Weighing in on the bank fees debate – CaPR I

The following is a contribution from the Caribbean Policy Research Institute.

ARE BANK FEES TOO HIGH?

JAMAICA’S LARGEST bank, NCB, made a record-breaking $14 billion in profits last year, up 17 per cent from the previous year. The second-largest, Scotiabank, made $12 billion up to October last year – a 14 per cent increase. With returns like these, it’s hardly surprising that members of the public have been crying out against high banking fees.

Exacerbating the effect was the $1,385 fee Scotiabank began charging to cash a cheque from other banks in November – an almost 900 per cent increase from its previous fee. This was subsequently reduced to $385 the following month, due to the public outcry. This, along with the anomaly of charges levied on fairly commonplace activities, has led many observers to characterise these charges as unfair. But are bank fees actually too high?

CaPRI, in 2014, released a study on the issue, seeking to provide clarification by highlighting the driving forces behind trends in Jamaican bank fees and charges. This study demonstrated that in Jamaica, since the mid- to late2000s, income earned by banks from fees and commissions has increased significantly, as has been the case in many other economies since the early 1990s. The data presented provided some preliminary support for the conjecture that Jamaican banks increased fees in a bid to maintain profit levels amid declining interest revenues. The trends suggest that decreasing net interest income and net fees and commissions caused profits to fall in 2006, to which banks responded by increasing both net interest income, and net fees and commissions in 2007.

Although providing little comfort, the data (2010 to 2011) also support the fact that fees charged by Jamaican banks are not generally significantly higher than those of banks in other parts of the world.