Bank-fee elixir
Published:Friday | January 14, 2011 | 12:00 AM
When Jamaica's banks speak, their voices boom. Except for Tuesday, when they served up weak tea.
Already accused of oligopolistic tendencies, they were once again united in piety this week over the righteousness of their position to be as exacting on customers as their judgement allows in the application of fees and charges.
Under the umbrella of the Jamaica Bankers' Association (JBA) - because nothing says courage like a statement to which not even the president of the association's name is attached - Jamaica's bankers told Jamaicans to suck it up, or take their business elsewhere.
To their credit, they did so politely.
There is a "rich diversity of service providers and options" for customers to shop around for cheap fees, the statement said.
Then the JBA advises us that Karl Samuda is wrong - the bankers did not call the industry minister bombastic, but he is - when he says they collect way more in fees than it costs to deliver the service. Samuda, the bankers contend, does not consider all their operating costs.
Well, let's examine that - after a pregnant pause to note that the JBA offered no break-out data to actually prove Samuda wrong.
Take National Commercial Bank (NCB) Jamaica, the king of fee income. Last year, NCB collected J$7.2 billion of fees and commissions, paid out J$1.36 billion in fee expenses and netted J$5.8 billion. NCB explains the composition of the fee income in its published accounts but not the fee expenses.
If NCB had collected no fees at all, instead of J$29b of net revenue, it would have earned J$24b; and instead of the heavenly J$13b of operating profit, it would have made a mere J$7.6b. Surely, we cannot expect Patrick Hylton to run a bank where operating profit is below J$10b.
NCB's brother in rivalry, Scotiabank Jamaica, netted J$4b in transaction fees. Had Scotiabank eschewed the charges, its net revenue would have been J$25b instead of J$29b and operating profit would have been J$10.4b instead of J$14b. Surely, Scotia customers would not put Bruce Bowen in the position of having to face his Canadian bosses with an operating surplus that would have skated so close to J$10b.
Samuda may have been wrong about the true cost of service delivery, but he was right when he said it does not have to be priced so high as to become a multibillion enterprise. When a bank can bill a customer J$200 for a 15-second telephone call to say 'loan approved, come for the cheque', that is beyond the pale.
Patrick and Bruce produced such huge profits last year that the combined J$21b of net income of NCB and Scotiabank was near equal to the J$25.7b made by the other 27 Jamaican stock market companies that recorded net profit in the one-year period ending September-October 2010. That's serious money.
But profit is an elixir to power, and both are addictive.
The banks have both, but appear to always want more.
Still, wait for it, there is an argument to be made in favour of the banks.
If you believe that a company's first consideration must be shareholder value, then you are likely to agree that the profit motive is a virtue. That growing profit offers the best route to better returns for owners. That revenue - be it in the form of fees or loan repayments - is the fount from which profit will always flow.
Then the banks are behaving as they should. If you believe that's all that should motivate business.
Audley Shaw, who has the weight of the Constitution behind him, is, supposedly, the second most powerful man in Jamaica behind the prime minister. Even so, he is not winning the fight over bank fees and the rate of reduction in the cost of credit; and Samuda seems unlikely to fare any better.
The sensible among us applaud their failure, for while it means that even the most powerful of us may not be as powerful as the banks, there is a graver and more fundamental danger in 'big government' imposing its will on a free market and dictating commercial decisions, no matter how welcome the initial intervention.
Shaw did the wrong thing when he threatened to invoke his legal powers to set loan rates and charges; he did the right thing when he pulled back. That should be left for periods of real crisis.
And if bank clients need relief, remember the JBA has invited those who prefer to be seen as customers, and not dollar signs, to switch their business.
Lavern Clarke