Sep 2016 Financial News

Lack of competition in banking sector concerns IMF (Jamaica)

Sep 28, 2016

Citing a lack of competition in the Jamaican banking sector, the International Monetary Fund (IMF) is calling for the creation of a body to oversee the implementation of measures to improve credit access.

“Given the high market concentration of the banking sector in Jamaica, a thorough assessment should be conducted on the adequacy of competition in the banking sector,” the Fund stated in the 13th review of the extended fund facility agreement, released last week.

The Fund noted that with two banks holding more than 80 per cent of total assets, “a thorough assessment should be conducted on the adequacy of competition in the banking sector”.

It stated further that “a financial inclusion council should be created without further delay in order to implement the financial inclusion strategy.”

Some of the measures the IMF suggests include the development of agency banking services, mobile money products, and factoring and leasing services which should facilitate financial inclusion and deepening, especially among the under-banked population, such as rural borrowers and SMEs.

It also advocates advancing electronic payment/transaction systems which can help in the reduction of the usage of cash and bank operating costs.

It suggested that accelerating the current programme to improve land titling would also “help promote credit access to people with no other collateral”.

“Assessing banking sector competition, improving land titling, as well as developing mobile money and agency banking services will help alleviate constraints to financial inclusion and investment,” the IMF said.

It noted that while the BOJ lowered the policy rate in May – the policy rate (30-day CD) was reduced by 25 bps in May , a cumulative reduction of 75 bps since April 2015 – the passthrough of these rate cuts to lending rates “continues to be weak as the historical pattern of high spreads between lending and deposit rates persists, reflecting weak competition and banks’ high operating costs”.

The Fund also noted that while credit to the private sector is slowly recovering, jumping to about 20 per cent (y/y) in June 2016, this increase included a single large loan for a corporate acquisition. Excluding this, growth was still positive at 14 per cent year over year.

Corporate bond issuances remain buoyant, in Q2 2016 increasing tenfold compared to Q2 2015 – also an encouraging sign, the Fund said.

“The financial sector appears resilient, and the authorities are working on further strengthening the prudential supervision framework,” it was noted.

Its main concern remains that of competition and financial inclusion. “Financial sector reforms should ensure its resilience and inclusion,” it was stated.

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter
Jamaica Observer
Wednesday September 28, 2016  

http://www.jamaicaobserver.com/business/Lack-of-competition-in-banking-sector-concerns-IMF_75358