More Competition, Less Regulation to Lower Bank Fees – Joe Issa Urges

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As the role of commercial banks in national development once again takes center stage over what is described as the “high bank fees” charged to customers, analysts unearth evidence that former bank director Joe Issa does not support more regulation but instead, more competition.

Submitted: February 09, 2017

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Submitted: February 09, 2017

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As the role of commercial banks in national development once again takes center stage over what is described as the “high bank fees” charged to customers, analysts unearth evidence that former bank director Joe Issa does not support more regulation but instead, more competition.

In a blog posted at on March 2015 at www.joeyissabusiness.wordpress.com, in which the former director of First Global Bank Joe Issa was interviewed on his thoughts on the role of banks in the Jamaican economy, he said that in order to have cheaper fees there must be more banks competing with one another.

At the time, cabinet was deliberating on a report which had been submitted by the Bank of Jamaica (BoJ) on the “high banking fees in the financial market”. The BoJ revealed that as much as 23 cents out of every dollar earned by Deposit-Taking Institutions (DTIs) represent fees and charges, which in 2013 amounted to over $18 billion.

However, while many persons were calling for the BoJ to put a cap on bank fees, Issa was urging instead for more banks to be establish, in order to have a more competitive banking environment with cheaper and better products and services.

“I don’t believe capping bank fees is the best solution [to keep fees low],” the chairman of Cool Group said in the blog, stating, “I’d rather leave it to the free market to determine; that’s why I believe that in order to have cheaper banking products and services, there must be more competition in the financial sector, and that means more banks.

” Issa’s view was supported by no less than BoJ Governor Brian Wynter, at the time and today, by Executive Director of Private Sector Organization of Jamaica (PSOJ) Dennis Chong, who backs market forces to determine the price of banking services.

Wynter, who was quoted as saying that there is no limit to the number of banks which the system can accommodate and no impediments to entry except the requirements of the Banking and BoJ Acts,” which set the terms and conditions of the license, including the required prudential reserves, suggested that “there are some niche products and services banks can compete in.”

The argument which Issa made for more competition was further strengthened by BoJ figures which, as at August 2013, showed that while the six banks operating in Jamaica represented just 50 per cent of the country’s 13 Deposit Taking Institutions, their share of total assets was a mammoth 94 per cent or $717 billion. Moreover, while the number of commercial banks in 2013 remained the same as in 2006, their asset base had increased by over 67 per cent in the period.

The six banks at the time were National Commercial Bank and First Global Bank, which are local, while the remaining four banks – RBC Royal Bank, Citibank N.A., Bank of Nova Scotia and CIBC First Caribbean International Bank are foreign.

A former student of the renowned London School of Economics in the United Kingdom, Issa said that even with the rebranding and expansion of Sagicor, such concentration of big banks does not make for the appropriate level of competition that would result in a price reduction in their services.

He explained that when there are few banks, such as six, there is a tendency for them to act as oligopolists and as such, “they tend to compete not by lowering prices but by differentiating their products and services [by] making them appear to be better than or superior to those of their competitors, and this does not benefit consumers.”

Informing that such non-price competition is just a marketing strategy supported by much advertising, sales promotions, market research, new product development and brand management, he argues that rather than creating a differential advantage, commercial banks should try to develop a comparative advantage, or cost advantage, “by producing at a lower cost than their competitors, which gives them the ability to sell at a lower price for the benefit of customers.”

“In the long term,” Issa said, “a more efficient Jamaica will translate to a richer populace, which means more business and higher returns for the banking sector …A win-win for both the banks and the consumers.”


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