FTC: Bank competitiveness improves but concerns remain

Jamaica’s banking sector provides stability but might not be competitive enough, despite improvements in recent years.

That, on the face of it, is the upshot of a new study done by Fair Trading Competition, FTC, of the $2.4-trillion commercial banking sector, which is served by eight banks.

“The commercial banking sector, with its consistent index patterns indicating moderate concentration, may indicate a landscape that fosters stability, but also hints at limitations in fostering intense competition,” said Carlton Thomas, author of the FTC staff report titled The Scope for Greater Competition: Trends in Market Concentration Levels in the Banking Sector.

The study by the competition watchdog assessed the market from 2017 to 2023. It looked at the concentration of deposits, loans, and assets across the sector.

Thomas, who is a competition analyst at the FTC, found that there were improvements, the sector having dipped from highly concentrated to moderately concentrated. Markets that are highly concentrated are considered to be “least amenable to competition,” he explained. This potentially impacts on pricing strategies and accessibility to financial services, he added.

Jamaica’s eight banks, in order of size of assets, are National Commercial Bank Jamaica, Bank of Nova Scotia Jamaica, which trades as Scotiabank Jamaica, JN Bank Jamaica, Sagicor Bank Jamaica, JMMB Bank, FirstCaribbean Jamaica, First Global Bank and Citibank NA Jamaica.

Commercial banking assets were estimated at $2.46 trillion, customer loans to $1.2 trillion, and customer deposits to $1.7 trillion, banking industry data up to December shows.

The addition of JMMB Bank improved competition in 2017 onwards, Thomas noted in his report. JMMB Bank formerly operated as Capital & Credit Merchant Bank, but transitioned to commercial banking under a new name and under the ownership of JMMB Group.

Thomas’ report did not mention JN Bank, which entered the commercial banking arena after JMMB, and was itself once a mortgage bank, or building society, prior to its transformation and transition.

Banking assets

Of the $2.47 trillion in commercial banking assets, NCB holds $939 billion, or 38 per cent; Scotiabank has $588 billion, or nearly 24 per cent; while JN Bank rounds out the top three at a distant third with $255 billion, or 10 per cent.

Jamaicans have $1.7 trillion of savings and other deposits in banks, with NCB alone holding nearly a third, 32 per cent, in its custody. Together the two largest banks, NCB and Scotiabank, hold the heaviest concentration of deposits at 59 per cent of the market. They also account for 58 per cent of loans, with NCB well ahead of the pack with 37 per cent of the market.

The Bank of Jamaica is yet to respond to a request for comment on whether it sees scope for new players to enter the commercial banking market.

In assessing the banks’ competitiveness, Thomas ranked them in three categories, from high concentration to moderate to low, using the Herfindahl-Hirschman Index, HHI, which is described as the most widely used measure of market concentration. He noted that the HHI over the review period dipped from a high to a moderate level in market concentration levels. Despite the fall, the market still can limit competition, he noted.

“This situation could influence pricing strategies, product offerings, and the overall accessibility of financial services to the broader population,” his report stated.

Under the HHI, a concentrated market scores 2,500 points or more, moderate is between 2,500 and 1,500 points, and unconcentrated below 1,500 points. In other words, less points signals more competition in the sector.

For Jamaica’s banking sector, the HHI ranking moved downwards from high to moderate when looking at assets, loans and deposits over the 2017 to 2023 period. Accordingly, and reflective of the improvement, the HHI scores fell from 2,400 to 2,200 points for assets, 2,400 to 2,100 points for deposits, and 2,575 to 2,200 points for loans.

“The index reflects an overall positive downward trend in market concentration levels. While these observed trends in market concentration is robust across alternative dimensions of competition, it prompts the need for further analysis and policy considerations seeking to assess competition in the sector,” Thomas said.

steven.jackson@gleanerjm.com

Commercial bank assets

December 2023

NCB $939.3 billion

Scotiabank $588.2 billion

JN Bank $255.4 billion

Sagicor Bank $206.7 billion

JMMB Bank $192.9 billion

FirstCaribbean $173.2 billion

First Global $83.0 billion

Citibank $28.8 billion