Avia Collinder, Business Reporter
Jamaica's bankers are lobbying the central bank to ease up on its tight monetary policy, saying they are starved of cash to finance capital projects.
New president of the Jamaica Bankers' Association, Maureen Hayden-Cater, say the banks are in discussion with the Bank of Jamaica (BOJ) over an arrangement which will hopefully see liquidity pumped back into the market.
"There are projects in the works to be financed, but we do have a challenge. The most significant cause is monetary policy, which has literally pulled liquidity out of the system," said Hayden-Cater.
"We are sitting with the regulators and saying, let's see how we can put money into projects. If we do not show growth, your own targets will be affected."
Hayden-Cater, who is president of First Global Bank, was elected JBA president at an extraordinary general meeting last Friday. The meeting was convened to select a replacement for Bruce Bowen, who was re-elected JBA president in July, but quit after his September reassignment to Canada by Scotiabank.
The BOJ has been pulling cash from the system in order to ease pressure on the Jamaican dollar, which continues to depreciate.
Since the calendar year, the BOJ has placed 26 instruments on the market year to date alongside its regular 30-day certificates of deposit (CDs).
The central bank, up to press time, had not responded to a query on the amounts raised under the instruments, but its most current balance sheet data for August 28 indicate that its open-market liabilities increased by more than J$8 billion since August 14 to J$62 billion. Two special CDs were issued in that period.
"We are asking them (BOJ) to buy back some securities. At this time, there is no market for government of Jamaica securities. The bank can help by purchasing some," Hayden-Cater stated during an interview with Wednesday Business.
The central bank has acknowledged the discussions, and "nothing has been finalised," said Hillary Robertson, the senior director for the BOJ Board/Management Secretariat and Public Relations, on Tuesday.
"BOJ is currently finalising a window for repurchases, not outright purchases," Robertson qualified later.
The central bank has already returned J$2 billion to the market through a repurchase agreement with a tenor of 14 days and priced at 6.0 per annum. The 'Offer to Provide Jamaican Dollar Liquidity' was made on September 17, according to a term sheet provided by the central bank.
Hayden-Cater said that in most jurisdictions, the central bank plays the role as the lender of last resort, noting that the bank was aware of the total money supply and can provide liquidity support by purchasing repos.
"Usually, that's what they do," she said.
President of the Private Sector Organisation of Jamaica, Christopher Zacca, said he would not weigh in directly on the liquidity issue, but confirmed that commercial credit was tight.
"The overall credit to the private sector is at dangerously low levels as a percentage of GDP. The banks have been lending mainly to the public sector, and that has to be reversed," said Zacca.
"The level of credit is at levels which are comparable to fourth world or undeveloped countries."
Problem RE-EMERGED IN 2013
The PSOJ president said the problem dates back to the start of the recession, improved in 2010, but re-emerged at the start of 2013.
"The causes need to be looked at and addressed," he said.
World Bank data on domestic credit to the private sector as a percentage of GDP show the ratio at 28.8 per cent in 2012.
Niger in Africa is one of the few nations lower than Jamaica with domestic credit at 14.9 per cent of GDP.
Brian Pengelley, president of the Jamaica Manufacturers' Association, says he is unaware of a project funding gap. The difficulty faced by business, he said, is getting foreign exchange to pay for raw materials.
"What I also am aware of is that the Development Bank of Jamaica has committed to make funds available for onlending," said Pengelley.
"The comments I do hear is that the bank's margin spread is too big. They are adding as much as four to five per cent to DBJ funds. That is what I am hearing," he said.
Some of the tightness in the market has been linked to the National Debt Exchange, which has lengthened the maturity profile of GOJ bonds and cut the coupon rates, leading to reduced investment income for holders of the debt instruments.
Earlier in the month, new president of Scotia Group Jamaica, Jacqueline Sharp, raised the issue, saying funds that were expected to flow in February have been postponed for payment at a later date. Sharp said it was affecting the bank's ability to lend money, as well as the pricing of available funds.
Said Hayden-Cater of the broader banking sector: "As a group, we are focused on growth. The banking sector is like petrol. We are a conduit that funds real growth."
Regarding the J$2 billion returned to the banks and other institutions by the BOJ last week, Hayden-Cater acknowledged the outreach, but said of the 14-day reprieve: "That is not enough."
She said, however, that the full need of the banks was difficult to determine.
"It is hard for me to give a net picture," the JBA president told Wednesday Business.
She said however that providing capital support to projects in the wings would help to drive growth, which in turn would return confidence to the economy.