Deposit-taking institutions (DTIs) could soon be required to compete for the billions of dollars in government funds they currently hold, as part of a strategy to drive down persistently high interest rates — if the People’s National Party (PNP) forms the next government.
This proposal was outlined by Opposition Spokesman on Finance, Julian Robinson, during his contribution to the 2025/26 Budget Debate on Thursday.
Robinson pointed out that the Bank of Jamaica’s (BOJ) key policy interest rate which influences the interest rates charged by commercial banks on loans and credit facilities has been on a downward trend. He cited that since August 2024, the central bank has consecutively lowered its rate by a total of 100 basis points or one per cent, bringing it to six per cent.
“However, despite this clear signal from the central bank, we have seen virtually no movement from commercial banks in reducing lending rates where they can. This highlights a serious problem with Jamaica’s monetary transmission mechanism,” Robinson lamented. He said the PNP’s three-pronged strategy to fix this, starts with improving competition in the banking sector.
“A part of the reason interest rates are not moving down is that the banking sector lacks real effective competition,” he stated.
Robinson noted that while there are 11 DTIs operating in the country, the reality is that two banks — National Commercial Bank (NCB) and Scotiabank — control approximately 70 per cent of the consumer banking market.
“This duopoly means that if these two banks do not lower their interest rates, the smaller banks — which lack significant market share — will not move either. Simply put, there is no pressure for banks to compete by lowering rates,” said Robinson.
He told the Parliament that one of the key steps a PNP government will take to increase banking competition is to end the long-standing practice where the vast majority of funds held by government ministries, departments, and agencies are deposited only in NCB and Scotiabank. “We are going to open up government deposits to all banks using a competitive system,” said the Opposition spokesman.
Current government deposits are roughly $149 billion representing about 10 per cent of deposits across the sector as at December 2024.
Robinson pointed out that “this is a massive amount of money ... that these two banks hold effortlessly, using it to fund their lending activities, without needing to compete for these deposits”.
He said that by allowing smaller banks to hold government deposits, competition will increase, smaller banks will have access to more lower cost funds, allowing them to expand their lending activities and compete more aggressively with lending rates.
Robinson also said that with the increased competition for deposits, banks will have greater incentives to pass on lower interest rates to borrowers, ensuring that central bank rate cuts actually benefit the public.
He emphasised that breaking the dominance of a few banks will create a more balanced, consumer-friendly financial sector. And, he said the PNP will go further by phasing out the asset tax, which was levied on banks, over five years.
“We understand the concerns raised by the banks about this tax, which is part of their cost structure. A fiscally prudent PNP government is committed to phasing out the asset tax over five years. We will do this while we assess the revenue performance and make adjustments,” he said.
