Competition in the Ja banking sector
sector. A good start is to look at profitability. Persistently high returns are one indicator of insufficient competition and abuse of market power.
Goldman Sachs in the United States is the traditional industry benchmark of bank profitability, primarily engaging in risky investment banking ventures. Annual reports of the two large Jamaican banks, National Commercial Bank Jamaica and Scotiabank Jamaica, reported higher returns on investment and higher returns on equity than Goldman Sachs did for every single year over the past decade.
The presence of high profitability alone could also be a reward for something very desirably: superior cost control and service quality. However, service quality cannot explain Jamaica’s exceptional bank profitability.
In international comparison, the quality of banking services is noticeably low. There is a general lack of ease, swiftness or even availability of many basic banking services. Waiting times at branches are long compared to North America and Europe. I waited myself for 30 days until a US-dollar cheque appeared on my JMD account; one institute was unable to transfer money to one of the 10 largest European banks; and multiple times I had to physically carry funds from one branch to another.
Superior cost control cannot be the explanation for spectacular bank profits, either. It is just the opposite. Compared to other countries, we have high fees and exorbitant interest rate spreads, that is, the difference between interest paid by the bank on customer’s savings and what it charges on loans. For commercial banks, the spread was persistently at about 16 percentage points, according to central bank numbers prior to