Avia Collinder, Business Reporter
Jamaica's top two mortgage lenders have made a late request through the Building Societies Association of Jamaica (BSAJ) to the Bank of Jamaica (BOJ) to reconsider plans to impose new liquidity rules on the sector.
The societies currently have lower liquidity reserve require-ments than the banking sector, but under reform of the deposit-taking sector, the central bank aims to align the ratios.
Effectively, the societies would have to park much larger volumes of cash at the BOJ, which they oppose.
But the request to reconsider the policy shift was made during September, some nine months after the BOJ published its consultation paper on the omnibus banking bill dealing with broad-based reform.
BOJ said it was reviewing the submission, but added pointedly that it comes "well outside of the consultation process" for the proposed banking legislation, while also pointing to the complexities involved.
"Please note also that the legislative process will require ratification by Cabinet of the amendments to the regulatory frame-work that are being proposed under the omnibus banking legislation, and the issue of drafting instructions, among other processes, prior to a bill being tabled," the central bank said.
Building societies are currently required to place just one per cent of their cash with the BOJ and five per cent of all liquid assets. They want those ratios to be maintained.
The reserve ratio for commercial banks is 12 per cent cash and 26 per cent liquid assets.
The concerns are said to be emanating from Jamaica National and Victoria Mutual, the two 'stand-alone' building societies. The only other society, SJBS, operates as a 'department' of its commercial banking group Scotiabank, said a SBAJ representative, who requested anonymity in order to speak freely.
He said the current reserve requirements are conditional on the mutual status of the societies and their maintaining a ratio of at least 40 per cent of residential mortgages relative to their savings fund.
If they fall below the 40 per cent ratio, under the current regime, they would be subject to the higher reserve ratios applied to banks.
"Our contention is that we do not have the income for a change in (reserve) ratios. These banks make billions; as mutuals, our surplus is in the millions and we struggle to maintain that," said the BSAJ rep.
"This is why we believe we should remain differentiated," he said.
Drafting of the omnibus banking legislation, which aims to consolidate and strengthen supervision of DTIs, is to be finalised this month for tabling in Parliament and eventual passage into law by March 2014, according to the BOJ.
The legislation, which will also establish the BOJ as primary watchdog over the entire financial system, is a condition of the current IMF agreement.
The BSAJ said it was late to the table with its proposals because the association had just been revived after a long period of dormancy.
Comparably, said the BSAJ representative, the banks have a speedier communication process through the Jamaica Bankers Association.
"We are not fundamentally opposed to the statute proposed, but a close review will reveal many areas which are problematic. The one-size fits all approach is likely to put building societies such as JNBS and VMBS at a disadvantage and force mortgage rates to rise," the representative said.
The BSAJ says a change in ratios would put building societies at a dis-advantage to banks, which have a greater variety of products and, therefore, income streams that are not available to mortgage lenders.
The BOJ said it was not in a position to speak to concerns raised by the institutions.
"A compendium of all feedback received from the consultation process is being prepared for dissemination to the industry and wider public," the central bank said.
The BSAJ notes that if reserve requirements are to be applied uniformly across the board, residential mortgage rates would increase.
The more resources that lenders are required to hold in reserve, the less they have to fund loans. Typically, lenders tend to adjust interest rates and fees to compensate.
"Once upon a time, our members did not pay for ATM transactions. Now all we can offer is that they will use our ATMs without cost. We have also had to introduce POS charges," said the BSAJ spokesman.
"If more money is located away in reserves, we will have to charge higher rates to compensate. These are monies on which we will not be earning an income."
Mortgage rates at JNBS range from 9.29 per cent to 13 per cent across loan categories; at VMBS, rates range from 9.29 per cent to 14.99 per cent.
The building societies in their entreaty to the BOJ, said lower home loan rates were socially beneficial and, as such, should be promoted.
Consequently, they asked to continue with the low reserve ratios they now enjoy.
Otherwise, the mortgage institutions say the proposed composition of the new Supervisory Oversight Committee (SOC) to be created under the omnibus legislation is inadequate.
The committee will comprise at least three persons, including the Supervisor of Banks and the Deputy Supervisor of Banks at the BOJ.
The BSAJ contends that the creation of the SOC gives a false perception that the action of the banking supervisor is being stress-tested, but that it is no more than an appeal from 'Caesar to Caesar'.
"This proposal, with all due respect, seems incapable of providing independent government oversight," the BSAJ representative said.