Wed | Nov 21, 2018

Study being done on commercial banking market to ensure more competition

Published:Wednesday | November 7, 2018 | 12:00 AMMcPherse Thompson/ Assistant Editor - Business
Branches of Jamaica's two largest banks sit on opposite sides at the entrance to the business district, at Knutsford Boulevard in New Kingston. A new study has been commissioned to assess competition within the commercial banking sector.

The Ministry of Finance and Planning has commissioned a study to assess competition in the space within which commercial banks operate in Jamaica with a view to identifying bottlenecks and impediments and to ensure a more competitive market.

Among other things, the study, being overseen and steered by the Fair Trading Commission, FTC, and the Bank of Jamaica, BOJ, will be looking at whether there is space for more players and the barriers for entry into different kinds of products and services.

The sector now has seven players, who manage $1.4 trillion of assets and $934 billion of deposits. Menns SPRL from Belgium was awarded the contract to undertake the study over six months, and work commenced a few weeks ago.

The objective of the study is to assess competition in the space or market within which commercial banks operate, to identify bottlenecks and impediments as well as propose policy recommendations for improved competition, the FTC said.

It is intended that the study will help policymakers understand the reasons for the low level of financial intermediation in Jamaica and provide insights into possible ways for using that information to unlock economic growth, said the Commission.

The conclusions from the study will guide policy recommendations to the government on whether to create discrete or more tailored regulation for different classes of market players in the banking and financial sectors.

Dr Damien King, executive director of the Caribbean Policy Research Institute, CaPRI, said that while the think tank has itself undertaken a study of the banking sector, the findings of which were released earlier this year, an assessment of the competitive nature of the sector is "different from what we did so I think it's a great thing to do because it looks at the problem from a different angle and what seems to me to be quite an instructive angle."

Richard Murray, executive director of the Jamaica Bankers Association, to whom the Financial Gleaner was referred, said the bankers held a conversation with BOJ Governor Brian Wynter about the study and that the association was receptive to it.

He said that it was difficult to comment on what they would like to see included in the study because "we haven't been given anything to look at."

However, "we just hope that at the end of it, we'll be able to review and to provide our comments," said Murray, adding that "it will be very good for the banking sector."

 

ASSESSING SECTOR

 

FTC Executive Director David Miller said it was important and necessary to examine the financial landscape, and that such explorations should be made of other types of firms.

"I'm speaking of building societies, in some instances credit unions and microfinance institutions," said the competition expert. "We also think it's necessary to look at what the landscape looks like with respect to consumers. Do they have sufficient choices? What choices do they have? Where are they going to obtain loans and financial products and services and is this satisfactory to build a complete financial framework for Jamaica?"

Referring to the financial inclusion work being undertaken by the central bank, Miller said "this filters right into that financial inclusion set up.

We have seen in recent times the blossoming of microfinance institutions. We have seen the growth of the credit bureaus so we know that there is activity out there and that consumers, in general, are looking for financial products."

Another dimension to it is the steady trending down of interest rates "where consumers and business enterprises are looking for opportunities to invest their money and all this scenario plays into the need to assess what the state of competition is in the banking sector in Jamaica," said the FTC executive director.

As a kick-off to the study, the consultants were in Jamaica two weeks ago and engaged in discussions with the financial players, including the association for microfinance institutions.

"The study will be looking at whether there is space for more players and the barriers for entry into different kinds of products and services - whether it be natural barriers or legislative or policy barriers," Miller said.

In that regard, the consultants will be assessing the framework within which the BOJ regulates financial institutions.

mcpherse.thompson@gleanerjm.com