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amaican banks making unconscionable spreads — Shaw
ROE outrageously high
Friday, September 17, 2010
Speaking at the World Bank's Americas Conference held at the Biltmore Hotel in Miami earlier this week, Minister of Finance Audley Shaw said that banks operating in Jamaica are showing an average return on equity (ROE) as high as a whopping 22 per cent, one of the highest returns anywhere in the world.
"When you closely examine Jamaican bank's average return on equity it is as high as 22 per cent. This is much higher than global and regional standards and is totally unconscionable. It is unreasonable for the banks to be extracting this from Jamaicans; bearing in mind the current economic environment and the continual trending down of inflation. We are set to end the year with a single-digit inflation figure but the banks seem not to take that in consideration," said Shaw.
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Earlier this month the Minister of Finance suggested that more banks, preferably international ones, should be allowed to compete in Jamaica and that this would raise standards, create more competitive products and services and put an end to monopolistic practices.
With the implementation of the Jamaica Debt Exchange (JDX), banks are unable to gorge on government paper as they have done for the better part of two decades. They are now forced to earn from core banking and this has proven most testing - rather like the atrophied muscles of an athlete who has been out of the game for too long. As a result, many have resorted to increasing fees and charges to make up for lost revenue.
Jamaica's leading banks posted super after-tax profits of J$10.5 billion and J$11 billion last year. The recent spate of financial statements reveal diminishing fortunes characterised by falling interest income, higher operating costs and higher bad loan numbers. In an attempt to make up for these impediments, banks are killing customers with charges and fees and increasing their spreads.
Jamaican banks' return on equity far exceeds that of some of Europe's major banks. Last month Barclays said that it expects its global retail banking operations to deliver an average return on equity in the period 2010 through 2013 of 13 per cent to 15 per cent. The UK bank also said in a statement that it is targeting its retail division to post a 5 per cent growth in income a year in that period, report broadly stable net interest margins, and control costs.
According to Reuter's Steve Slater, European banks' average (ROE) was 18-23 per cent between 2003 and 2007, compared to 12-15 per cent in the mid 90s. Returns are expected to go back to around 10 to 15 this year. The leverage that drove returns higher for a decade is now being reversed as banks take fewer risks, added to by the impact of higher capital and depressed margins in a low interest rate environment.
UBS predicts European banks' ROE will average 9.4 per cent this year, 11.5 per cent in 2011 and 12.9 in 2012. CreditSights analysts say Europe's banks must get used to ROE of under 10 per cent, adding: "We are not sure if the equity market has yet to come to terms with this."
However in terms of ROE, Europe's banks lag rivals everywhere except the United States and Japan. Average ROE next year for banks will be 18.8 per cent in Asia (ex-Japan), 18 per cent in Canada, 21.8 per cent in Latin America and just 8 per cent in the United States, UBS estimates.
The largest banking entity operating in the English-speaking Caribbean is Scotiabank, whose parent is based in Canada. Addressing Scotiabank's AGM held in St John's, Newfoundland in April of this year, executive vice-president and chief financial officer, Luc Vanneste said: "Clearly, the global economy slowed in 2009, and we were not immune. However, we have been very successful at managing through this challenging environment. We delivered a strong return-on-equity of 16.7 per cent."
Closer to home, the President and CEO of Scotia Group Jamaica, Bruce Bowen has ventured an explanation for the current situation in Jamaica. He has said that with continuing loan losses, the cost of running the business and with 2,200 employees together with equipment that provides services and products, these costs need to be recovered. He further added that personnel was Scotiabank's biggest cost, running at 45 per cent of non-interest expenses.
Then comes premises, technology and communication. "The question confronting all banks in Jamaica is, how do you get the network infrastructure more efficient in order to reduce spreads?" said Bowen.
ROE outrageously high
Friday, September 17, 2010
Speaking at the World Bank's Americas Conference held at the Biltmore Hotel in Miami earlier this week, Minister of Finance Audley Shaw said that banks operating in Jamaica are showing an average return on equity (ROE) as high as a whopping 22 per cent, one of the highest returns anywhere in the world.
"When you closely examine Jamaican bank's average return on equity it is as high as 22 per cent. This is much higher than global and regional standards and is totally unconscionable. It is unreasonable for the banks to be extracting this from Jamaicans; bearing in mind the current economic environment and the continual trending down of inflation. We are set to end the year with a single-digit inflation figure but the banks seem not to take that in consideration," said Shaw.
1/2
Earlier this month the Minister of Finance suggested that more banks, preferably international ones, should be allowed to compete in Jamaica and that this would raise standards, create more competitive products and services and put an end to monopolistic practices.
With the implementation of the Jamaica Debt Exchange (JDX), banks are unable to gorge on government paper as they have done for the better part of two decades. They are now forced to earn from core banking and this has proven most testing - rather like the atrophied muscles of an athlete who has been out of the game for too long. As a result, many have resorted to increasing fees and charges to make up for lost revenue.
Jamaica's leading banks posted super after-tax profits of J$10.5 billion and J$11 billion last year. The recent spate of financial statements reveal diminishing fortunes characterised by falling interest income, higher operating costs and higher bad loan numbers. In an attempt to make up for these impediments, banks are killing customers with charges and fees and increasing their spreads.
Jamaican banks' return on equity far exceeds that of some of Europe's major banks. Last month Barclays said that it expects its global retail banking operations to deliver an average return on equity in the period 2010 through 2013 of 13 per cent to 15 per cent. The UK bank also said in a statement that it is targeting its retail division to post a 5 per cent growth in income a year in that period, report broadly stable net interest margins, and control costs.
According to Reuter's Steve Slater, European banks' average (ROE) was 18-23 per cent between 2003 and 2007, compared to 12-15 per cent in the mid 90s. Returns are expected to go back to around 10 to 15 this year. The leverage that drove returns higher for a decade is now being reversed as banks take fewer risks, added to by the impact of higher capital and depressed margins in a low interest rate environment.
UBS predicts European banks' ROE will average 9.4 per cent this year, 11.5 per cent in 2011 and 12.9 in 2012. CreditSights analysts say Europe's banks must get used to ROE of under 10 per cent, adding: "We are not sure if the equity market has yet to come to terms with this."
However in terms of ROE, Europe's banks lag rivals everywhere except the United States and Japan. Average ROE next year for banks will be 18.8 per cent in Asia (ex-Japan), 18 per cent in Canada, 21.8 per cent in Latin America and just 8 per cent in the United States, UBS estimates.
The largest banking entity operating in the English-speaking Caribbean is Scotiabank, whose parent is based in Canada. Addressing Scotiabank's AGM held in St John's, Newfoundland in April of this year, executive vice-president and chief financial officer, Luc Vanneste said: "Clearly, the global economy slowed in 2009, and we were not immune. However, we have been very successful at managing through this challenging environment. We delivered a strong return-on-equity of 16.7 per cent."
Closer to home, the President and CEO of Scotia Group Jamaica, Bruce Bowen has ventured an explanation for the current situation in Jamaica. He has said that with continuing loan losses, the cost of running the business and with 2,200 employees together with equipment that provides services and products, these costs need to be recovered. He further added that personnel was Scotiabank's biggest cost, running at 45 per cent of non-interest expenses.
Then comes premises, technology and communication. "The question confronting all banks in Jamaica is, how do you get the network infrastructure more efficient in order to reduce spreads?" said Bowen.
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