Bank on deposits

The Private Sector Organisation of Jamaica (PSOJ) says the Opposition’s proposal to spread government deposits across the banking sector to force competition “sounds feasible and like a good idea” but that an explanation is needed for where the Government puts money and why.

PSOJ President Metry Seaga also indicated that the powerful body of business executives welcomes and would support the phasing out of the asset tax.

“We would be very happy for them to phase out asset tax. Five years is a very long time but at least we have a commitment. We don’t have that commitment anywhere else. That would be fully welcomed and supported by the PSOJ,” Seaga told The Gleaner.

His comments follow yesterday’s contribution to the 2025-2026 Budget Debate by Julian Robinson, the opposition spokesman on finance, in the House of Representatives.

Robinson told Parliament that a government led by Mark Golding would open up government deposits to all banks, using a competitive system.

He said this proposal was triggered by banks’ refusal to lower high interest rates despite the downward trend of the Bank of Jamaica’s (BOJ’s) key policy interest rate. Since August 2024, the central bank has consistently lowered its rate by 100 basis points (one per cent), bringing it to six per cent.

He said the banks’ reluctance highlights a serious problem with Jamaica’s monetary transmission mechanism.

Robinson said the opposition People’s National Party (PNP) has a three-pronged strategy to fix this, and at the core of its approach is improving competition in the banking sector.

Noting that there are 11 deposit-taking institutions (DTIs) regulated by the BOJ, Robinson said the reality was that the National Commercial Bank and Scotiabank control approximately 70 per cent of the consumer banking market.

USE LEVERAGE

“Government, as the largest player in the market, has some leverage. So use that leverage to improve competition in the market so that we can bring rates down,” said Robinson, who argued that ministries, agencies, and departments hold approximately 10 per cent of total deposits in the banking sector.

“We are going to introduce competition for those deposits – an auction system – so that the smaller banks can get some of those deposits,” said Robinson.

He said smaller banks would have access to lower-cost funds, allowing them to expand their lending activities and compete more aggressively.

Loans across the commercial banking sector totalled $1.35 trillion as of December 2024, according to data from the BOJ. The banking regulator allows banks to offer loans based on the size of their deposits, but this is typically governed by strict rules and ratios to ensure financial stability.

Further, BOJ data indicate that the deposits across the banking sector amounted to $1.8 trillion up to December 2024. Of this, $149 billion represented government deposits, with a half attributed to the Central Government and the remaining $68.3 billion to government agencies and related entities.

“Spreading out the deposit sounds feasible. It sounds like a good idea. I would like to know the rationale for how the Government puts money where they put it and why. I think it’s something that we could look at and would be happy to be a part of looking at it with the Government, whosoever the Government of the day is,” said Seaga.

Economist Keenan Falconer believes that the proposal is well-intentioned and would mostly act as a signal to other depositors in the system to move their own deposits.

However, he said if banks are allowed to bid for government deposits, they will naturally flow to those that offer the highest rates on the deposits.

He said that in the process of trying to outbid each other, that might result in an upward movement of interest rates since the banks would also now have to lend those funds at a higher rate to ensure that the rate on deposits can be paid.

Meanwhile, he said the phased asset tax removal is likely to be received favourably by practitioners in the financial sector who have been clamouring for its elimination for some time.

Falconer said this was because it is seen as a distortionary tax that further decapitalises the sector and disincentivises the holding of assets on their balance sheets.

“So, gradually phasing it out would enable the sector to be recapitalised, and that extra capital could be further deployed in growth-enhancing and revenue-generating activities, which is also likely to assist in bringing down interest rates over time,” said Falconer.

Robinson said a “fiscally prudent” PNP government would be committed to phasing out the asset tax over five years.

He said this would be done while assessing the revenue performance and making adjustments.

kimone.francis@gleanerjm.com