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Scandal in banking sector
published: Tuesday | November 28, 2006
Devon Dick
At the recent meeting of the Caribbean Association of Indigenous Banks, held in Port-of-Spain, Trinidad, November 15-18, a director in one of the leading banks in the Caribbean bemoaned the wide spread between interest rates on savings and that on loans.
He said that the rates in the Caribbean are much wider than those in the developed international markets and within the Caribbean, Jamaica and Guyana have the worse spread. In Jamaica and Guyana it is between nine per cent and 11 per cent while in the international market it is two per cent-three per cent. This is a scandal in the banking sector.
I use the word scandal in the Greek sense meaning, a stumbling block. This wide spread between savings rate and loan rate is a stumbling block to greater development in Jamaica. It is a disincentive to borrow money for investment in businesses.
It is an open secret that the spread is a major cause for banks doing well.
In TheSunday Gleaner, columnist Keith Collister, in identifying good stocks said that "the commercial banking sector is attractive due to increased loan growth and still very attractive spreads." I believe that the loan growth is not for productive purposes, but mainly for consumer goods. It is the wide spread that is fuelling growth.
So when in the same issue of The Sunday Gleaner there is a report that one of our leading banks "enjoyed another record performance for the year ending October 2006 as profits strengthened ... " One should ask at what price? Banks should be making profits based mainly on many loans to the productive sector, otherwise Jamaica will not experience significant economic growth.
Disastrous rates
What is surprising is that our two leading banks have Canadian connections so they must be aware of the spread in the international market, yet still they persist with these disastrous rates. In a July 25, 2005 article entitled 'Financial institutions spread too much', I wrote showing that Chelsea, the sixth largest building society in the United Kingdom, had advertised rates such as 5.39 per cent for a five year fixed mortgage rate and going to 6.74 per cent for the rest of the life of the mortgage. The savings rate is 5.25 per cent. Why cannot we have such a good spread here?
For years, the Minister of Finance, Dr. Omar Davies, Jamaica Manu-facturers Association, Jamaica Agricultural Society and others have been agitating for more reasonable spread between the loan and savings rates to no avail.
Recently, Opposition Spokesman on Finance, Audley Shaw made a statement about the spread. Mr. Shaw seems to like scandals and I hope he will 'pepper' the banks.
The genesis of Jamaica Mutual Life founded by National Hero George William Gordon and others and the establishment of credit unions was a response of church people to harsh usury policies and disadvantageous interest rate policies. The church and civil society need to act now.
The Bible condemns usury. Bangladeshi economist Muhammad Yunus, founder of the Grameen Bank won the Nobel Peace Prize for 2006 because from 1976, the bank lent to the neediest, especially women to start business without collateral. Millions have been lifted out of poverty and the loans were repaid.
For years, Dr. Henley Morgan has been advocating the virtues of that system, but the banking sector will not listen. Do not expect any within our banking sector to get an award because his or her policies helped thousands of Jamaicans out of poverty after 30 years of operation.
It is scandalous that indigenous banks, that is, those formed in the Caribbean and operating here, have one of their own highlighting this outrageously wide spread between savings and loan rates and yet nothing has changed in Jamaica.
Rev. Devon Dick is pastor of Boulevard Baptist Church and author of 'Rebellion to Riot: the Church in Nation Building'
published: Tuesday | November 28, 2006
Devon Dick
At the recent meeting of the Caribbean Association of Indigenous Banks, held in Port-of-Spain, Trinidad, November 15-18, a director in one of the leading banks in the Caribbean bemoaned the wide spread between interest rates on savings and that on loans.
He said that the rates in the Caribbean are much wider than those in the developed international markets and within the Caribbean, Jamaica and Guyana have the worse spread. In Jamaica and Guyana it is between nine per cent and 11 per cent while in the international market it is two per cent-three per cent. This is a scandal in the banking sector.
I use the word scandal in the Greek sense meaning, a stumbling block. This wide spread between savings rate and loan rate is a stumbling block to greater development in Jamaica. It is a disincentive to borrow money for investment in businesses.
It is an open secret that the spread is a major cause for banks doing well.
In TheSunday Gleaner, columnist Keith Collister, in identifying good stocks said that "the commercial banking sector is attractive due to increased loan growth and still very attractive spreads." I believe that the loan growth is not for productive purposes, but mainly for consumer goods. It is the wide spread that is fuelling growth.
So when in the same issue of The Sunday Gleaner there is a report that one of our leading banks "enjoyed another record performance for the year ending October 2006 as profits strengthened ... " One should ask at what price? Banks should be making profits based mainly on many loans to the productive sector, otherwise Jamaica will not experience significant economic growth.
Disastrous rates
What is surprising is that our two leading banks have Canadian connections so they must be aware of the spread in the international market, yet still they persist with these disastrous rates. In a July 25, 2005 article entitled 'Financial institutions spread too much', I wrote showing that Chelsea, the sixth largest building society in the United Kingdom, had advertised rates such as 5.39 per cent for a five year fixed mortgage rate and going to 6.74 per cent for the rest of the life of the mortgage. The savings rate is 5.25 per cent. Why cannot we have such a good spread here?
For years, the Minister of Finance, Dr. Omar Davies, Jamaica Manu-facturers Association, Jamaica Agricultural Society and others have been agitating for more reasonable spread between the loan and savings rates to no avail.
Recently, Opposition Spokesman on Finance, Audley Shaw made a statement about the spread. Mr. Shaw seems to like scandals and I hope he will 'pepper' the banks.
The genesis of Jamaica Mutual Life founded by National Hero George William Gordon and others and the establishment of credit unions was a response of church people to harsh usury policies and disadvantageous interest rate policies. The church and civil society need to act now.
The Bible condemns usury. Bangladeshi economist Muhammad Yunus, founder of the Grameen Bank won the Nobel Peace Prize for 2006 because from 1976, the bank lent to the neediest, especially women to start business without collateral. Millions have been lifted out of poverty and the loans were repaid.
For years, Dr. Henley Morgan has been advocating the virtues of that system, but the banking sector will not listen. Do not expect any within our banking sector to get an award because his or her policies helped thousands of Jamaicans out of poverty after 30 years of operation.
It is scandalous that indigenous banks, that is, those formed in the Caribbean and operating here, have one of their own highlighting this outrageously wide spread between savings and loan rates and yet nothing has changed in Jamaica.
Rev. Devon Dick is pastor of Boulevard Baptist Church and author of 'Rebellion to Riot: the Church in Nation Building'
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