Ballooning bank rates in Jamaica

Sabrina Gordon, Business Reporter

Results of a survey conducted by the Consumer Affairs Commission (CAC) has shown that Jamaican banks have indeed hiked fees to counteract the decline in interest rates due to the Jamaica Debt Exchange (JDX).

"I think this is a very worth-while survey and it is clear that in some instances you have banks reducing interest rates quite dramatically but charges have increased sufficiently to make-up the lost grounds because of the reduction in interest rates," said Karl Samuda, minister of industry and commerce, yesterday morning at his St Lucia Avenue office as he discloses the survey findings.

HUGE increase

Among the findings, Samuda pointed to a 400 per cent increase in the charge for balance enquiry by First Global Bank (FGB), the highest rate of increase recorded across the sector. During the period, FGB moved fees for balance enquiry on automated banking machines to $30 up from $6, with a similar price movement being reflected in the cost of declined point-of-sale transactions.

While Samuda noted that the survey was not done with a view to penalise any institution, he said that it will now be used to kick-start discussions with the banking sector.

"The survey was not done as a gestapo-type operation seeking to penalise people for doing business, what it is, as the mandate of the CAC is to unearth the facts as to those things that affect the consumers on a day-to-day basis," said Samuda.

"The result of this will play out as we go into further examination of this data and as we begin to hold discussions with the banks and the Jamaica Bankers Association," he told journalists.

The survey on bank charges which was conducted between July 29 and September 17 was done in collaboration with the Inter-American Development Bank and Consumers International, a world federation of consumer groups, both of which provided funding for the exercise. The survey was done as a special request of the prime minister according to Samuda, because it was felt by many in the private sector and elsewhere that as a result of the reduction in interest rates the banks have sought to make-up the difference by increasing service charges.

Shift in Revenue

Jamaica's commercial banking sector currently has seven banks operating with asset base of $579.8 billion at the end of June. Prior to the JDX, interest income has been the main revenue driver for these banks with the Bank of Nova Scotia (BNS) and National Commercial Bank (NCB) capturing a huge chunk of the market. But since the exchange which saw some 350 high-priced government domestic bonds being replaced with 24 new issues, priced at an average of 12.25 per cent, the banks have all been looking at other revenue-generating strategies including fees charged for services.

In the area of personal services, the charge for withdrawal and deposit have gone up by 122 per cent and 125 per cent respectively, this being seen in NCB, the highest recorded across the six banks that were surveyed.

For transfer between accounts BNS recorded the highest movement of 150 per cent, from $100 to $250, NCB had the lowest increase of 25 per cent.

Highest movement

RBTT recorded the highest movement in annual charges for local credit card at 90 per cent, moving from a low of $1,500 in May 2009 to $2,010 in July 2010. On the other hand, international credit cards reflected a high of 67 per cent price movement recorded by NCB.

But as commercial banks move fees upward, interest rates on loan products to customers remains inelastic. The lowest rate that exists in the banking system for commercial loans is 17.75 per cent, a price being offered by both BNS and NCB.

RBTT has the highest rate of 20.5 per cent for commercial, and it also recorded the least reduction in rates of 7 per cent for both commercial and personal loans.

For personal loans, the highest reduction was 33 per cent by BNS, which has the lowest rate of 13.25 in the market.