in a lot of non-bank businesses, with a large portion of its assets based overseas in Bermuda, Trinidad, and elsewhere in the Caribbean, so much of this money is neither made in Jamaica nor from banking.
It is incontrovertible that the failed policies of the FINSAC era reduced the number of banks to a closely knit oligopoly that was able to set interest rates and even the exchange rate.
However, since 2016, the Government has commendably been rolling back that costly policy error by granting new banking licences and drastically reducing interest rates on government debt.
Additionally, after the two debt exchanges, the banks, in line with global trends, have been moving away from the previous net interest income model to one of fees, which can be very annoying for both business and consumers. Indeed, in some cases these changes will violate our views of fairness.
It seems that there is now general acceptance of the fact that real competition between commercial banks on lending rates has caused them to increase their reliance on fees. However, a comparison of fees in Jamaica with those in the rest of the region shows that it is not just a Jamaican phenomenon.
Macroeconomic stability, combined with the granting of new banking licences have created a highly competitive market to the degree that the banks have been so hesitant to raise interest rates that the spread charged over the policy rate has narrowed. In some cases, it is less than three per cent, a level that is on par with developed economies and one that has never before been seen in Jamaica.
What is needed now to deal with the fee issue is more competition. There is thus a role for public policy, starting with re-tasking the Consumer Affairs Commission, for example, to review and publish the different fees charged by the banks. This, we suggest, can be combined with a more aggressive promotion of the adoption of the various new fintech technologies by the Bank of Jamaica.
With proper national identity verification, transaction fees could be reduced through competition to truly serve the underserved poor and informal sector.
How to achieve such an outcome would definitely be worth a debate, rather than tired approaches of regulation, which should only be a last resort.