Sun | Apr 21, 2019

Banks bilking billions

Published:Wednesday | November 7, 2018 | 12:00 AM


Local currency deposits into the financial institutions are approximately $933 billion. Of that amount, the leading commercial banks, National Commercial Bank (NCB) and Scotiabank Jamaica Limited (BNS), account for more than $500 billion.

The typical Jamaican worker lodges money into a regular savings account, paying between 0.6 per cent to 1.70 per cent, depending on the amount at the time of deposit and the remaining balance in the account.

Now, my question is: What is the real rate of return to the ordinary Jamaican worker? Not the nominal rate, but the real purchasing power of the funds after one year since deposit.

For example: $1,000 deposit, and savings rate at 0.6 per cent, inflation 4.8 per cent, taxes, 25 per cent = $956.50; a loss in purchasing power of -$43.50 in just one year, or - 4.35 per cent. This is a major reason why the average Jamaican worker is getting poorer in real terms. NCB and BNS set the tone for the banking sector in Jamaica. Period.

With a negative rate of return, you will experience less demand for goods and services, hence lower growth in the economy.

My research indicates that the interest rate spread is just about the highest in the world, which is the difference between what is paid to the depositors and what the banks charge for loans. Jamaica's is 15.5 per cent, with the world average at 6.5 per cent.

It would not be unreasonable to request the banks to pay an equitable interest rate to depositors very close to the rate of inflation. But let me be very clear here: Not in all cases am I suggesting the banks match the rate of inflation, especially whenever the Government officials "run with it" and demonstrate a total lack of fiscal discipline.