Dennise Williams, Staff Reporter
FRANKSON(right) and WRAY
THE JAMAICA Manufacturers' Association (JMA) and the Jamaica Agricultural Society (JAS) have stepped up their efforts to compel commercial banks to lower their lending rates.
The two groups have written to the Fair Trading Commission (FTC), requesting an investigation into "abusive charges and apparent price gouging" in relation to the interest rate spread earned by the island's commercial banks.
The letter, dated April 14, was signed by JMA President Doreen Frankson and JAS president Senator Norman Grant. A copy of the letter obtained by Wednesday Business, said: "We write to make an enquiry into what appears to be an abuse of excessive margins and overpricing which prevails because of an existing market structure, which resembles that of an oligopoly, which allows for enough market power to exist for abusive charges to be made on customers."
Responding to the charge, Managing Director of First Global Bank, Wayne Wray, said: "There is no oligopoly in the banking sector. I don't report to other banks, only my board. And we are guided by the purview of our own objective, guided by our balance sheet."
The letter to the FTC said: "At present, the prime lending rates on Jamaican dollar loans being offered by commercial banks to the business sector have a prime lending rate of approximately 20 per cent. This means that the average business will be able to access funds at approximately 22 to 23 per cent. These rates are prohibitive for small or medium size business to be viable in their business venture.
"These rates are also unjustifiably excessive when you look at what commercial banks offer depositors, which are as low as four per cent on savings deposits. The difference between lending rates and savings deposits creates an 18 per cent interest rate spread."
And according to the JMA and JAS, this double digit spread creates a disadvantage for Jamaican businesses as compared to their Caribbean counterparts. Added the letter: "To compare like with like, the equivalent interest rate spread in Trinidad using the same parameters is approximately seven per cent. This means that the margins in Jamaica using this scenario is some two and a half times more than in Trinidad.
"Based on the above, we feel there is a case for an investigation to take place by the FTC of what seems to be apparent price gouging by the commercial banks, which can happen based on the dominant position of the major players. We would appreciate an investigation into bank charges as there seems to be some collusion among the banks in this regard."
However, it appears that the commercial banking sector doesn't seem ruffled by the pressure tactics of the JMA and JAS. Speaking on April 7, Managing Director of the Bank of Nova Scotia stated, Bill Clarke, said: "The reality is -- as I know it -- Jamaican businesses need to put equity in their business and commit to their businesses and stop complaining."
And in response to this latest salvo from the groups, Mr. Wray said: "I don't feel threatened by this action. However, I think the best action is to be taken across the table. I have extended invitations to the JMA to discuss their concerns. We all need to see where we can agree because it is in the national interest. It is not the banks versus the JMA. This must be seen as customers working with their bank."
When Wednesday Business contacted the FTC, the regulatory agency said that it does not regulate prices. In fact, the customer service agent said: "Businesses can charge what they want, Jamaica is a free market system. Businesses can charge an arm and a leg, you don't have to spend money there. Our main concern is if you were misled and signed a contract without adequate disclosure."
