By Al Edwards, Financial Co-ordinator
Karl P. Wright
Victoria Mutual Building Society (VMBS) today is regarded as one of the country's most renown mutuals but it took it almost 50 years to arrive at that pre-eminent position. It's President and Chief Executive Officer Karl P. Wright has vowed to expand its operations by adding critical mass and offering competitive rates. He see this year as vital to its plans to capture even greater market share and utilisation of technology to extract greater efficiency from its branch network.
MR. WRIGHT has been at VMBS for over 31 years. After completing his graduate studies in Canada's Nova Scotia where the co-operative credit union was gathering pace, he returned to Jamaica. His Canadian experience gave him a unique perspective in providing financial services to a migratory community. He worked for the integrated petroleum company Shell and Barclays Bank before joining VMBS as a graduate executive in the company's public relations department. He has spent his career at VMBS working his way up the ranks and now is placed at the pinnacle.
"We think of Jamaica intellectually as being where Jamaicans are and that side of the business has stood us in very good stead over the years. We intend to muscle up on that. This year we are going to do more on the remittance side, more than we have ever done before, with more points of contact and we will be bringing technology to the process to make it efficient and cost effective for the consumer.
"We stress the overseas side of the business because quite frankly that's where the income is. We think that in 2003, Jamaicans living here will continue to be coming under stress with rising utility costs, job losses and the displacement of people. So we see the remittance business as a source of strength for the Society and the country as a whole. We intend to spend a lot of time and energy canvassing for two things, one is remittances and the other is good old fashion saving. We will be dusting off our products and introducing new ones in particular a 366-day US dollar instrument. This is aimed at people holding US$ dollar accounts and looking to go long and should get Jamaicans thinking about their medium and long term financial future. This is on the savings side of our operation."
He is of the opinion that all too often in Jamaica, people view their financing on a one month, roll over basis.
"We intend to put some firepower behind our 5 year long term saving product which we think is underserved."
MORTGAGES
VMBS will be focusing even more on mortgages this year. It has endeavoured to keep its rates comparatively low while at the same time eschewing high levels of foreclosure especially in a climate that has a strict regulatory regime which the building society supports. For its first time home buyers it offers mortgages as low as 13.95 per cent. Mr. Wright noted that younger people are finding it difficult to obtain mortgages specific to their needs and at 13.95 many people who wouldn't otherwise qualify at the standard 18 per cent will now do so. The general idea is to facilitate and accommodate people requiring mortgages without making the process appear daunting.
"We are saying yes to many more people. But we don't believe we are miracle workers, there's a limit to what we can do given the state of the economy. We don't want to help people today and set them up for the fall tomorrow, so we encourage them to moderate expectations. For instance don't start out seeking a five bedroom house. Start with a one bedroom house and while you are waiting, start saving for the five bedroom house."
On a personal level, I would advice people to start one of these LSA products. Why? Because it is tax free and if you keep it going, then you can use it to make your down payment. In other words you have to plan for the purchase of your home. We have a duty to sell this message although everybody wants the big house now which isn't always possible.
Yes we are doing things to reduce rates but the primary duty is the education of our people that they must start the saving process as early as possible. More often than not people focus on what they would like rather than on what they can afford and therefore defer the decision to begin saving.
EXPANDING THE BRANCH NETWORK
Mr. Wright declared that VMBS will no longer be building large branches anymore, rather it will concentrate upon establishing small service points for its customers. "It may well be the case that we will form alliances with supermarkets and other outlets. We were the first to do this sort of thing when we did it in the Sovereign Centre."
A new showcase branch will be unveiled in the recently constructed shopping plaza located at Liguenea's former post office centre. VMBS views it as a primary location and it
will use it as the focal point of its expansion plans. The strategy now will be to concentrate on fewer products but do those exceptionally well.
THE ECONOMY
"The recent news on the economy is troubling and does not bode well for the country. With Standard & Poors recently downgrading our sovereign debt from " "Stable" to "Negative," I can see a gloomy road ahead. But lets not forget that many countries have had their down periods survived them and subsequently prospered. Perhaps most importantly we have always paid our debts no matter what we are faced with. Many of us are now experiencing bad economic news fatigue. The news of interest rates going down then back up again and constantly fighting to control the dollar has got us into a vicious cycle. We really have to do some unpopular things and bite the bullet rather than persist with the present yoyo arrangement. To translate this I am of the opinion that we must reduce interest rates now. It should be a non negotiable position. The national debt level is high but we can live with that, it is the debt serving that is proving difficult to cope with. If we can get the interest rate down, then the cost of servicing that debt can be seriously reduced. Public policy should be directed at achieving that at a price but a price well worth paying that will take us out of our current predicament. Mind you that would be accompanied by even more slippage in the exchange rate. We have to realise, we can't have both low interest rates and a favourable exchange rate at this point in time.
"The exchange rate must slide a little to give us a chance of reducing interest rates - it's a trade off. Inflation is a legitimate concern but it is not about prices remaining the same rather it is to do with prices not spiralling out of control. That's my understanding of inflation containment. If prices rise because the exchange rate depreciates, the issue is will it continue down the road or can you hold it, that is keep it in check. Politicians are scared to use the word devaluation , they might use the word depreciation but that's something else altogether.
"We have to pursue growth which incidentally nobody talks about. Growth requires lower interest rates. There is this talk of capping the national debt but we must realise you can't do all these things concurrently. Mind you I don't think we should begin capping the national debt tomorrow morning. It is not the top of our priority list.
DEBT
Mr. Wright surmises that there is an over reliance on borrowing throughout Jamaica as a whole. He believes that if businesses do badly then lending institutions cannot do well and it seems to be that even now, many businesses rely heavily on borrowing and the notion of putting in their own resources isn't something near and dear to the Jamaican psyche. That has to be changed and we have to change that.
"In the modern world capital is one of the first things lending institutions look at when they are judging you. If you really too heavily on borrowing you are then susceptible to interest rate fluctuations that can wipe you out. One way in which firms can raise capital is by going public. The Jamaica Stock Exchange (JSE) is under used for the purpose of raising capital.
There must be an awareness that committing capital is a critical thing and you should judge people to the extent to which they are prepared to commit capital. It is the capital you can use to withstand shocks and that's a lesson we should have learnt from the melt down of the financial sector. It is easy to blame bad management and Government policy but many of the leading businesses did not put up their own money, they risked other people's money, not their own.
"Who can withstand interest rates of 60 per cent. People were paying rates on overdrafts of 120 per cent if they violated their borrowing levels, and in many cases they started borrowing at rates of 20 per cent. Now I'm not saying it is wrong to borrow but there must be some kind of balance.
JAMAICANS IN THE QUEST FOR BETTERMENT
We must try to come to a better understanding of the behaviour of the Jamaican people, to pin down, as we say, what makes them tick. Coming down to the bare essentials, I would like to suggest to you and to share with you that from the looking and listening that I have done over the years, on my journey through life Jamaicans, ever since the abolition of slavery, have been in hot pursuit of a thing called 'betterment'. I have tried, in thinking about it, to just crystallise the behaviour and to reduce it to one critical variable and that is, the search for betterment. Betterment for themselves and their families. And that betterment includes a yearning for a thing called respect and a place and purpose in national life.
Consider, for example, the mind set of the two and a half million Jamaicans now living abroad. Why did they go? In search of a better life, I suggest to you. And this cuts across all classes of society. They went to Cuba, Costa Rica, Panama, England and the USA, and elsewhere. Indeed, at VMBS, we offer financial services to Jamaicans living in 48 countries... and counting. Our migrants, sacrificed, endured discrimination, held on by the passion to achieve that thing which I choose to imprint on their consciousness called 'betterment'.
But then there are those Jamaicans at home and abroad who embrace what is popularly known as the "I want it now" philosophy, and pursue betterment - that same good thing, betterment - in socially and legally unacceptable ways, thereby giving Jamaica a bad name. And let's be frank about it, "I want it now" is a nice thing - it would be great to have a 'criss' car and a big house as soon as we leave school but we need to learn, that that which is desirable is not always possible.
THE WAY FORWARD
Going forward, therefore, the challenge I see is to direct energy for this thing, which I call betterment, in socially acceptable avenues. And I'd like to suggest that paving the way forward would be helped by another thing, which I choose to call, simply, knowledge, and I say knowledge advisably. Because when it come right down to it, the evidence of the ages suggests that the wealth of nations, and by extension, the prosperity of the citizens, has less to do with money and more to do with 'know how'.
STICKING TO WHAT WE DO BEST
We need to know, for instance, that in the brave, often brutal, new world that is unfolding, subsidies are out. There has been much talk about it, but we're not really listening, and we had better concentrate our efforts in Jamaica - our efforts and our energy - on the things that we're really good at. Fortunately, we are ahead with a few things. We all know, that our coffee is the best in the world, our ginger is second to none, our culture and our music hypnotises and captivates the world and our tourism potentially is still vast and essentially untapped. It seems to me, therefore, that public policy should, without apology, assign massive incentives to these exports. Yes - and tourism is an export - and this part of the knowledge which we must have - to call tourism and export item; export service. That's a critical part of bringing knowledge to bear on our problems. And all of us, I suggest, should remember the very old, basic, true, tested principle that investment cannot proceed without that little thing called savings - uninspiring that may be for some, but is a variable that we leave out of the mix at our peril. Because, at the end of the day that is what capital formation is all about, then and now and shall be in the future. Capital formation is about the harnessing and conversion of savings.
And to this connection, while we, and we must, extend open arms to the investment flowing from the savings of foreigners, we should not downplay, I think, the critical importance of domestic savings and investment in the process of national development. And as an extension of this argument, it seems to me that our pension funds should be shifting their emphasis from the paper chase of fixed income securities which is what they've been doing for the last umpteen years, to the more aggressive purchasing of shares in Jamaican companies that are well placed on the path of growth. Generations yet unborn will not forgive the managers of these funds if they miss the opportunity that now presents itself to them.
We need to know, as well, that the concept of diversification is a good thing in business and the recent melt-down in the financial services sector should not make us so timid that we simply want to stick to the knitting. Of course, there are prudential principles to guide our behaviour and we should, without a doubt, we should not commingle funds of one entity with those of another. We should not go into business without the required capital and management expertise. Expressed another way, we shouldn't spread ourselves too thinly.
We must observe standards of best practice in our business affairs. We need to know, as well, that Jamaican businesses have been, and hear me well, traditionally too heavily reliant on bank borrowing and that the future is one which the strength of capital would be crucial to withstand internal and external shocks which are inescapable, in liberalised, globalised business environments.
Interestingly, little has been said in discussion about the melt-down in the financial services sector of the centrality of under capitalisation of businesses as part of the explanation for business failures, and by extension the failure of some lending institutions, in a sustained, punishingly high interest rate environment.
We need to know, as well, that it would be tactically wise to embrace the notion that Jamaica is deemed to be wherever Jamaicans are. It's redefinition - the two and a half million living here and the two and a half million living elsewhere in an increasingly global village, that's us, five million strong. Let us then urge ourselves to give those people there the vote. They have the money, they have the interest. Why not give them the right to vote in Jamaican elections? Why not give them attractive incentives to invest in Jamaica. Let's give them back the joy of duty free concessions on their motor cars, if and when they decide to return home. Don't take the joy out of their return.
