Editorial | For a new discourse on banks
Public outcry has forced a retreat by the Jamaican subsidiary of the Bank of Nova Scotia from the near-thousandfold increase in the price it charged customers for changing cheques drawn on other banks.
But that acquiescence to consumer pressure is unlikely to be the last of the tussles between either Scotiabank, or the wider banking sector, and their clients over fees. Which suggests to us that there is the need for a broad and robust national policy discussion on commercial banking in Jamaica, including how the institutions go about their business and the extent to which they should be regulated.
The latest outcry, sparked publicly by a letter writer to The Gleaner last week, has its genesis in a range of new fees that BNS recently implemented. It is safe to assume that people were likely unhappy with the hikes, but the one that caused great angst was the jump, for non-clients, from J$140 to J$1,385 - what a customer was asked to pay for getting cash on a cheque that wasn't Scotia's.
That cost represents a significant portion of money that one of the bank's average retail clients would likely receive from a third party's cheque. It would, for example, represent more than a fifth of the weekly pay of a minimum-wage earner.
It is this kind of calculation that caused the current commerce minister, Karl Samuda, to call Scotiabank's action "preposterous" and why, in 2013, during another administration, then government backbencher Fitz Jackson railed against bank fees in general and, especially, their interest spreads on deposits and loans. Mr Samuda, then in Opposition, was Mr Jackson's key ally in insisting on tighter regulatory mechanisms.
In our view, this is an issue to be addressed not by emotion, but clear-headed analysis, taking into account Jamaica's economic environment and the imperatives of a free market.
Mr Samuda was probably right with the 2013 analysis that banks were increasing fees to offset interest income lost in the Government's rescheduling of its domestic debt in 2010 and 2013, as part of agreements with the International Monetary Fund.
MASSIVE INCREASE IN FEES
In Scotia's case, despite recovering a bit recently, the bank's net interest income, before compensating for non-performing loans, grew 10.6 per cent over six years. But while it represents only 26 per cent of net interest income, fees and commissions grew by 88 per cent over the same period.
So, fee-based business is seen as a good revenue stream, but more so from the banks' better-heeled customers. Moreover, banks would prefer to keep minimum revenue out of their halls where it is more expensive to serve them.
As Scotia said in its statement rescinding the fee hike: "Online transactions available include bill payments, purchase of foreign exchange, and transfers to third parties at any local commercial bank and are all free of cost."
This observation, however, raises a number of issues that require resolution. These include bringing into the system those Jamaicans who are still without bank accounts, supported by a programme, possibly a partnership between the banking sector and the Government, to teach people to use existing banking technology. Further, banks have to see it as being in their interest to invest in new and appropriate ones, such as integrating the ubiquitous mobile telephone into their operations to widen access to clients.
Nothing incentivises business more than competition. The Government is on the right track in allowing new players in the commercial banking market. And, crucially, it has to ensure a stable macroeconomy.