Local banks mark-up on forex sparks fresh anger

Thursday, August 23, 2018

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Data from the Bank of Jamaica's foreign exchange trading summary has revealed that local commercial banks are applying up to 5.6 per cent mark-up on the trade of foreign currencies, causing fresh anger among members of the Jamaica Manufacturers and Exporters Association (JMEA).

In fact, a press release from the association yesterday stated that mark-up on foreign exchange currencies at the local banks are the highest of all the Caricom countries, showing signs that the “commercial banks, especially, seem to be more interested in boasting double-digit increase in revenues and net profits, but demonstrate blatant disregard for the development needs of the country”.

JMEA noted that statistics released by the International Monetary Fund (IMF) shows that from 2006 to 2016, Jamaica has maintained the highest interest rate spread when compared to Barbados, Trinidad and Tobago, and the United States of America (USA). It added that when compared to the world's average in the same period, Jamaica's interest rate spread is consistently higher.

“Notably, in 2010 to 2016, Jamaica at times nearly doubled that of the world's average spreads.

Equally concerning is the difference between the buying and selling of international currencies,” the JMEA said.

According to the Bank of Jamaica (BOJ) foreign exchange trading summary, as at August 16, 2018, local commercial banks purchased US dollars at costs as high as $138.50, but sold it for as much as $146.25.

“While we are fully aware that interest rate spreads across countries will differ due to bank-specific and macroeconomic variables, these revelations are nonetheless alarming and disheartening, and leads the JMEA to question the reason behind these extensive margins,” the release said.

It added that the JMEA continues to urge the financial institutions to play their role in advancing the nation's objectives by actively reducing the mark-ups currently employed, and that it is the JMEA's expectation that with broader economic certainty, new entrants into the banking sector, declining BOJ interest rates, and a low inflation rate, spreads would be declining and not be on an upward trajectory.

“Financing for our agricultural, manufacturing and service sectors can be substantially lower than it is, currently. Uncompetitive interest rates persistently impede Jamaica's competitive advantage and cripple our local productive sectors as they try to gain a foothold in global markets,” JMEA said.

“If the BOJ's monetary policy of lowering interest rates and setting a five per cent inflation target is to drive production, expand export and stimulate consumption of domestic goods, then why are the banks taking so long to respond and play its role in economic growth and development for all?” the association questioned.

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