Banking the most highly taxed sector – Byles
Micro, small and medium-size (MSME) enterprises sometimes find it difficult to access credit at relatively low rates from commercial banks because the banking sector is the most highly taxed section of the economy in business, according to president and chief executive officer of Sagicor Group Jamaica, Richard Byles.
Noting that lending rates continue to be fairly high, at between 15 to 18 per cent in some cases, he argued that, "if they came down, medium and small businesses would find access to credit much easier".
Byles said a big question facing the banking sector, their regulator, the Bank of Jamaica, and the Jamaican Government, is what can be done to bring lending rates down further.
"One of the things, and I don't think that many Jamaicans are aware of it, is that the banking sector is the most highly taxed sector in business. They are taxed on every single thing and they pay approximately 48 per cent tax," he said.
"What I think a lot of Jamaicans focus on is how many billion dollars does the banking sector makes as profit," added the president and CEO of the financial conglomerate, which acquired RBC Jamaica two years ago and transformed the loss-making entity - now Sagicor Bank Jamaica - into a billion-dollar earner. That helped to push group profit to a new record of $9.8 billion at year end December 2015.
Referring to the billion-dollar profits made by banks, Byles said, however, that "you have to measure that against how many billions of dollars they have as capital in the business".
He suggested that if one speaks "to somebody that watches the stock market, they'll tell you that the banks don't have the best return on equity. Other businesses do. The banks are just heavily taxed and their return on equity, therefore, is pretty low".
According to Byles, "if you want lending rates to come down you have to be prepared to look at tax that is levied on the banks and, in my opinion, try to forge a deal whether there is less taxes on the banks and the banks lower their lending rates".
He emphasised that, "the banks, they are so heavily burdened with taxation that if that relief was given to them, then they would be able to bring interest rates down".
RETURN ON LOANS
Asked how some commercial banks are able to lend at interest rates of just over six per cent on motor vehicles, Byles said a bank is lending and is trying to make loans that it believes will be good.
"If somebody doesn't pay back a loan, the next thing is to go for the collateral. A car, as collateral, is far more saleable than a piece of equipment in a man's factory. And that is why banks tend to favour car loans a little bit more," he explained.
"It's not a good direction for the economy, but it's reality," Byles, who is also co-chairman of the Economic Programme Oversight Committee (EPOC), said while addressing a press conference at Sagicor Life in New Kingston where he released the latest communique of the private sector members of the group.
EPOC consists of persons from the private sector, the public sector and civil society who receive and review information from the government of Jamaica on the progress of implementation of the memorandum of economic and financial policies over the life of Jamaica's four-year economic support programme with the International Monetary Fund (IMF).
In its November 2015 memorandum of economic and financial polices submitted to the IMF executive board, the Government said it would, "continue to develop other areas of reform to improve the access to capital and reduce the cost of funding for MSMEs".
In his sectoral presentation to Parliament earlier this month, Minister of Industry, Commerce, Agriculture and Fisheries, Karl Samuda said among the policy initiatives being pursued was improving access to financing for the productive micro sector, by working closely with the Finance Ministry, Development Bank of Jamaica and private sector financial institutions, including banks, credit unions and micro-financing institutions.