ROBINSON..a part of the reasons interest rates are not moving down is that the banking sector lacks real effective competition (Photo: Karl Mclarty)
Compete for Government deposits!
Opposition spokesman proposes strategies to drive rate cuts
Julian Robinson, the opposition spokesman on finance, has proposed a three-pronged strategy to tackle the “high” interest rates on loans at commercial banks, with one proposed measure being a move to open up Government deposits to all banks using a competitive system.
Robinson made the proposal during the 2025/2026 Budget Debate in Parliament Thursday. The opposition spokesman pointed to limited changes in lending rates by commercial banks relative to the Bank of Jamaica (BOJ), the country’s central bank, reducing its policy rate by one percentage point since August 2024. He also spoke about the repeated calls by different stakeholders for a reduction in loan rates since the BOJ started its rate cuts.
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“The problem is that there is a highly concentrated banking sector. Madam Speaker, a part of the reasons interest rates are not moving down is that the banking sector lacks real effective competition. And I know that the central bank is working on some measures to improve competition such as the e-KYC system,” Robinson stated.
There are currently 11 deposit-taking institutions (DTIs) regulated by the BOJ, which include eight commercial banks, two building societies and one merchant bank. However, National Commercial Bank Jamaica Limited (NCBJ) and Bank of Nova Scotia Jamaica Limited (BNSJ) accout for about 70 per cent of the consumer banking market, according to Robinson, while BOJ Governor Richard Byles has previously stated that the duo has 60 per cent of savings accounts in the commercial banking system.
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“One of the key steps a PNP Government will take to increase banking competition is to end the long-standing practice of where the vast majority of funds held by Government ministries, departments, and agencies are deposited only in NCB and Scotiabank. We are going to open up Government deposits to all banks using a competitive system,” Robinson stated.
According to the BOJ’s data on commercial banks, the central government had $78.16 billion parked in commercial banks at the end of 2024. In a recent parliamentary debate, Robinson referenced that there was $150 billion in Government deposits held by Government, municipal corporations and public bodies in commercial banks with $105 billion split between NCBJ and BNSJ. Commercial banks held $1.83 trillion in deposits at the end of 2024, relative to the overall $1.99 trillion held by all 11 DTIs. NCBJ and BNSJ hold a combined $1.08 trillion in deposits.
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Robinson’s premise on moving more Government deposits to smaller banks is that it would increase competition, improve the monetary policy transmission mechanism and encourage fairer banking practices.
When the Jamaica Observer reached out to Nigel Holness, managing director of CIBC Caribbean Bank (Jamaica) Limited, he pointed to the introduction of the Central Treasury Management System (CTMS), which resulted in a significant movement of Government funds from the DTIs operating accounts to the central treasury account held at the BOJ. The CTMS was introduced in June 2013 and facilitates the management of the Government’s cash resources by the Accountant General’s Department, an operational department within the Ministry of Finance and the Public Service.
“That single stroke of the pen resulted in a bulk withdraw of liquidity from within the system and the ‘bigger banks’, and to some degree the smaller banks were negatively impacted by the substantial outflow. I do not believe this was ever rolled back, and as such my understanding of what obtains now is these Government entities only hold limited cash in their operating accounts at the DTIs, and this is done in order to meet their day-to-day liquidity obligations. So, these funds are not long-term deposits but very fluid and liquid — ‘in today and out tomorrow”. Banks prefer stable, and less volatile deposits — which forms part of the core funding from which they lend,” Holness stated.
Christopher Zacca, president and CEO of Sagicor Group Jamaica Limited, responded, “The issue raised is important in our society. Government funds play a crucial role in driving cash flow throughout the economy, and the wider those funds are distributed competitively in the financial sector, the greater the likelihood that more citizens and local businesses will benefit. As such, we encourage an open debate on this issue.”
The BusinessWeek also reached out to JMMB Bank (Jamaica) Limited, which stated, “The JMMB Group’s primary focus has always been on serving our clients and standing for the best interest of all. While we acknowledge the recent presentation made by the Opposition minister of finance, regarding the banking sector, we prefer not to comment on specific proposals made by members of the House of Parliament. We remain committed to providing exceptional client care, win-win financial solutions, and fostering an inclusive banking environment for all Jamaicans.”
The BOJ has been trying to provide more information to the public in a bid to encourage them to move their deposits to other DTIs in an effort to ensure its interest rate policies have greater impact on lending and deposit rates.
Since 2023, the BOJ has been publishing the weighted average deposit rates at commercial banks in its effort to make the general public more informed about where they could earn more interest on their money. Except for JMMB Bank (Jamaica) and CIBC Caribbean Jamaica, all of the other commercial banks had weighted average savings rates below one per cent. Smaller banks were paying more interest to clients on time deposits.
“Our research has shown that the source of the weakness in the credit channel is primarily due to the concentrated nature of the banking system. This is evidenced by the dominance of two major network banks, which allows them to pay low deposit rates while maintaining their profit even when subjected to monetary policy changes. In addition, given the time-consuming process of switching financial interests from one private financial institution to another due to know your customer (KYC) requirements, customers may become discouraged from changing institutions even if they believe they are not receiving the best prices and/or services. This then constrains deposit portability,” said Governor Byles at the Inter-American Development Bank’s 59th Meeting of the Network of Central Banks and Finance Ministries in April 2024.
While Robinson didn’t elaborate on how this allocation mechanism would work, any potential increase in the interest expense on deposits paid on Government deposits could potentially be passed onto consumers as DTIs try to maintain their net interest income margins.
However, that may not happen as Robinson also proposed phasing out the asset tax charged to DTI’s and other regulated entities in the financial sector. He noted that if his party was called to lead the Government, the asset tax would be phased out over the next five years. The asset tax was introduced in 2013 as a way to build up Government revenues as the country agreed a new programme with the Inernational Monetary Fund. It was supposed to be short-term, but has remained in place since.
That asset tax has become a sore thumb for the financial sector with Audrey Tugwell Henry, president and CEO of Scotia Group Jamaica Limited, pointing to it being a disincentive for growth as it penalises financial companies for getting bigger at the recent Jamaica Stock Exchange Regional Investments and Capital Market Conference. Holness also called for the asset tax “to be gone today” to allow banks to improve their service offerings and lower rates to consumers.
Robinson also noted that the opposition intends to bring back another private member’s bill to address banking fees. Fitz Jackson, a Member of Parliament, had previously brought a bill to regulate banking fees, but it was defeated by the incumbent Government.
“We believe that banks should either remove some of these fees altogether or at least put reasonable caps on them where possible. So, on this matter point, we certainly know where they stand. We commit to bringing back the private member’s Bill and have it debated in the Parliament,” Robinson closed.
