The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday said “a persuasive case” cannot be made that price controls work properly, as he reiterated his stance against their imposition on bank fees.

John Rolle, addressing the Rotary Club of south-east Nassau, warned that placing price controls on commercial bank fees “is not an outcome” the Bahamas should seek, as it will not protect consumers.

Rather than impose such restrictions, he said competition was critical to keeping bank fees in check, adding that price controls will “not accomplish much” unless the underlying structural issues and costs relating to the provision of financial services in the Bahamas are addressed.

Responding to complaints from Rotarians that banks are providing “less service for more cost”, the Governor replied: “These fees are not regulated in the Bahamas in terms of their level.

“It [price controls] is not something we should want to see as an outcome. The issue here is being able to have a choice, to have a more competitive environment to exercise choice when necessary.”

He added: “There are some elements of a consumer protection framework in the Bahamas, but a lot of it is built around price controls on fuel, food and a few other areas.

“In this area, we cannot argue persuasively that these controls accomplish as much as we would like.”

Price controls were first imposed in the Bahamas in 1971 by the then-Pindling administration, on the grounds they would ensure essential food-stuffs and other commodities remained affordable for lower income Bahamians.

These measures were also sold as protecting consumers from ‘price gouging’ by unscrupulous merchants, but - as with many government policies - their imposition brought unintended consequences.

Many price-controlled items have to be sold by businesses as ‘loss leaders’, and the limited margins/profits that can be earned deter product availability and supply. Merchants are also forced to increase prices on non-price controlled items higher than they would like to compensate.

“The Central Bank doesn’t determine the level of fees set by the banks,” Mr Rolle reiterated yesterday, “but we don’t think price control of fees will accomplish much of we don’t address the structural issues that feed into the costs of providing financial services.”

The Central Bank and its governor have consistently argued against price-controlling bank fees since early 2017, despite increases as high as 43 per cent on “a significant number of services”.

The regulator, unveiling its survey of commercial bank charges for the six months to end-June 2016, said then that direct intervention through mechanisms such as price controls would only create further distortions that negatively impact consumers.

The survey argued that improved consumer protection and financial literacy were the best safeguards to concerns over increased bank fees, and Mr Rolle yesterday detailed the Central Bank’s plans for progressing these two areas.

However, the Central Bank’s declining of price controls is unlikely to be welcomed by many Bahamians, who believe commercial banks have imposed disproportionate and unwarranted new fees and increases in a bid to regain some of the profitability lost due to the sector’s $1 billion-plus pile of non-performing loans.

And the Central Bank’s stance appears to be at odds with the Government, which yesterday issued a release identifying bank fees as a particular concern requiring the attention of its Price Commission and Consumer Protection Commission.

The statement, issued in the name of Dion Foulkes, minister of labour, quoted him as saying there were “some serious issues concerning consumer affairs in the country” that have to be “readily addressed” by the two regulators.

The statement added: “Among these concerns, he noted, were the newly-introduced charges by some banks on various banking transactions along with other vexing consumer issues.”

Mr Rolle yesterday said the Banks and Trust Companies Regulation Act, the law that governs the commercial banking industry, requires institutions to give Bahamians advance warning of fee changes.

“There’s at least a minimum requirement that the institution has to give notice to customers when these fees are changed,” he said, adding that the Clearing Banks Association’s (CBA) ‘code of conduct’ required similar transparency.

“As the Central Bank, we intend to strengthen public awareness in what consumers should be expecting in all these areas relating to the disclosure of fees,” Mr Rolle added.

The Governor said passage of the long-awaited legislation to create the Bahamas’ first Credit Bureau could also assist in keeping banking fees in check.

The Credit Bureau, which will pool information on borrower histories from a variety of sources, is widely seen as a mechanism that will enable Bahamas-based commercial banks to better allocate credit, and assess and price risk.

Banks will have better, faster information to determine whether they will lend to a particular borrower at all. They will also be able to divide borrowers into ‘low and ‘high’ risk categories, providing lower interest rates to the former and higher ones to the latter.

Mr Rolle yesterday suggested that the better lending decisions enabled by the Credit Bureau will help commercial banks to avoid a repeat of the $1.2 billion non-performing loan pile that built up following the 2008-2009 recession.

And, as a consequence, the commercial banks will not have to charge higher fees to compensate for the non-performing loans and lower returns on their credit portfolio.

“The pressure to make up for loan losses with higher interest rates and fees would subside,” Mr Rolle suggested.

The Minnis administration referred to the Credit Bureau legislation in the ‘Speech from the Throne’, and the enabling Bill has been drafted and is now waiting to find its way on to the Government’s legislative agenda.

“The Government has indicated that the credit bureau legislation is still high priority”, Mr Rolle said. “We look forward to further action in the very near term, and the industry is looking forward expectantly to having that legislation in place. We continue to say that it needs to happen in the shortest time possible.”

The Governor added that the better lending decisions facilitated by a Credit Bureau will also assist the Bahamas in its efforts to avoid further credit rating downgrades by Moody’s and Standard & Poor’s (S&P).