Tense year for
Jamaican bankers.
"With Government's tight monetary policy and the fall
of Century National Bank,
Jamaican depositors are more nervous than ever about where they
put their funds." "
It was held in high esteem for leading the growth of the Caribbean's financial sector at the start of the 1980's. But the decade-long downturn in the Jamaican financial sector seemed to reach its lowest ebb with the fall of Century National Bank in July 1996.
However, although things seem to have bottomed out, turnaround is not a certainty and the waters ahead are still rocky for the country's remaining financial institutions. Both banks and non-bank financial institutions, bracing for the lean times ahead, have begun approaching Government for support.
The once immensely profitable and rapidly growing financial
sector experienced its most turbulent year of modern times, highlighted
by the crash in July of the Century National financial group.
Government's futile efforts to reverse Century National's trend
cost taxpayers more than J$4 Billion and more than 40,000 local
and international depositors are facing the likelihood of getting
only a percentage of their deposit. As was the case with the collapse
of the much smaller Blaise Financial Group, two years ago, the
situation has led to widespread loss of confidence in the financial
sector and particularly Jamaican owned institutions.
Later in the year, the loss of confidence in the financial system was easily reflected in the nervousness of depositors. In response to a rumour that Government was about to move on Citizens Bank - one of the stronger Jamaica-owned banks, depositors made a run on the bank's funds nearly causing a repeat of the Century National situation.
Financial observers say the loss of faith in the banking sector also led to a slow-down in remittances from the huge Jamaican community abroad. Estimated to be well in excess of five hundred million US dollars annually, remittances are absolutely crucial to the Jamaican economy.
In presenting a report to Parliament on the reasons for Government intervention in the operations of the Bank Finance Minister Omar Davis said that much of the responsibility for the fate of the bank rested on the shoulders of top management and he launched an investigation into what he termed "highly irregular banking practices" by the management team.
The Century National experience brought to centre stage, the
peculiar position the Jamaican banks and insurance companies found
themselves following the economic downturn facing the region's
major trading partners. This trend culminated in the stock market
crash of 1993.
The stock market crash of 1993, a sharp downturn in the real estate
market, poor investment choices and the inappropriate expansion
policies of many financial institutions led to finance houses
becoming more involved in running businesses rather than providing
financial services for the business sector.
As finance houses strayed from their core business, Government strictly followed a tight liquidity policy to control inflation. The resulting high interest rates and low money supply left several banks and insurance companies asset-rich but starved of cash.
In response the poor funding situation, financiers lead by National Commercial Bank (NCB) initiated moves to sell off much of their real estate portfolio. An announcement was made by Group Managing director Dunbar Mc Farlane that the famous Wyndham Kingston Hotel was going to be one of the properties the Bank plans to dispose in the multi-million dollar portfolio restructuring plan.
Insurers however, were under more pressure than the banks as
a significant proportion of their income is derived from investments.
As the downturn in real estate took its toll, the three leading
life insurance companies started the year negotiating a rescue
programme for support from Government.
Life of Jamaica's chairman, Dennis Lalor, Mutual Life's chairman,
Marshall Hall and Crown Eagle Life Insurance's chief executive
Dr Paul Chen-Young, met with Finance Minister, Dr Omar Davies
to discuss potential options and the future structure of the sector.
The insurers have been pressing for Government to pump several
billions dollars into the life insurance sector, through a plan
similar to a US-style 'resolution trust', developed in 1989 to
bail-out savings and loans insurance institutions. Under the program,
which is yet to be approved by the authorities, Government would
borrow money from overseas to buy preference shares in several
life insurance companies.
According to one insurance executive, a number of companies need
support, but Government will only get involved if the insurers
are willing to make the interest payments on the deal. Government
can access funds on their behalf, buy preference shares from the
insurers and add in a participation in profit clause so that they
can benefit from an upswing in the industry.'
Minister Davies is understood to have spearheaded the initiative
he has already contacted foreign sources to raise the necessary
funds.
The insurance companies' problems have been compounded by their
long-term investment strategies. They have huge real estate and
equity funds, at a time when both markets are severely depressed.
This has also curtailed their ability to raise funds at home.
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