Banks are unjust! - JMEA slams institutions for ‘extortionate’ interest rate; unfair foreign exchange practice

The Jamaica Manufacturers and Exporters Association (JMEA) has strongly chastised local commercial banks for maintaining high interest rates over many years, describing it as "extortionate" and anti-development.

The association said that troubling data reveal that Jamaica's interest-rate spread nearly doubled the world average between 2010 and 2016. The country's rate was also higher than that of Barbados, Trinidad and Tobago, and the United States from 2006 to 2016.

An interest-rate spread refers to the difference between interest paid on deposits versus interest a financial institution charges on loans and securities.

The JMEA provided an analysis of the data gleaned from the International Monetary Fund's International Financial Statistics, presented in detailed graphs.

"While we are fully aware that interest-rate spreads across countries will differ due to bank-specific and macroeconomic variables, these revelations are, nonetheless, alarming and disheartening and lead the Jamaica Manufacturers and Exporters Association to question the reason behind these extensive margins," the JMEA said in a press release yesterday.

It continued, "Local commercial banks, especially, seem to be more interested in boasting double-digit increases in revenues and net profits but demonstrate blatant disregard for the development needs of the country."

HIGHEST MARK-UP OF ALL THE CARICOM COUNTRIES

Jamaica's highest interest-rate spread for the period came in 2011, at 15.23 per cent, while the world average was 6.02 per cent. Jamaica's 2016 rate stood at 12.93 per cent, with the world average at 5.74 per cent.

The JMEA, whose president is Metry Seaga, also expressed its dissatisfaction with the banks' usually high difference in the rate at which they buy and sell foreign currency.

"Equally concerning is the difference between the buying and selling of international currencies. According to the Bank of Jamaica (BOJ) Foreign Exchange Trading Summary as at August 16, 2018, local commercial banks purchased US dollars at costs as high as JMD$138.50 but sold it for prices as high as JMD$146.25. This indicates a 5.6 per cent mark-up, the highest mark-up of all the CARICOM countries reviewed in the summary," the association noted.

"The JMEA continues to urge these institutions to play their role in advancing the nation's objectives by actively reducing the mark-ups they currently employ. Financing for our agricultural, manufacturing, and service sectors can be substantially lower than it is currently. Uncompetitive interest rates persistently impede Jamaica's competitive advantage and cripple our local productive sectors as they try to gain a foothold in global markets."

AGGRESSIVELY SHOP AROUND

The Gleaner reached out to the president of the Jamaica Bankers' Association, the governor of the Bank of Jamaica (BOJ), and the minister of finance and the public service, but they were unavailable for comment up to press time.

Brian Wynter, governor of the BOJ, on Wednesday, urged consumers to be more strategic in how they pursue loans in a push to find low-interest rates as he addressed a press conference at the Ministry of Finance and the Public Service.

Wynter reasoned: "We have the benefit in Jamaica of many entities, and you have a choice of where you can borrow from. We have a tendency to look at just one institution. I think that it's a good time for individuals, stakeholders, and companies to aggressively shop around."

Conversely, he admitted that interest rates for the micro, small, and medium, enterprises continue to be a barrier.

The BOJ governor continued: "It's not our job to create growth. Monetary policy right now, loose as it is, may not be loose enough. Interest rates now for medium-sized and small businesses are very high. It is an obstacle to those businesses to be able to expand. They may have good business ideas and products and opportunities, but for one or two per cent reduction of their rate, they are not able to access it."

The JMEA queried, "If the BOJ's monetary policy of lowering interest rates and setting a five per cent inflation target is to drive production, expand export, and stimulate consumption of domestic goods, then why are the banks taking so long to respond and play their role in economic growth and development for all?"