Banks too reliant on fees for income, says Parliamentary committee
A new Parliamentary report on banking fees in Jamaica has concluded that charges reviewed were not exorbitant, but also expressed concern that the institutions appeared to be increasingly reliant on transaction fees as income.
The Select Committee of the House of Representatives on Economy and Production also offered several recommendations on improving the customer-bank relationship, among them the easing of 'onerous' requirements for opening an account to make it easier for customers to switch banks.
The review, which began in January 2014, was based on research requested by or from the Bank of Jamaica and finalised in March that year. It looked at 56 service items from commercial banks, 38 from building societies and 30 from credit unions.
Commercial bank fees were adjusted for inflation.
"The committee remains concerned about the ratio of income from fees as opposed to income generated from core banking activities," said the report which was tabled last week.
Between 2009 and 2013, the parliamentary committee said, income from fees increased by 56 per cent, while income from interest declined by 13.9
"Your committee posits that there is a relationship between the two," it said, following a discussion on the effect of the two debt exchanges on interest earnings.
The Government of Jamaica, in 2010 and again in 2013 swapped out domestic bonds for securities with lower coupon rates and longer tenures, under the Jamaica Debt Exchange and the National Debt Exchange, respectively.
The debt exchanges were also cited as the main cause of declining return on average equity and falling returns on average assets.
Return on average equity declined from 27.6 per cent in 2009 to 20 per cent in 2010. "And while there was an increase in 2011, there was another significant decrease in 2013 to 11.4 per cent, the predominant factor being NDX and JDX," the report stated.
The committee said that BOJ noted in its report that fees and charges were set independently among financial institutions and determined by the cost of service delivery. It determined that "fees charged by deposit institutions in Jamaica were not exorbitant in comparison to those being charged within the region".
As cited by the committee, the BOJ noted in its assessment of fees that deposit taking institutions, with the exception of building societies and credit unions, exhibited declining returns on average assets and average equity over the past five years. Additionally, fees accounted for a larger percentage of the revenues for both banks and credit unions over the same period and while the lower interest from interest earned had resulted in lower revenues, it was a contributing factor but not the main cause of the rise in bank fees.
The parliamentary committee recommended that banks adjust the requirements for opening bank accounts, saying the level of information required was onerous. It also concluded that local deposit taking institutions do not treat with fixed deposits favourably, with respect to their use as collateral for a loan, as opposed to other jurisdictions.
The committee recommended that accountholders with dormant accounts should not be penalised. It said that, along with the publication of dormant accounts in the press, notices should be sent to the account holders themselves; and that accounts considered dormant should be frozen until the account holder shows up to reactivate it.
A request to the Jamaica Banker's Association for comment on the report was unanswered up to press time.
Jamaica's two largest banking groups whose accounts are disclosed on the stock exchange - National Commercial Bank and Scotia Group Jamaica - collected a combined $20.34 billion in
fees and commission income in
The inflows were 9.3 per cent more than the $18.6 billion collected by the two banks in 2013. In the same period interest income at the banks rose by an average of 7.9 per cent.