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Banking regulations passed in lower House

Published:Thursday | September 3, 2015 | 12:31 PM
Minister of Finance Dr Peter Phillips

After one year in gestation, regulations required to bring the Banking Services Act into force were passed in the Lower House on Wednesday and will be taken up in the Senate next week.

Minister of Finance Dr

Peter Phillips says the passage of the regulations will allow implementation of the banking law passed at mid-year 2014.

The new legislation amends and consolidates the existing Banking Act, Financial Institutions Act and the prudential regulation provisions of the Building Societies Act into one governing act, and also enhances the existing powers of the Bank of Jamaica (BOJ) as chief police of the financial system.

The regulations passed in the Lower House dealt with the opening of branches, amalgamation of deposit-taking institutions, capital adequacy, licensing fees and requirements, among other matters.

Phillips said it clears the way for the Banking Services Act to take effect later this month. The Senate debate is scheduled for September 11.

While the law, which is meant to mitigate risks "inherent in Jamaica's highly interconnected financial system", positions BOJ as the primary overseer of the system, the supervision is to be handled by a committee that includes the BOJ governor and representatives of the Jamaica Depository Insurance Scheme, Financial Services Commission, as well as the financial secretary of the Ministry of Finance, and private-sector appointees.

Both local and foreign banks with branches are subject to licensing fees, which are payable to the accountant general.

The fee per licence for both local and foreign banks is set at $2,000 for every $10 million of the deposit institution's fee base, payable annually at the end of the institution's financial year.

Fee base in the regulation means the value of the DTI's assets net of provisions, plus the total value of all bankers' acceptances, guarantees, letters of credit and other contingencies specified by the DTI.

"If they fail to pay, they will pay interest on the amount remaining unpaid," Phillips told lawmakers on Wednesday.

That interest will be calculated on a daily basis based on the average yield of the six month treasury bill.

One of the fundamental changes is that banking hours no longer have to conform to one industry format. Individual banks can seek permission to open or close as they see fit, as long as they are open to the public for at least 25.5 hours per week.

However, they are to remain closed for business on public holidays, with the exception being branches that operate at the two major international airports.

"If the supervising committee sees fit, it can vary opening hours and the change will be gazetted," Phillips said, referring to banks that present a good case for a variation from the rules.

Permission to set up or change the location of the branch must now be sought from the supervisory committee, instead of the Ministry of Finance.

The regulations outline requirements for capital adequacy, with the minimum statutory ratios which must be maintained, provided in detail.

Regarding the primary ratio requirement, it is stipulated that a deposit-taking institution must maintain a daily ratio of no less than six per cent between its capital base and total assets; while the capital adequacy ratio should be no less than 10 per cent.

On-balance sheet and off-balance sheet items are also covered in the regulations.

For on-balance sheet assets, the regulation outlines the risk weighting for different assets. Cash has zero risk weighting, as do Jamaican dollar government securities and loans guaranteed by government. Claims on other DTIs supervised by the BOJ carry a 20 per cent risk weighting.

First legal mortgages carry a 50 per cent weight unless they are over three months in arrears in which case they move to 100 per cent risk weighting.

Assets carrying 100 per cent risk weighting include holdings of ordinary and preference shares; fixed assets, including land and building; GOJ securities denominated in foreign currency, among others.