Andrew Green, Staff Reporter
Doreen Frankson, William Clarke and Senator Norman Grant - Winston Sill/Freelance Photographer
There is no evidence of collusion by commercial banks in the setting of interest rates and bank charges, the Fair Trading Commission (FTC) has ruled.
The ruling comes a year after the Jamaica Manufacturers' Association (JMA) and Jamaica Agricultural Society (JAS) started a campaign against high interest rates and bank charges.
A letter dated April 14 last year, signed by JMA president Doreen Frankson and JAS president Senator Norman Grant, alleged that commercial banks seemed to be fixing interest rates and bank charges and formally asked the FTC - established to encourage competition in Jamaica's business environment - to investigate whether the banks were colluding.
"There is no evidence that the observed behaviour of the commercial banks is the result of a collusive agreement," said the resulting FTC report, released last month.
This is despite the fact that the structural conditions of the sector favour collusion as Jamaica had just six commercial banks with the two biggest, Bank of Nova Scotia (BNS) and (National Commercial Bank) controlling 70 per cent of deposits and loans in recent years
William 'Bill' Clarke, president of the Jamaica Bankers Association (JBA), said in a statement that "the news has come as no surprise as the banking community is fully aware that no such collusion exists.".
The JBA and its members "cooperated fully" with the investigations, Clarke said.
He added that contrary to the allegations, the JBA promotes the development of a vibrant, competitive and effectively regulated banking sector.
Neither Senator Grant nor JMA
president Frankson were available for comment, but a senior member of the JMA told Sunday Business that the
concern still remained about the huge
differential between local lending rates and deposit rates compared with the differential in trading partners such as Trinidad.
Apart from BNS and NCB, the six commercial banks are RBTT Bank Jamaica Limited (RBTT), First Caribbean International Bank (FCIB), Citibank NA, and First Global Bank (FGB).
listed on the JSE
All the banks, with the exception of Citibank and FGB, are publicly traded companies and are listed on the Jamaica Stock Exchange, while FGB is an affiliated company of the GraceKennedy group of companies, which is listed on the local exchange.
Pan Caribbean Financial Services received the necessary approval from the BoJ to convert Pan Caribbean Merchant Bank into a commercial bank in 2006, which is excluded from the study.
The JMA and JAS had stated that lending rates offered by commercial banks are unjustifiably high when compared to the rates paid on deposits.
Bank of Jamaica data shows that commercial bank savings earrned an average 5.48 per cent, compared to an average lending rate of 22 per cent, as at the end of 2005.
Since then, both rates have slipped to 5.3 per cent and 21.84 per cent, respectively, but maintaining the same 16-17 per cent spread.
The JMA and JAS claimed further that the interest rate spread in Trinidad and Tobago was about 7 per cent, while the spread in Jamaica was 18 per cent, resulting in a higher profit margin for commercial banks in Jamaica, but a more harsh environment for borrowers in Jamaica.
The FTC was told that the JMA and JAS were surprised that all the banks are charging rates that are so close and that the organisations believed there was a plan among banks not to compete with each other in the granting of loans.
"The observed rate changes implemented by the commercial banks are not inconsistent with independent reactions to the policies of the BoJ (Bank of Jamaica)," the FTC report said. The FTC carried out its assessment using data between 2000 and 2005.
The FTC found that the financial environment was quite complex in the period with changes in BOJ interest rates on its open market instruments and in the special deposit requirements for banks.
It found that the institutions responded differently from each other, and even with some level of inconsistency in their own actions.
"While BOJ reduced the interest rates on all its open market instruments during the period April 2004 to the end of March 2005, there were very little changes in rates implemented by the commercial banks.
There were, however, noticeable interest rates reductions implemented by the banks following the reduction in the special deposit requirement," it found.
Based on its study, the FTC recommended that the matter be closed.
