Wilberne Persaud, Financial Gleaner Columnist

Persaud

Today I return to the topic commercial bank behaviour but not on the single issue of interest rate spread. Responses to my previous column declare views worthy of exposure to wider readership.

Apparently some banks don't enjoy such a great image among Jamaicans. Previously we indicated commonly held views that, to banks, customers were sitting ducks - targets to be exploited with impunity by an essentially monopolistic enterprise behaving as such.

Interestingly, at the final bell in the fight for control of the Private Sector Organisation of Jamaica (PSOJ) involving the Jamaican CEO of Scotiabank, William 'Bill' Clarke, and a top manager in the Gordon Stewart-led hotel, newspaper, appliances and tools business group, Christopher Zacca, a reader includes the following in a quite thoughtful response:

"Scotia Bank and NCB have wide branch networks so they get cheaper funds at the savings rate. The other banks - merchant banks, investment banks - get most of their funds from high interest fixed deposits in addition to the unsecured commercial paper. The big banks are under no pressure to decrease interest rates. The BNS head believes Jamaica is a failed state. All they do is put the money on government paper and make profit. In fact, the Jamaican operation contributes eight per cent of BNS worldwide earnings. Their most profitable subsidiary anywhere in the world."

There's a lot for discussion here. Time constraints do not allow fact-checking on BNS Jamaica before deadline, but I would be surprised if the reader's data above were incorrect - it's also easy for readers to verify. So we move on to the substance.

Big banks have access to cheaper funds. This is absolutely true. Small savers are often totally uninterested in the 'price', the interest rate they get for passbook savings. Their objectives rarely include income generation. They want safety, a nest egg and rainy day umbrella, education money for child or niece Hope and nephew Hopeton. With islandwide branch networks, BNS and NCB rule the roost of cheap source money. RBTT runs third past the post.

These facts in part, only small part, account for difficulties smaller banks faced in the mid-1990s. Island Victoria for instance paid interest on checking accounts, hunted high cost big deposits. Committed to paying high rates, minor banks sought cover by rapid build-up of loans. With bottom feeding the natural consequence emerged - delinquent loans.

Why should banks decrease interest rates? Cut through the fog! Pardon that terribly mixed metaphor. Everyone knows the mass market with low prices a la Wal-Mart, or exclusive market with service and stratospheric prices a la Harrods. The Jamaican model comes closer to Harrods without the great service. This reader is on target here.

The reader is negative on BNS on two counts. Firstly, it's head believes Jamaica is a failed state. I recall reading that comment in The Gleaner many months ago. I was impressed. Not so much by his reported statement as by the guts [we could use another term but the Financial Gleaner wouldn't publish it] it took William Clarke to utter it. I viewed his comment as a patriot's cry of concern about the path his country was moving down. I am fully aware that patriotism is often the last 'refuge of a scoundrel'. But Clarke didn't fit that bill.

It was widely reported that Don Crawford and others of the indigenous financial services sector referred to themselves as the 'Owners Club'. They had graduated from the ranks of head office control. Clarke, however, was lowly undergraduate. But Scotiabank survives and is highly profitable for its Jamaican share- holders and parent in Toronto, not Nova Scotia, by the way.

Venture capitalists

Here's the rub, banks are in the business to make profits. If customers prosper, so shall the bank. Commercial banks are neither venture capitalists nor development banks. They should not behave as if they were. I shall forever vividly recall the response of over 200 former students when asked if they would leave their savings deposits in a bank that sought to lend to small farmers with no land title, who eke out an existence on the Blue Mountain hillsides. Their egalitarian commitment and social conscience evaporated with a resounding 'no'.

Second, all BNS does, our reader points out: "... is put the money on government paper and make profit". Nothing wrong with that. Government wants the money. NCB did differently. We know what happened. If BNS shareholders wanted a development bank or venture capitalist operation, they would have invested elsewhere. Indeed, Jamaica desperately needs such financing vehicles. It just simply cannot be commercial banks.

Finally, PSOJ leadership: neither Clarke nor Zacca is a completely independent actor in his professional managerial activity. It is folly to think either one of them is. Indeed they are both accountable to their owners through their boards of directors. The proper question for Jamaica's effective developmental governance is: 'Which one of them is likely to be less influenced by the owner(s) of the enterprise he runs?'

wilbe65@yahoo.com