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The banks as Shylock

Wednesday, September 20, 2017

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The matter of banks charging exorbitantly high interest rates is one that has persisted in the country for as long as one can recall. I have been writing about this issue for well over 25 years and what has remained clear over that period is the banks' stubborn refusal in reducing the high rates they charge on loans.

The problem has become perniciously obscene in recent years when one considers the low interest rates that persist in the international market, and particularly among Jamaica's major trading partners around the world. Even in war-torn Iraq, net interest rates on loans are lower than in Jamaica. We are at the low bottom in this regard.

And the discrepancy between deposit and loan rates is not the only concern. It is particularly galling the exorbitant fees that are charged for myriad services. The banks continue to rake in billions of dollars in profits and yet they do not seem to be too bothered by the discontent in the population over the obvious discrepancy between high fees and loan rates and the gargantuan profits they make year after year. And why should they be bothered when they have been allowed to do so over the years and when they enjoy virtual monopoly over the Jamaican financial space?

Why lend to productive enterprises in the manufacturing sector when it is easier to lend to people who want motor vehicles which can be easily repossessed? Why take any risks or work too hard by going into an agricultural field to be bitten by ticks when you can sit in your air-conditioned office, manipulate some paperwork or investment instrument and make millions? Why worry about whether a farmer or a person in the micro sector can repay his or her loan when you can make money hands down by charging high rates on those whom you have already corralled?

Economic growth? Patriotism? These are just the musings of politicians, philosophers, and idle romanticists. They do not apply to anyone driven by the Shylock principle. Indeed, the fees and high interest rates, the banks argue, are in line with what is required to offer good services to their customers, having spent huge sums on the improvement of technology and other services. If this argument does not hold up then there is always that of preserving shareholder value — the perennial fig leaf behind which financial institutions hide when they want to shaft their customers.

If the truth be told, what they are trying to preserve is their oligopolistic position in the society. And the authorities that have been hired by the electorate to protect them against the worst depredations of these institutions seem helpless to do so. The perennially high and usurious interest rates will elicit the occasional bleating from the political directorate, but they do not have the appetite to challenge the predatory assault of banks on ordinary Jamaicans.

I can understand any government in a free and open economy not wanting to legislate how banks should operate. But when they use their oligopolistic positions to impose onerous burdens on their customers; when they behave like Shylock, that hard-hearted money lender in Shakespeare's Merchant of Venice, then we have to take note and say enough is enough.

In a recent comment, the minister of finance seems to be offering the banks a trade-off to lower the asset tax if they should lower interest rates. This is a wrong approach and makes the minister a supplicant to the banks — which he need not be. If he feels strongly — as I believe he does — that rates must come down, he must push vigorously, and even legislatively, to make this happen. Increasing the asset tax may be a way to go. Pleading for mercy from Shylock is not going to cut it.

Neither will increasing the number of banks have any marked impact in the short term. Given the Jamaican banking culture, it is an illusion to believe that because you have more banks, and ostensibly more competition, you will have lower interest rates. As a collective group, banks are like cattle. They ride in unison to the hoof beats of those in the herd. This is why the rates are uniformed across the industry, with slight variations here and there. All of them have bought into the Shylock principle. And none of this will change by appealing to their patriotism or their good intentions.

Apart from legislative interventions, the Government should consider other funding sources for micro entrepreneurs in the micro, small and medium-sized enterprise sector. The recent agreement with the Inter-American Development Bank to make US$20 million ($2.56 billion) available to the micro sector is a step in the right direction. But even here there are problems. These loans are channelled through the Development Bank of Jamaica (DBJ), which in turn on-lends them to approved financial institutions, which then make them available to the end user.

Of course, the banks are the dominant institutions in this scheme of arrangement, and so it should surprise no one that, by the time the end user gets the loan, the rates are still too high for developmental purposes. The minister of finance takes four per cent; the DBJ 1.5 per cent; and the commercial banks three to four per cent. The rate to the end user ends up between 9.5 to 10 per cent. The Government (minister of finance) and the DBJ, over which it has supervision, take more than one-half of the total interest charged. Why?

If the minister is so concerned about lowering rates it should take no more than two per cent between itself and the DBJ. Appealing to the banks to lower their take is hypocritical in this regard. Mr Minister, you need to lead by example and revisit this issue.

While he is looking at this he may spare some thought for the matter of cheques being cleared on people's accounts. I do not know for local cheques, but a foreign cheques lodged in a bank takes 30 days to be cleared and the funds made available to the customer. In these days of advanced technology, cheque clear within a week of being deposited, yet the banks hold on to your cash, rinse it for at least 21 days, while you have no access to it. This is an unconscionable practice that can be stopped immediately, but who will bell the cat? A 21-day wait to have your funds available to you constitutes a large windfall to the banks, depending on the size of the cheque. Plus, this obvious illegal confiscation of people's money should end.

One is not saying that banks should not make profits. Any business must in order to survive. As a shareholder in banking institutions I well understand the efficacy of large profits, but I can also make a distinction between what is usurious, and thus unconscionable, and that which is rational and just. Profit without morality is often the asphalt on the road to bankruptcy. It is time that banks become more responsive to the developmental needs of Jamaica and be more robust in giving the country a fighting chance. Jamaica has been good to them. It is time they do one for the country.

Dr Raulston Nembhard is a priest and social commentator. Send comments to the Observer or stead6655@aol.com.

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