JUST 22 major financial institutions currently make up the financial landscape, less than half the 46 operating at the end of 1997.
The presence of the Financial Sector Adjustment Company (FINSAC) is apparent in half of the ten largest institutions in the island, which has helped underpin an apparent improvement in the net worth of local financial players but done little for increasing new loans to industry.
Figures released this week by the Bank of Jamaica (BoJ), for the year to the end of December 1999, show that for the first time in three years profit margins rose in all three key areas of the sector, commercial banking, marshalling building society savings and money management at merchant banks.
Sector profit margins rose on average by 8.4 per cent, with merchant banks seeing margins jump 22.6 per cent annually. Profit margins measure profits as a percentage of income and are used to determine the profitability of operations.
Much of the improvement follows the large paper injections by FINSAC. The sector has been the primary beneficiary of the $108 billion in funds FINSAC has so far disbursed.
Banks such as NCB, building society VMBS and merchant banks including Billy Craig Finance, now DB&G Merchant Bank, have all accessed funds from FINSAC.
The merchant banking business has seen its number dwindle from 27 at the end of 1997 to 11, with the recent merger of Pan Caribbean and Knutsford Merchant Bank, the amalgamation of NCB's operations, and the surrendering of Eagle Merchant Bank's license.
Scotiabank Jamaica Trust & Merchant Bank general manager Janice Robinson said she expected to see funds in her sector continue to flow to larger institutions. She pointed to the ability of larger organisations to offer clients smaller spreads as interest rates come down. Merchant banks such as the Scotia arm get the bulk of their business from Trust clients, who leave funds with them to safeguard and invest funds on behalf of.
Other merchant banks offer more managed funds service, where they might pool investments to create greater value for investors.
Total sector assets grew by eight per cent to $239 billion, with deposits accounting for $164 billion. However, total loans slipped by seven per cent to just $48.8 billion. The ratio of loans to deposits, 33 per cent, is at it lowest level for several years and continues to fuel concerns about lending to new and existing businesses.
The fall in the level of loans comes despite the fact that average commercial bank lending rates have fallen from 44 per cent in 1997 to around 33 per cent. Finance Minister Dr. Omar Davies has tried several moves to both bring down rates faster and improve the level of loans, including tying a cut in the cash reserve ratio of commercial banks to development spending.
Economists have argued that the slow down in local banks loans and the current loans to deposits ratio suggests that an improvement in the economy will be slow in coming. The argument is that new and existing businesses usually need to use credit to expand, so a lack of activity suggests that local firms continue to batten down the hatches rather than look to exploit new markets.
