Commercial banks are defending a 9.4- percentage-point gap between lending and deposit rates, arguing that rising consumer delinquencies, heavy taxation, and capital requirements justify the spread — even as households account for the majority of credit in the financial system.

Data released by the Jamaica Bankers Association show that at the end of 2024, weighted average lending rates stood at about 12.1 per cent per annum, while deposit rates averaged roughly 2.7 per cent. The gap — one of the most closely watched indicators in the banking system — comes as consumer loan delinquencies edge higher.

Non-performing consumer loans rose to 4.3 per cent by the end of 2024, reflecting pressure from higher living costs and interest rates. In contrast, mortgage non-performing loans declined to 1.5 per cent, down from roughly 3.1 per cent in 2017, highlighting a widening performance gap between short-term household credit and longer-term property-backed lending.

The figures frame a growing tension in the credit market: households now account for about 55.6 per cent of total bank lending, while non-financial businesses represent roughly 35.9 per cent. Within household borrowing, consumer loans and mortgages are almost evenly split.

Spread under scrutiny

The 9.4 percentage point spread between lending and deposit rates has long been a point of public debate. Banks argue that the gap reflects the cost of absorbing credit losses, holding capital buffers, meeting regulatory requirements, investing in technology and compliance systems, and paying taxes.

In addition to corporate income tax of 33 1/3 per cent — higher than the 25 per cent rate applied to most other companies — banks are also subject to a 0.25 per cent asset tax.

Industry data show that regulatory capital stood at 14.6 per cent of risk-weighted assets at the end of 2024, well above the 10 per cent minimum requirement. Loan loss provisions covered approximately 111 per cent of non-performing loans across the sector.

In practical terms, that means banks have already accounted for more than the total value of loans currently classified as non-performing.

Stability versus strain

System-wide non-performing loans stood at about 2.5 per cent at the end of 2024 — relatively low by historical standards — suggesting that overall credit quality remains contained.

However, the increase in consumer delinquencies signals growing household strain at the margin. Consumer loans, which are typically unsecured and shorter term, tend to deteriorate more quickly during periods of rising costs and tighter financial conditions.

Mortgage lending, by contrast, has strengthened steadily in recent years, supported by improving employment conditions prior to the pandemic and more stable property-backed repayment structures.

Profits and resilience

Banks’ profitability indicators remain solid. At the end of 2024, average return on assets stood at about 1.6 per cent, while return on equity was approximately 13.3 per cent.

Those figures suggest institutions are generating sufficient earnings to build capital and absorb potential shocks, without evidence of excessive risk-taking.

During the COVID-19 downturn, banks kept lending rates relatively stable despite falling policy rates to ease pressure on borrowers. As inflation later eased and policy rates declined, lending rates adjusted more gradually, reflecting deposit repricing dynamics and persistent credit risk.

A system built for buffers

The broader picture is of a banking system carrying capital comfortably above regulatory minimums while navigating a shift in credit composition toward households.

Industry officials argue that maintaining strong buffers is essential to ensuring that credit continues flowing during economic shocks — particularly in a small, open economy vulnerable to external disruptions.

For borrowers, however, the lived experience is shaped by the cost of credit.

With consumer delinquencies rising and lending spreads remaining wide, the debate over how risk, regulation and taxation translate into borrowing costs is likely to remain central to Jamaica’s financial conversation.