Government is exploring policy measures to encourage Jamaica’s cash-rich banking sector to more equitably share the burden of economic development with the rest of the productive sector.

In separate instances last wek, Prime Minister Bruce Golding and Commerce Minister Karl Samuda reiterated the need for commercial banks to balance the cost of funds and the price of funds so that businesses can more equitably share in success.

“I have asked the Bank of Jamaica to examine current bank practices as they relate to disparity between the cost of funds and price of funds and advise me as to what policy measures we can adopt to encourage our banking sector to contribute more to economic development in Jamaica. It can be done. Banks don’t operate in a vacuum, they operate in a dynamic environment,” said Golding on Wednesday, speaking at the General Assembly of the National Export Strategy in Kingston

Meanwhile that same day, Samuda told Sunday Finance at the launch of National Entrepreneurs Week that there appears to be some disparity between the banks and the rest of the productive sector that translates into supernormal profits on one hand and relatively weak performance on the other.

“We have looked at it and there is no question. Notwithstanding all that Bruce Golding might have said. The fact of the matter is that they must share in this time of difficulties,” Samuda said of the Banks.

“You can’t be asking the productive sector to be virtually marginalised because of the world recession, the challenges they face in terms of getting the goods they need, the raw materials and so on and going through all the difficulties they go through,” he continued. “They eek out perhaps a gross ten per cent on what they produce, some less. And then you have a financial community that is earning the kinds of profits that are being announced.”

The comments came on the heels of National Commercial Bank (NCB), one of the two dominant commercial banks in Jamaica and the largest by assets, branch network and capital base, has upped its profit by almost a billion dollars. NCB revealed last week that it had made $11 billion in net profit for 2010, up $827 million or eight per cent over the $10.2 billion reported last year.

The revelation was met with disbelief by some members of the public who questioned the bank’s ability to increase its net profit despite a contraction in the economy and the effects of the Jamaica Debt Exchange (JDX). Samuda said he had heard the concerns.

“And so I know the Prime Minister and the Minister of Finance will be engaging them in discussions to see to what extent they are prepared to share in this time of crisis and difficulty,” Samuda said. “They have to. They are not doing us a favour, they are doing themselves a favour because the country cannot grow and develop with this kind of attitude where we must get our share and there doesn’t seem to be the same degree of regard for the difficulties that other people who are in business have to endure.”

A Survey of Bank Charges by the Consumer Affairs Commission revealed last month that following the JDX, some banks had raised their fees by as much as 400 per cent. Samuda maintains, despite protest from the banks, that the fee increases were done to make up for a loss of interest income as a result of the lowering of the rate on Government of Jamaica investments.

“What they have done is simply transfer the interest charges to charges on services. In many cases someone who is a customer of a bank has no choice because they can’t escape the charge. It is clearly a strategy that the banks have adopted and in fact it is not even so subtle because Mr (Bruce) Bowen (Scotiabank CEO) has made it clear that he had to do that to keep his bank going and with the level of staffing and so on. So all of that has to be reviewed in my opinion and they must be reasonable. That is all we are asking them to do, be reasonable.”

Similar sentiments were expressed by World Bank Group’s Vice-president for Latin America and the Caribbean Pamela Cox in an article published in Sunday Finance last week.

“I think we ought to put pressure on the banks to see how they can make money within a relatively reasonable regulatory framework,” said Cox.

“This is a time for the people of Jamaica to pull together and make sure the country is set to get on a growth path. I have heard that the banks, as a result of the JDX, have increased their fees and charges. Well there has also been a big debate in the US about that. Banks do need to make money, that is what they are in business for. I think the answer here is to look to regulatory reform. Banks can certainly charge fees but the point is, are they open about those fees and are they reasonable fees,” she added.

Scotiabank’s year end results for 2010 are due January 31, 2011. Despite the recession, Scotia, the most profitable listed company in Jamaica, reported net income for the fiscal year ended October 31, 2009 of $11.1 billion, an increase of $1.7 billion or 19 per cent above the comparable period the year prior.

Bank of Jamaica (BOJ) Data show suggests that the spreads on commercial bank loan and deposit rates have actually increased since the JDX. The latest BOJ data on commercial banks weighted loan rates (personal, credit, overall average weighted rate) and the commercial banks weighted deposit rate for 2010 show a less than 100 bases points reduction on loan rates for both personal and commercial credit across the sector since the JDX in February, even though rates on deposits declined more.

In February 2010, personal loan rates were 23.71 per cent and by July 2010, decreased to just 23.43 per cent . On commercial loans, the interest rate was 12.93 per cent in February and had decreased to just 12.39 by the end of July 2010.

On the other hand, deposit rates for savings and Time deposits have trended downwards far more quickly and by more than 100 bases points since then. In February, at the end of the JDX, savings rates were 2.84 per cent, while at the end of July savings rates had declined by more than 100 bases points to 1.84 percent. For time deposits, rates declined from 5.82 per cent in February, to 4.38 per cent in July suggesting that while one would be charged almost the same interest on a personal loan, you would be simultaneously be paid less interest on your savings deposited in banks.