Kingston — Jamaica’s deposit-taking institutions (DTIs) are learning a hard lesson in rate-cycle physics: when funding remains expensive and trading income dries up, the bottom line buckles. Pre-tax earnings for the sector fell 19 per cent to J$42.2 billion in 2024, even though loan books kept growing, the Bank of Jamaica’s freshly-released Financial Stability Report 2024 shows. boj.org.jm
Funding Still Pricey, Even as Policy Rates Ease
Competition for retail deposits stayed fierce throughout 2024, forcing banks to pay materially higher rates to hold on to Kingston-dollar liquidity. Interest expense on deposits ballooned, overwhelming the modest 14.9 per cent rise in interest income that came from a cautious 5.7 per cent expansion in loans — notably an 18.1 per cent jump in mortgages. Net interest margins inevitably narrowed. boj.org.jm
Trading Engine Stalls
The usual offset — fee and trading revenue — misfired. Non-interest income collapsed 54.5 per cent as banks dumped foreign-currency GOJ global bonds to curb duration risk, rotating into short-dated repurchase agreements that earn far less. Dividends and mark-to-market gains disappeared in the process, stripping a traditional profit buffer. boj.org.jm
Consumers Feeling the Pinch
Provisioning costs moved the other way. Past-due retail loans crept up 3.1 per cent, the BOJ notes, citing elevated borrowing costs and a post-Beryl spike in food prices that squeezed disposable income. Household credit already commands 55.6 per cent of total bank portfolios, so even a mild uptick in delinquency hurts. Mortgage arrears, while not worsening, remain “persistently high” by historical norms. boj.org.jmjamaica-gleaner.com
Capital Strong, but Buffers Will Rise
Stress scenarios run by the central bank still left system capital-adequacy ratios safely above 13 per cent, versus a 10 per cent regulatory minimum. Yet larger players will soon have to hold more. A Systemic Risk Buffer—up to 2.5 per cent of risk-weighted assets—begins phasing in next year. Every extra percentage point of capital dilutes lending headroom unless profitability rebounds. boj.org.jm
Cyber & Climate: Two Wild Cards
Digital fraud incidents in internet banking are running at nine times their pre-pandemic rate, prompting new BOJ sound-practice standards for cyber-risk management. Meanwhile, Hurricane Beryl inflicted J$32.2 billion in damage (≈1.1 % of GDP), a reminder that physical climate shocks can hit capital and liquidity just as quickly as market moves. Climate stress tests will be mandatory from 2025. boj.org.jmjamaica-gleaner.com
Special Resolution Regime Takes Shape
Parliament’s draft Special Resolution Regime gives regulators bail-in powers so failing banks can be wound up without taxpayer support. Shareholders and unsecured creditors, not the public purse, would absorb losses — a structural backstop that aligns Jamaica with post-GFC international norms. boj.org.jm
The Strategic Equation for 2025
Return on equity slid five points to 11.9 per cent last year, and headline inflation abroad may yet slow the BOJ’s easing bias. With wage growth flattening and household debt at 26 per cent of GDP, loan demand could soften just as the Systemic Risk Buffer demands more capital. In short:
- Revenue Mix: Banks must reignite fee engines or raise loan yields faster than deposit costs.
- Cost Discipline: Digital transformation promised scale benefits; 2025 will test whether they materialise.
- Risk Pricing: Consumer credit concentration calls for more granular underwriting and price-for-risk spreads.
- Capital Allocation: Each J$ of retained earnings now has to cover growth, a bigger buffer, and technology spend on cyber resilience.
The good news: the system is solidly capitalised; the bad news: that capital is about to work harder for every basis point of return. Margin management, not loan growth alone, will decide who wins the next round.
