CARIBBEAN SUNRISE
The Jamaican authorities have kept the financial services sector on an even keel, despite years of stagnant growth, through regulation and monetary policy reflective of its international commitments.
The Caribbean region's financial sector is substantial relative to its constituent economies, and its banks are at the forefront. Excluding offshore institutions, overall financial sector assets are at roughly 125% of regional GDP—the banking system stumps up just over 90%, with non-bank financial institutions, including credit unions and insurance firms, contributing the remainder.
Turning to Jamaica, we note a well-regulated financial sector that has braved a protracted period of economic stagnation. Commitment to fiscal consolidation is reflected in Bank of Jamaica (BOJ) monetary policy, supportive of the medium-term macroeconomic program that hosts a three-year precautionary Stand-By Arrangement with the IMF. Growth has averaged below 1% per year for over two decades, while the public debt burden has largely stemmed from government bailouts, most visibly in the financial sector. Mark Croskery, CEO of Stocks & Securities Limited, told TBY that, “Together, there are 40 entities providing financial services to an island of 3 million people."
Welcome Remedial Measures
Jamaica's mid-1990's financial sector collapse, notably in life insurance and banking, underlined inadequate regulation. The subsequent Financial Services Commission Act of 2001 introduced the Financial Services Commission (FSC), an integrated regulatory body with bite, to foster sustainable institutional capacity. Note that subsequently during the global credit crunch, the capital levels of Jamaica's securities firms grew each quarter of 2009. The 2014 Banking Services Act (BSA) firmed up the regulation and supervision of deposit-taking institutions (DTIs), while tightening depositor protection. A moratorium on the issuing of fresh banking licenses was only lifted to herald in Jamaica National and JMMB.
Local currency depreciation in April and May 2017 was the swiftest since October 2016, amid a spike in demand for FX to finance portfolio investments. To better manage such demand scenarios, the bank modernized its FX intervention and trading framework, on July 26, 2017 introducing its new tool for the sale and purchase of FX, namely the BOJ Foreign Exchange Intervention & Trading Tool (B-FXITT). The tool enhances the BOJ's transparency, while curbing currency volatility.
Banking
As of 2017, there are 11 supervised deposit-taking institutions: seven commercial banks, two merchant banks, and two building societies. As of end-2016, commercial banks sat on assets of USD8.5 billion.
National Financial Inclusion Strategy
According to Eva Lewis, the Director of Citi Jamaica, “The challenge for the central bank is financial inclusion." Although around 65% of Jamaicans hold a debit card, just 25% have used it over the past year. And a mere 30% save through a regulated financial institution. Furthermore, 11% of adults and 27% of SMEs have access to credit from such institutions. Non-traditional distribution channels, be they electronic or mobile-based, have made limited inroads. The resulting National Financial Inclusion Strategy (NFIS), supportive of Jamaica's Vision 2030 - National Development Plan, also reflects commitment to the Alliance for Financial Inclusion. The BOJ puts the informal sector at roughly 45% of GDP due, among others, to unemployment, a lingering preference for cash transactions, and the prohibitively high cost of doing business for many would-be SMEs. The NFIS works to reverse the trend.
Credit Where Due
BOJ data for 2Q2017 shows that credit to the private sector doubled YoY to 31.1% from 14.4%, although underperforming QoQ (32.9%). Much of this stemmed from the transformation of Jamaica National Building Society to a commercial bank on February 1, whereby it became the nation's third largest by assets. Indeed, discounting it, private sector credit grew 11%. Commercial banks' credit to personal loans, while still claiming the bulk of private sector credit at 52%, was down QoQ from 55%. Private sector credit was at 28% of GDP for the period, up YoY from 23%. In real terms, private sector loans rose 25.3% in 2Q2017, down YoY from 26.2%. For 1Q2017, credit allocated to businesses sustained its rise since 4Q2015, reaching 48% from 45%. Central bank data reveals non-performing loans just north of over USD108 million, at 1.3% of total assets. For 2Q2017, the decline in credit to large businesses stemmed from a sectoral re-distribution of credit to the micro, small, and medium-sized enterprises (MSME) sector. Credit to the latter, as a proportion of the total outstanding loan stock for FY2016/17, rose to 40% from 35% for FY2015/16. The Ministry of Finance estimates roughly 200,000 Jamaican SMEs and between 200,000 and 400,000 microenterprises, with the two said to employ 82% of the national workforce, as of 2015. These enterprises also receive attention in the…
…Capital Markets - A long-term Perspective
Croskery highlights that the JSE is the largest bourse in the Caribbean, with close to 100 listed companies. Launched in 2009 to encourage the listing of family-owned and smaller enterprises, the Junior Market Index of 32 companies and 33 securities rose a robust 39.79% in 9M2017, trailing the main index rise of 59.38%. “Our role," Croskery adds, “is to facilitate capital formation and secondary market activities. This is especially significant in light of the fact that it is very difficult in most cases for SMEs to get capital to grow, expand, and compete." Despite low tax collection, Jamaica's authorities have adopted the longer view, extending SMEs a 10-year tax holiday.
Selected Performance
“In 2015," says Marlene Street Forest, Managing Director of the Jamaica Stock Exchange (JSE), “Bloomberg recognized us as the best-performing exchange in the world. In 2016, we were among the top 10, and in 2017 we continue to hold our own." The JSE operates seven indices. The JSE (Main) Index as of November 28, 2017 saw a 52-week close of 192,276.6, a YtD high of 305,674.75 and YtD low of 192,276.6. The JSE index scaled an all-time high of 305,674.75 points on October 30, 2017, and over the past 52-weeks has ranged between 185,168.1 and 305,674.75 points. For the year ended June 2017 the JSE Main Index gained 47.2%, with investor sentiment buoyed by clement macroeconomics and amenable monetary policy. Notably, the bourse yielded better returns than FX and the domestic money market, with an annual average return of 47.2%, compared to the government's global bonds average return of 5.5%. The advance-to-decline ratio was unchanged YoY for the period at 24:5.
On the listings front this year, a homegrown enterprise reached the market with the IPO of Wisynco Group. Active in the beverages sector, the company is the exclusive local bottler for the Coca-Cola Company, plus a distributor for a roster of global names including Red Bull and Nestlé.
Insurance
The latest available official data puts life insurance penetration at 2% of GDP as of September 2016. Penetration for general insurance firms was at 1.83% of GDP relative to end 2015.
Against this background, the central bank said that insurance density remained flat at 0.001 per cent for the past three years. Two of the six life insurers hold 65.7% of the sub-sector's total assets as at end September 2016. The sector overall wrote total gross written premium (GWP) income of USD87.7 billion for the 12-month period ended September 2016, up from USD79.1 billion for the previous 12-month period. Life insurance pre-tax profits of 34.1% as of 9M2016 were at USD22.2 billion, and for the insurance sector overall were at USD27.4 billion.
Adequate regulation is in place to ensure prudent sector growth in a low population market well served across the financial spectrum.
CARIBBEAN SUNRISE
TABLE OF CONTENTS
Interview
Most Honourable Andrew Holness, Prime Minister, Jamaica
TBY talks to the Most Honourable Andrew Holness, Prime Minister of Jamaica, on efforts to foster sustainable and inclusive growth, the main challenges ahead for the nation, and its key successes in improving the business environment.
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Diane Edwards, President, Trade & Investment Jamaica (JAMPRO)
TBY talks to Diane Edwards, President of Trade & Investment Jamaica (JAMPRO), on making investments throughout the whole value chain, becoming a regional distribution hub, and boosting niche agricultural output.
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Courtney O. Campbell, President & CEO, Victoria Mutual
TBY talks to Courtney O. Campbell, President & CEO of Victoria Mutual, on the origins of financial inclusion in Jamaica, helping people get a start on their property journey, and assisting young businesses to exploit a positive business environment.
read articleInterview
Raymond Walker, Founder, Chairman & CEO , Caribbean Assurance Brokers Ltd. (CAB)
TBY talks to Raymond Walker, Founder, Chairman & CEO of Caribbean Assurance Brokers Ltd. (CAB), on fighting for its clients, using environmentally sound methods to drive down costs, and continuously driving innovation.
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Emanuel DaRosa,, President & CEO, Jamaica Public Services (JPS)
TBY talks to Emanuel DaRosa, President & CEO of Jamaica Public Services (JPS), on pursuing common goals in the best possible way, utilizing Jamaica's most abundant natural resources, and satisfying half of Jamaica's energy needs through renewables.
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Winston Watson, Group General Manager, Petroleum Corporation of Jamaica (PCJ)
TBY talks to Winston Watson, Group General Manager of Petroleum Corporation of Jamaica (PCJ), on keeping a hand in both green and black energy, helping the government reach its 2030 Energy Vision targets, and educating people on the importance of conservation.
read articleFocus: LNG Investments
Light My Fire Jamaica
The Jamaican government is pushing private investment in liquefied natural gas (LNG) to provide cheaper and cleaner energy to households and businesses. Through partnerships with local and international companies, New Fortress Energy is leading the way to ignite this sector.
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Gordon Shirley, President & CEO, Port Authority of Jamaica (PAJ)
TBY talks to Gordon Shirley, President & CEO of the Port Authority of Jamaica (PAJ), on the country's developing role as a logistics hub, attracting more cruise ships, and his outlook for the economy at large.
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Fritz Pinnock, President, Caribbean Maritime University
TBY talks to Fritz Pinnock, President of Caribbean Maritime University, on capitalizing on the rising power of the global south, customizing goods before they reach the final consumer, and leveraging Jamaica's geostrategic location to create added value.
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Winston Adams, JP, Executive Chairman, University of the Commonwealth Caribbean (UCC)
TBY talks to Winston Adams, JP, Executive Chairman of the University of the Commonwealth Caribbean (UCC), on the university's illustrious history, its upcoming strategies, and Caribbean Knowledge City.
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Michael Williams, Acting Executive Director , Mona School of Business and Management
TBY talks to Michael Williams, Acting Executive Director of Mona School of Business and Management, on maintaining quality across its programs, its achievements in the Caribbean, and the school's research-based approach.
read articleFocus: Downtown Kingston Revitalization
Drinking from the Fountain of Youth
Although the subject of much talk, downtown Kingston has been relatively neglected for many years while surrounding areas of the city attracted more real estate developments. A series of public and private investments indicate that the trend is finally reversing.
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Timothée F. Delebarre, Country Manager, VINCI Construction Grands Projets (VCGP)
TBY talks to Timothée F. Delebarre, Country Manager of VINCI Construction Grands Projets (VCGP), on diversifying their business lines, expanding Kingston's Port, and developing innovative financing mechanisms.
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Dittie Guise, General Manager, Montego Bay Convention Centre (MBCC)
TBY talks to the late Dittie Guise, General Manager of Montego Bay Convention Centre (MBCC), on marketing the convention center, creating an integrated tourist experience, and preparing for more events and visitors.
read articleFocus: Linking Tourism
Lifting All Boats in the Rising Tide
Although significantly contributing to the economy, tourism in Jamaica suffers from an inadequate level of linkage with other sectors. The government, in partnership with private actors, is launching a number of initiatives to ensure that international tourists meet local businesses.
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Natalie St. Louis, Founder, CEO & Managing Director, Strategic Konnections & Management Services Limited
TBY talks to Natalie St. Louis, Founder, CEO & Managing Director of Strategic Konnections & Management Services Limited, on working with businesses to further their goals, the importance of engaging with consultants, and goals for the coming year.
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