Dennise Williams, Staff Reporter
FRANKSON(left) and CLARKE(right)
MEMBERS OF the Jamaica Manufacturers' Association (JMA) and the Jamaica Agricultural Society (JAS) are saying enough is enough and it is time for the excessive interest rates spread in commercial banks to begin to narrow faster.
"On average spreads (between savings accounts interest rates and lending interest rates) are currently 17 per cent."
This was the statement issued by the two lobby groups in the form of a full-page advertisement in The Sunday Gleaner.
In a subsequent interview with the Financial Gleaner, Doreen Frankson, president of the JMA, conveyed her outrage at the current interest rate situation. "Why shouldn't lending rates drop as fast as Bank of Jamaica (BoJ) open market instrument rates? When BoJ put up their rates the banks are quick to follow."
Norman Grant, president of the JAS, then added, "The bottom line is that interest rates got to where they are because of cash reserve requirements by the BoJ and the instability of the economy over the past few years. But that has now changed. The BoJ has lowered their reserve requirement and the economy is more stable than it has been in the last two to three years.
"We are asking banks to be realistic and give up their spreads. Low interest rates would allow individuals to create or improve small and medium businesses which would help create more jobs."
And for persons who point to special facilities offered by the commercial banks for the productive sector, Ms. Frankson scoffs.
"The National Commercial Bank has its Small and Medium Enterprise (SME) Unit, but with packages of loans at 24 per cent, who is going to take that up? And the special low interest rates offered by Scotia requires collateral that is three times what you are borrowing. And the process is so difficult that people can't take it up."
NOT MAKING HANDOUT
In speaking at an economic seminar yesterday, William Clarke, managing director of Bank of Nova Scotia, made his position clear. "We're not making a handout ... there are qualifying requirements ... (on Scotiabank's special loan facility) I make no apologies about making money. It's our business."
Patrick Hylton, group managing director of the National Commercial Bank, took a more conciliatory approach.
"We have no interest in keeping interest rates artificially high. The truth is that we have to evaluate the various factors in the market. We have recently made a reduction in our base interest rates to 19.75 per cent, which is in line with our competitors. We must operate within a market context."
LOAN PACKAGES
However, Mr. Hylton did acknowledge that the loan packages at his bank's SME unit did not "have a large level of take up." And that is "perhaps because of the interest rates. But we are trying to identify lower costs funds."
And the source of low-cost funds was the whipping board that managing director of First Global Bank, Wayne Wray, took up. "I am in disagreement with everyone looking at commercial banks. You come to a commercial bank to borrow to buy a car.
"Why isn't the productive sector borrowing from the Export Import Bank or the Development Bank of Jamaica? Isn't that what these institutions are set up for? Rates through these institutions are as low 13 per cent and eight per cent for U.S. dollar loans yet these institutions go begging for borrowers.
"I mean, if I want a home loan, I don't go to the commercial bank, I go to a building society and access rates between five and 15 per cent. Don't they know different sectors of the society have different loan facilities?"
Mr. Wray continued to chide the productive sector. "But producers ignore these agencies because they don't want to go through the requirements. They don't want to present financial statements and the like. You see, people don't want to discuss this."
And according to Mr. Wray, it is Jamaicans' propensity for keeping financial secrets that keep the cost of commercial bank funds high. "Two factors affect the cost of funds. One is the cost of credit administration it is phenomenal. We don't have a credit bureau in Jamaica because people don't want to share their financial information. So if someone has a bad loan at one bank, they just sit down for two years and then reapply at another bank. It costs me money to have staff investigate the individual before we lend them money. And then if the loan goes bad, people just say 'take the house.' But that then leads to the other big cost commercial litigation.
"When people provide collateral and the loan goes bad, do you know how long it takes to sell the property? I have to pay legal fees, the realtor's fees and then the same bad debtor can contest the sale in court! These factors feed into the cost of a loan."
But Ms. Frankson is firm in her position that commercial banks can do better.
In her usual frank manner she states, "If commercial banks are not converting depositors money into productive assets, and are merely putting the money on government paper or lending at 22 per cent for car loan and other consumer items, then they are not playing their role.
"We cannot continue to expect Government to be the only one to stimulate growth in the economy."
To this, Mr. Hylton says, "We believe that when the local community does well, we will do well."
However, Mr. Clarke states, "The reality is -- as I know it -- Jamaican businesses need to:
Put equity in business
Commit to their businesses and stop complaining.
"Therefore I do not intend to spend anytime talking about spreads."
