May 2016 Financial News

IMF points finger at banks for lack of growth (Jamaica)

May 29, 2016

The International Monetary Fund (IMF) is placing some blame on the island’s banking sector for poor levels of growth within the island. At the same time, however, it is also saying that the government should look at reforming taxation of this sector which attracts a higher rate than unregulated companies.

Real GDP in the island is estimated to have expanded by only 0.8 per cent in financial year 2015/16. The Fund states in its 2016 Article IV Consultation on Jamaica that while fiscal discipline is critical for further reducing debt and inducing growth, reforms are necessary in other areas such as access to credit.

The country’s lending sector is dominated by dozens of microfinance companies which lend at rates upwards of 40 per cent per annum. A much smaller and formalised banking sector offers lower rates, but the IMF says they can do better.

The BOJ in its quarterly monetary policy report for December 2015 indicates that real growth in private sector credit recorded an annual expansion of 6.5 per cent relative to 6.0 per cent at the end of September 2015. Interest rates to the private sector averaged 17.19 per cent during the quarter.

More money was loaned to householders and large companies, the BOJ said.

The IMF believes local lenders can do better. It states in its consultation “greater banking sector competition… reducing collateral requirements, improving credit risk assessment, and developing non-traditional financial services will help improve access to financial services and reduce the interest rate spread”.

With one trillion dollars in assets, banks and near banks supervised by the Bank of Jamaica comprise 12 lenders. The sector is dominated by the National Commercial Bank which made $6 billion in profit in its recent six-month report.

Locally, it is hoped that the big lenders will begin to make more use of the National Security Interests in Personal Property Registry (NSIPP). The registry, which is operated by the Companies Office, went live on January 2014, but is still underutilised.

Lenders prefer to make loans secured by real property.

Other strategies suggested in the Article IV consultation as necessary to positively influence growth are measures to combat crime, reducing the costs of energy and tax compliance, and improving infrastructure in order to attract private investment.

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter
Jamiaca Observer
Sunday May 29, 2016

http://www.jamaicaobserver.com/business/IMF-points-finger-at-banks-for-lack-of-growth_62122