Thank you, Minister Shaw

It is not often that I find myself cheering on a politician. However, in a recently publicised speech, Audley Shaw, the minister of finance and the public service, bemoaned the wide banking 'spread' (the difference between the interests paid to depositors and the rate the bank charges to debtors on bank loans) being enjoyed by banks operating here in Jamaica.

Essentially, he promised to have the disparity between banking concerns here and those operating overseas researched and presented to him. He went on to passionately entreat the banks to join the country in its quest for economic recovery by reducing their lending rates, thus encouraging business growth.

Although we are a democratic society operating under a capitalist system, recent economically catastrophic global events have highlighted the need for close governmental monitoring of and interaction with banks and other financial institutions at the management level. Obviously, unless closely watched, their 'enthusiasm' eventually supersedes responsibility, accountability, customer needs and, sometimes, ethical practices.

Even I, unschooled in economics, wondered why the Government of the 1990s turned a blind eye to (some say encouraged) institutions offering astronomically high interest rates on investment accounts; it seemed to me that annual rates of 60 per cent return and more were absolutely unrealistic, blatantly unsustainable and headed for disaster. So, it came as no surprise when we had that horrific financial crash that spawned the Financial Sector Adjustment Company (FINSAC) - the bane of many businesses and individuals.

Collapse

And, everyone knows what happened when the mortgage institutions in the United States went crazy with lust for the money of people wanting new or second mortgages. The low introductory rates that lured borrowers reverted to regular rates and, when the housing bubble burst, the entire house of cards came crashing down with terrible worldwide consequences.

Our own Bank of Jamaica (BOJ) bonds were out of this world. The 20-per-cent-plus rates that were offered were only somewhat believable because they were being offered by the central bank. However, someone within the administration should have realised that those rates were not serviceable in the long run and be brave enough to say so. Because there was no discernible means of supporting such high returns, I wondered if the returns given to existing investors were being contributed to by funds from new investors. In any event, that too was terminated - with the Jamaica Debt Exchange programme (JDX) - to fulfil International Monetary Fund (IMF) requirements. Many of us who trusted the Government and invested in retirement schemes were badly hurt by the sudden, severe reduction in returns.

In spite of the JDX, the banks are not playing fair - they reduced their interest rates on savings with lightning speed but have been super-slow to reduce their lending rates, thus maintaining an extremely wide spread.

When I checked about two months ago, generally, saving account rates varied from 0.00 per cent to 5.5 per cent (depending on the deposit amount). Some certificates of deposit went as high as 7.95 per cent. However, lending rates varied from 16.25 per cent to 27.875 per cent. Don't even mention punitive overdraft and credit card interest rates.

Astounding differences

The overseas concerns of one of our banks offers savings rates of zero per cent to 1.5 per cent and lending rates up to 2.25 per cent. The difference in the spread there and here is nothing short of astounding.

Banks also levy fees for every possible transaction that their customers perform. Between the fees, 'fines' and counter-productive spread, banks unwittingly stifle our development and severely limit our potential for economic growth. Their current practices will scare off enterprise. I hope that Minister Shaw can persuade them to do the right thing, for the sake of our country.

Garth A. Rattray is a medical doctor with a family practice. Feedback may be sent to garthrattray@gmail.com or columns@gleanerjm.com.