Opportune time for more bank licences
THE ANNOUNCEMENT that Sagicor Group Jamaica will acquire the Jamaica operations of Royal Bank of Canada (RBC) is another example of Sagicor CEO Richard Byles putting his – or investors’ – money where his mouth is.
For Mr Byles has been busy recently urging the island’s private sector to, in the face of a more welcoming environment for business, invest in new and existing ventures.
His fundamental argument is that the Government has been showing admirable discipline in managing the fiscal accounts and in implementing many of the tough economic reforms for which businesses have long advocated. Such gains could be undermined, and confidence in their efficacy lost, if people don’t see positive returns in terms of investment, job creation, and economic growth.
Even as we appreciate that many other variables affect investment decisions, this newspaper is sympathetic to Mr Byles, whose group has recently bought hotels – and now a bank. That the directors of Sagicor Jamaica, and those of its parent group, Sagicor Financial, agreed to acquire a bank that has been losing money and has struggled for market share suggests their confidence in Jamaica and in Richard Byles’ ability to lead a turnaround of RBC Jamaica and to extract value from the investment.
But even as we welcome Sagicor’s move and urge its approval by regulators, we believe that it is an opportunity for the regulators to expand the commercial banking sector and promote more competition in the market.
These positions are not, as some are likely to claim, contradictory.
Royal Bank of Canada has decided to leave a market which it previously exited, and to which it returned only because it gained the asset as part of a regional acquisition. It has found a willing buyer in Sagicor.
One result of the deal, though, will be the reduction of the number of commercial banks in Jamaica to six after RBC is merged with Sagicor’s existing bank. That is half the number of commercial banks of a decade and a half ago. It will also lift Sagicor’s share of Jamaica’s domestic banking assets from three to 11 per cent, and its share of loans from 2.5 per cent to around 12 per cent.
SHARP FEE RISES
This is happening at a time of sharp rises in commercial banks’ fee income, fuelling the feeling among consumers of price collusion among banks and that they are being overcharged for services as the institutions compensate for softened interest revenue after their ‘voluntary’ restructuring of the Government’s debt. The merits, or otherwise, of such accusations are yet to be settled, although banks have argued that, like other businesses, they, too, have to cover the cost of the services they provide and make reasonable profit.
The debate is taking place against the backdrop of economic reforms aimed at improving efficiency in the Jamaican market. Competition is a flip side of that coin.
The regulators should ensure that these advances happen. For example, Jamaica National Building Society has long applied for a commercial bank licence, as has Jamaica Money Market Brokers. It is not publicly said why neither of these institutions has not, up to now, received a favourable response.
The regulators, we believe, should open the market, subject to appropriate and robust regulations, allowing as many players as meet the criteria to compete. Richard Byles, we expect, would agree.