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Regulator Won’T ‘Price Control’ Banking Fees

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank will not intervene to cap or “price control” commercial bank fees, its governor has revealed to Tribune Business.

John Rolle, in a recent interview, indicated that the banking sector regulator is instead focused on a “holistic” approach that aims to ‘empower’ consumers to protect their own interests via improved financial literacy.

“We are definitely not looking at it from the position of a price control issue. We don’t see this as price control,” the Central Bank’s governor told Tribune Business.

“Our focus is to encourage a system that promotes financial literacy and consumer financial protection holistically. That is an area we have in our work programme, looking at best practices and making recommendations as to what we see as a holistic approach.”

Mr Rolle did not go into detail as to what was meant by “a holistic approach”, but many Bahamians are likely to be disappointed that the Central Bank is not taking a tougher approach with its licensees.

The commercial banking industry has both introduced new fees, and hiked existing ones, on all kinds of transactions in the past few years, with observers believing this is at least partly designed to compensate for reduced interest income - and increased loss provisions - associated with its $1.1 billion ‘bad loan’ pile.

Fees for cashing cheques at banks other than the one the funds are drawn on, Automatic Teller Machine (ATM) usage charges and others have repeatedly drawn the ire of hard-pressed Bahamian others, especially as they also attract Value-Added Tax (VAT).

Mr Rolle, though, was adamant that the Central Bank does not intend to intervene in a manner akin to the Price Control Commission.

“This framework does not dwell on a price control formula,” he reiterated. “It’s all the other elements that go into financial literacy, protection and best practices.”

The Governor added that work on the Bahamas’ first-ever Credit Bureau was “very advanced”, but said the manner of its introduction will depend on the Christie administration.

He indicated that the Government may bring the Credit Bureau legislation to the House of Assembly as part of “a package” of financial sector reforms, which would see it introduced “in unison” with measures such as the Homeowners Protection Bill and efforts to tackle the ‘salary deduction’ debt trap.

“The work is very advanced,” Mr Rolle said of the Credit Bureau. “We’ve done all the reviews of the legislation, and completed the public consultation. I think it is in the very final stages of review in the Attorney General’s Office.

“The framework is drafted from our perspective for the Credit Bureau. That’s ready to move forward once we get the legal sign-off, and we think that’s going to come in a reasonable timeframe now.”

“Our input is considerable. What will matter more is how the Government packages this.. with some of the other initiatives on the drawing board for the credit market.”

Mr Rolle identified one of these “initiatives” as the proposed Homeowners Protection Bill, a piece of legislation that has caused some consternation in the commercial banking industry.

The Governor alluded to this, saying: “There was a very intense consultation between the Government and the banking community in terms of how to get the process closed out, in terms of the issues the banks want to address.

“You would have heard the Government, from time to time, say they want to get a better handle on salary deductions, and managing that.

“You could see all these elements advance in unison.”

The Homeowners Protection Bill, which was brought to the House early in the Christie administration’s term in office, but never made it into law, is likely to have undergone some subsequent revisions.

However, in its early incarnation, many in the banking industry saw it as well-intentioned legislation that would provoke numerous unintended consequences.

While the Bill is designed to make troubled Bahamian borrowers more secure in their homes, it would have made it far more difficult, costly and time consuming for banks to secure - and take possession of - distressed assets.

And inserting the already-clogged court system into the contract between lender and borrower would have provided a further disincentive for banks to lend, Tribune Business was told then, or entice them to raise interest rates to compensate for the increased risk.

The end result, industry sources said, would have been a further pull-back in commercial bank mortgage lending, exacerbating the current Bahamian housing crisis.

Mr Rolle, though, implied that the Central Bank’s main focus was on getting the legal basis for the Credit Bureau passed into law.

“Very credible structural reforms are in the pipeline for the financial sector, in terms of the Credit Bureau and reforms that the Government is driving, which speak to the better management of risk in private sector credit,” he added.

The Central Bank of the Bahamas is hoping that the legislation creating the Credit Bureau will reach, and be passed by, Parliament in 2016. The target is for the Credit Bureau to issue its first reports in 2017.

Credit Bureaus collect personal and financial information on persons and companies, and then issue this to client lenders via a credit report. A Credit Bureau’s clients typically include banks, mortgage lenders, credit card firms and other financing companies.

In the Bahamian context, such a facility will help borrowers improve their credit and payment behaviour, while lenders will have increased access to accurate and more comprehensive information about borrowers’ credit history and payment habits. This, in turn, would reduce their exposure to risky loans.

Wendy Craigg, Mr Rolle’s predecessor as Central Bank governor, last year said the Credit Bureau would result in “safer lending and lower defaults”, as lenders would have a better knowledge of borrower characteristics, behaviour and repayment history.

She added that it would also “eliminate incentives to over-borrow” and promote a healthier credit culture in the Bahamas, while lenders would be better able to “price for risk” and reward good borrowers with lower interest rates.

Mrs Craigg also said that “borrowers know the odds of repaying their debt much better than lenders” - a situation that led to “adverse selection and moral hazard”.

This, she explained, resulted in borrowers having no intention of honouring their obligations to repay, with debtors “most likely to produce undesirable outcomes” from receiving credit.

However, some in the commercial banking industry have warned that a Credit Bureau is not an instant or complete panacea to the Bahamas’ credit woes.

Ian Jennings, Commonwealth Bank’s president, told Tribune Business earlier this year that the Credit Bureau would likely require three years post-creation to build up a comprehensive database on borrower histories.

As a result, it would take four-five years from inception to become an effective tool in assessing borrowers.

Comments

bogart 2 years, 1 month ago

Banks have thousands of customer borrowing profiles on the costs of homeownerships customers salaries and what they have to pay in home ownerships, groceriy bills, car bills, childen bills etc all collected daily from applicants. The applicant on the other hand is for the first time ever sitting down to get the bank's expert help in buying a house and likely for the first time ever in teir life ever having to do any financial budget analysis. Now given, 'Mrs Craigg also said that “borrowers know the odds of repaying their debt much better than lenders” - a situation that led to “adverse selection and moral hazard”.

This, she explained, resulted in borrowers having no intention of honouring their obligations to repay, with debtors “most likely to produce undesirable outcomes” from receiving credit. The expert bank does a simple analysis based on thousands of previous loan applicants profile and bank information and experience to determine if the applicant can qualify. The applicant also pays a bank fee to have the bank process the information for a successful loan or decline it. Clearly the Governor is not aware of present real time banking practices as to who is the financial expert - first time loan applicant or bank - with thousands of previous and existing loan customers data on costs, expenses home insurance costs, average grocery bills and how their salaries are spent and balance sheet to show assets and liabilities as the financials the banks do daily? Second, customers do not invest their life savings, to pay down payments, lawyers, govt taxes etc the single largest investment they make to get a home and then refuse to pay the bank back causing repossession to lose it all, financial ruin, and possible legal judgements that they may never borrow again. Well possibly international tax persons may do so to reclaim tax benefits from their home country, mabye drug dealers may want to throw away money to launder it by buying and getting funds in the banking system, mabye fraudsters may want to invest in loans in the banking system, - but certainly most hard working Bahamians some 4,500 trying to get a roof over their head and raise a family is unlikely to simply just refuse to repay the bank lender. A Public Investigation Commission on this is needed for thousands of Bahamians who are suffering the living hell of losing their homes, children , elderly parents put out, disrupting the lives of children and no blame on the banks!!!!!!

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