Who's more powerful: Shaw or the banks?
Published:Friday | December 17, 2010 | 12:00 AM
Finance Minister Audley Shaw says he will be unveiling initiatives to make the banking sector more competitive, as he ramps up pressure on lenders to reduce the cost of capital at a faster rate.
He was hesitant to make a full disclosure of his strategy, pending Cabinet approval, but Shaw told the Financial Gleaner that his tactics would drive commercial banks to lower rates more aggressively.
"There are several initiatives that we are now considering to bring to Cabinet. If accepted, and once implemented, they will encourage greater competition among banks because it will involve greater portability and mobility of loans," said Shaw.
"Once we make loans more portable and mobile, then it will make competition a bigger possibility; and once that happens, then you will have a more aggressive reduction of interest rates," he said.
The banks have chosen to stay silent in the face of Shaw's push. Queries to individual top bankers, as well as the bank lobby group, on their options went unanswered.
Shaw has been on a campaign for commercial banks to lower rates more quickly, following the Jamaica Debt Exchange pro-gramme in January, to loosen credit in the system. The target: single-digit rate for capital to producers. The banks' concession so far: special loan facilities priced under 10 per cent, but with a limited lifespan.
Central bank data show that the stock of commercial bank loans have fallen J$5 billion in a year to J$252 billion at September 2010, even while deposits - the source of loan funding for the banks - have risen by J$21 billion to J$373 billion in the same period.
The area that makes banks nervous - non-performing loans - has worsened, expanding 38 per cent from J$9.4 billion to J$13 billion.
On Monday, Shaw again hinted broadly, at a function to honour retiring banker Clovis Metcalfe, that he had the power and could, if he chose, forcibly set loan and deposit rates.
However, that's a path the finance minister told the Financial Gleaner Tuesday that he has now decided not to take - though one banking executive told the Financial Gleaner on Tuesday that if he had stuck to his guns, the sector would have had little option but to comply.
Still, another said such intervention of a minister - "forcing his will" on free enterprise - could hurt Jamaica's reputation in the capital markets and create more problems for Shaw when he goes seeking new debt.
Such power should be wielded only in times of crisis and if the finance minister needed to avert systemic failures, one analyst said, on condition of anonymity.
Shaw's other undisclosed remedies may address the spreads between deposit rates and loans.
"Of course, we are concerned about the spread; with rates of 3 to 4 per cent for passbook rate and prime lending rate of some 17 per cent; we have not seen spreads like that anywhere else in the world," said the finance minister.
"It is a problem."