Mon | May 25, 2020

Delroy Warmington | Time to disrupt the J’can banking system [Part 1]

Published:Tuesday | November 26, 2019 | 12:00 AMDelroy Warmington/Guest Columnist

I am supremely confident that if you should ask for a show of hands of citizens who are pleased with their banking service, you will have few takers. The lacuna between what is been offered and what is just basic service is extremely wide. The banking industry seems to be a great admirer of Shakespeare’s The Merchant of Venice. Oh, how they adore Shylock. Think about how more positive the banks could be serving the country.

The Jamaican economy is in a spasm. It is truly in a state of secular stagnation. Yet, the banks have refused to step up to the plate and make the needed contribution to alleviate this.

The Gnomes of Knutsford Boulevard see themselves as the clerisy. They have sedulously cultivated an omniscience aura. But like all polemic, there comes a time when it loses its credibility.

When the Bank of Jamaica tries to help the economy by reducing rates, the major banks do not follow suit. There are significant leads and lags. There has to be restraint placed on the banking oligarchs, either by market forces or government intervention.

It is full time the banks embrace the efficient deployment of capital. There are too many sectors of the economy that are denied the needed capital.

If one wants to see the true operations of banks in Jamaica, they should take a look at the prospects of the two Jamaica banks, which are with the SEC. The S-1 showed how profitable both National Commercial Bank (NCB) and FirstCaribbean are. By any valuation metric, they are immensely successful. Take a good look at their return on equity, tangible book value, net interest margin, common equity tier 1 ratio, and also their efficiency ratio. They are enviable. At the same time, look at their fee income.

There is no rational for them to keep charging these exorbitant fees. Fees such as for dormant account and issuing a statement. Why do they keep hosing the Jamaican public?

CALL THEM OUT

The sensible Fitz Jackson bill, aimed at curbing these excesses, was vehemently opposed by the current administration. It is hard to see any rational for blocking this bill.

It would be nice if Mr Jackson tell us why he did not pursue this bill with the same zeal and zest when his party was in power.

Mr Jackson, it is time for you to name and shame. Call them out.

Then we had FINSAC. Neither government sees it fit to release the report. What is so damaging in these reports that it is being kept from the public? Remember, FINSAC was one of the main culprits for the elevated debt the country endured.

Everyone keeps talking about Jamaica’s towering debt-GDP ratio without ascribing the blame to the sources. FINSAC and the alchemy economic policies of the People’s National Party shoulder most of the blame. That is enough attribution why this report must be release now.

One wonders if there is anyone regulating the banking industry. If there is, we can only say this is a blatant case of sinecure. How are the banks allowed to operate with such impunity? Throughout the world, banks are being fined for their transgressions, but not in Jamaica.

No one is saying the regulators should have an adversarial relationship with the banks. But the bonhomie has to end. The public opprobrium towards the regulators is justified. They are guilty of premature adjudications.

LEAN ON THE BANKS

If the Government is serious about growing the economy, then they must lean on the banks to play a more positive role. Productivity is a major driver of GDP growth. Yet the banks have not seen it fit to enhance productivity. Go to any branch and see the long lines. In some cases, winding out the door.

Transactions take way too long to complete. Maybe our minister of finance could quantify the number of man-hours lost waiting in lines at the banks. Also, look at why it takes so long to complete simple transactions.

Take the case of loan application. The Brazilian bank Itaú has reduced the processing of these applications from eight days to 20 minutes by deploying digital techniques. Why can’t we have a similar experience in Jamaica? Think about the positive impact this would have.

Another area in which the banks have significantly fallen short is the vast funding gap that exists. The availability of credit, or should I say, the lack of credit, is a major drag on the economy. Too many businesses are constrained by the lack of capital.

No one is saying that banks should finance unworthy enterprises, but there are too many qualified businesses that are shut out. That funding delta has to be compressed.

There needs to be a calibration of the loan-to-deposit ratio. The Government should require a certain ratio to support the growth of the economy. Banks that breach this ratio should be penalised.

It would be nice if the banks clasp the entrepreneurship ethos that reigns among the Jamaican population. Think how helpful this would be in getting the economy on the right track.

 

[This part 1 of the article. Part 2 will be providing a cogent solution to our banking problems.]

 

Delroy Warmington is a global investment fund manager. Email feedback to dlwarm2001@yahoo.com and columns@gleanerjm.com