The Tribune

A Bahamian economist says the Central Bank’s fee transparency mandate “is a step in the right direction” towards greater regulation and forcing commercial banks away from “a lazy approach”.

Rupert Pinder, assistant professor of economics at the University of The Bahamas (UoB), told Tribune Business that the commercial banking industry’s “oligopolistic” nature - with substantial market share concentrated in the three Canadian-owned banks - means greater regulatory oversight beyond the Central Bank’s recent fee directive is essential.

However, he argued that the discussion must go beyond fee transparency to focus on the wider role commercial banks play in the Bahamian economy when it comes to driving business expansion, job creation and growth through their lending.

Noting that the industry has become increasingly reliant on its fee and commission income to boost revenues and profits, in the absence of solid lending opportunities since the 2008-2009 recession, Mr Pinder told this newspaper that this has become “a lazy approach” for commercial banks to generate income.

He added that it was especially vital that the banks “look harder at risk profiles and be a bit more innovative with their lending practices” given that The Bahamas lacks fully-developed capital markets to provide an alternative source of capital and “financial intermediation”.

“I fully support it as a starting point. I support the measures but I don’t think they are an end in and of themselves,” Mr Pinder said of the Central Bank’s fees transparency directive. “I think we need to go further in terms of regulation based on the oligopolistic nature of the provision of service in that area.

“But it’s a step in the right direction. It’s good that the needle is starting to move and hopefully it’s a step in the right direction towards regulation. There’s also this increased reliance on fees compared to activity in the past when the banks had more reliance on the requirement for actual lending.

“For me, a substantive point is that the discussion should not be totally on fees but getting the banks to refocus on their primary role, which is financial intermediation and lending. That is what is going to be really needed in terms of driving our economic growth,” he continued.

“They need to see their role in terms of the economy. It’s one thing to raise profits for their shareholders, but they also need to be a partner in driving economic growth for the country.” Pointing to the stance taken by Mia Mottley, prime minister in Barbados, Mr Pinder reiterated: “The important thing, and it’s critical it not be lost, is the broader discussion around the role of banks.

“She makes the point that those banks see themselves as being nothing more than store houses for cash rather than being financial intermediaries. This thing with fees, I think it’s a lazy approach for want of a better word for the banks to make money.

“For the loans, they have to look harder at their risk profile, be a bit more innovative with lending practices. That requires a bit more effort than just collecting fees. That’s a point I see coming, a clear trend in terms of the debate taking place with Mia Mottley, and asking questions in the wider public sphere.”

Mr Pinder said the level of “market concentration” in the Bahamian commercial banking industry, where the Canadian institutions have “a disproportionate amount of market share”, requires greater oversight and regulation from the Central Bank.

“To that extent, the more the market leans to competitive dynamics the less need there is for regulation, and to the extent to which the banking sector in The Bahamas generally leans to more of an oligopolistic structure, to the extent you have concentration among the largest players in the market, there’s a need for regulation,” he told Tribune Business.

“Particularly for a small economy like ours, where there is less development of the capital markets, if the banks are deriving more income from fees there’s less incentive to lend and innovate. To me, it’s their lending that really causes the expansion of the economy. We have to foster that lending. The role of financial intermediation, particularly with the absence of developed capital markets, is a critical point for me.”

The Central Bank requires all its licensees with immediate effect to give consumers and the regulator 30 days’ and 60 days’ notice, respectively, of any planned fee adjustments.

Commercial banks, as well as the credit unions, money transmission businesses and payment services providers that fall under the Central Bank’s regulatory oversight, must now also “disclose or make readily available” the fees charged by rival institutions as well as reveal the anticipated revenue increase generated by adjusting charges.

The Central Bank directive applies to fees related to deposit accounts, credit facilities or any payments-related transactions using cheques, credit cards, debit cards and digital wallets. It also requires its licensees to “provide customers with a schedule outlining the estimated or forecasted change in revenue associated with each varied fee or charge”.

Michael Halkitis, minister of economic affairs, yesterday said the Government’s focus is on improving bank service and accessibility for Bahamian consumers while also lowering costs.

“The Central Bank is responsible for regulation of the banks, and they’re independent in that function. The government doesn’t direct that,” said Mr Halkitis. “We want to see accessible, affordable banking services throughout the country for people. Now, obviously the Central Bank has heard the human cry about rising bank fees and diminution of services, and this is their attempt to do that.

“We will watch it, and we’ll continue to listen to the public and we are supportive of anything that gives better service at a lower cost. So, obviously, they started their consultation period. We’ll be observing and we’ll have our input, and it’s something we continue to work on and observe.”

Mr Halkitis said Bahamians should “rightfully” demand efficient banking services at a low cost as commercial banks profit significantly from doing business in the destination. He added that while there is a “balance” between allowing business to function and remain competitive, banking services are essential to all Bahamians and so must remain affordable.