KINGSTON — Minister of Finance and the Public Service, Hon Audley Shaw, says his Ministry is taking steps to generate competition among financial institutions, particularly commercial banks, to induce interest rate reductions.
This is against the background of “record low’ interest rates of 6.75 per cent currently offered at the Bank of Jamaica (BoJ), Mr. Shaw said, while reiterating his desire to see banks become more “aggressive” in reducing their rates.
Speaking at the launch of Kia Motors 2011/12 model sports utility vehicles (SUVs) at the company’s Chelsea Avenue showroom, Kingston, on Thursday, Mr. Shaw cited several developments, which he said warranted compliance by commercial banks, in reducing their returns on equity of upwards of 15 per cent.
He said that, in respect of Government treasury bills, market stakeholders are taking up these instruments at rates ranging between 6.25 and 6.5 per cent. Additionally, he said that within the global marketplace, commercial banks are accepting returns on equity ranging of nine to 10 per cent.
He stated that this means that there is no longer any compelling reason for local commercial banks to insist on prime interest rates of between 15.5 per cent and 17 to 18 per cent and more.
He described this behaviour as “It is unconscionable and unreasonable” and suggested that “it must stop”.
“ I don’t want to appear to be combative, or to be at war with the commercial banks, but I have to say it again: For commercial banks in Jamaica to be demanding a return on equity of in excess of 20 per cent, when commercial banks globally are accepting and are willing and are happy (with) returns on equity of between nine and 10 per cent but, in Jamaica (where) the economy has not been growing, the banks want a return in equity of twice the global average… something is wrong,” he argued.
In this regard, Mr. Shaw said every “conceivable step” is being taken, “outside of some kind of mandatory imposition”, to ensure greater competition among the institutions which will yield further reductions in the rates.
These steps include increasing the portability of loans by removing stamp duties to facilitate the transfer of loans from one institution to another, and reducing the level of estate duties to facilitate transfer of a deceased person’s property to a next of kin, from 7.5 per cent to 1.5 per cent.
“The indication that I have is that there is now a lot of activity beginning to take place, in terms of making those properties transferable and, thereby, becoming a part of the unlocking of valuable resources that are, otherwise, idle. We believe that we can get to single digit interest rates, so that we can get the locomotive of investment and wealth creation going in our economy,” Mr. Shaw asserted.
By DOUGLAS McINTOSH, JIS Reporter