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Introduction .............................................................................................................................. 11 Formatted: Font color: Auto

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Commercial Banks ................................................................................................................... 11

Building Societies .................................................................................................................... 32

Merchant Banks ....................................................................................................................... 96

Industry Comparisons ............................................................................................................ 107

Conclusion ............................................................................................................................. 107

Introduction ........................................................................................................................................... 1

Commercial Banks ................................................................................................................................ 1

Building Societies .................................................................................................................................. 2

Merchant Banks .................................................................................................................................... 7

Conclusion ............................................................................................................................................. 7
 Management of Financial Institutions: Project 1 Formatted: Centered
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IntroductionBusiness Models Formatted: Font: (Default) Times New Roman, 12 pt,

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Commercial Banks Formatted: Font: (Default) Times New Roman, 12 pt,

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Banks choose to be different from one another. They engage strategically in different Formatted: Font: (Default) Times New Roman, 12 pt,
Bold, Not Italic
intermediation activities and select their balance sheet structure to fit their business objec- Commented [jm1]:
Commented [jm2R1]: https://www.bis.org/publ/qtrpdf/r_
tives. In a competitive pursuit of growth opportunities, banks choose a business model to lev- qt1412g.pdf
Formatted: Indent: First line: 0.5"
erage the strengths of their organisation. There are three distinct commercial bank business

models, according to a December 2014 edition of the Bank of International Settlements Quar-

terly Review, however Jamaica’s commercial banks appear to follow the most popular model.

This is characterised by a high share of loans on the balance sheet and high reliance on stable

funding sources including deposits. In fact, customer deposits are about two thirds of the

overall liabilities of the average bank in this group.

The second business model group has an asset profile that is remarkably similar to the

profile of the retail funded banks in the first group. The main differences between

the two relate to the funding mix. Wholesale-funded banks have a higher share of

interbank liabilities and a much higher share of wholesale debt (36.7% versus 10.8%), with

the balance being a lower reliance on customer deposits (35.6% versus 66.7%). There are half

as many observations in the wholesale-funded group compared to the retail-funded group.

The third group is more capital markets-oriented. Banks in this category hold

half of their assets in the form of tradable securities and are predominately funded

in wholesale markets. In fact, the average bank in this group is most active in the

1
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interbank market, with related assets and liabilities accounting for about one fifth of

the balance sheet. We label this business model “trading bank”. It is the smallest

group in terms of observations (203 bank/years) in our sample.

Jamaica National and Victoria Mutual Building Society are owned by members. Their goal is

to supply members with good banking services, at low costs and according to their needs.

This business model is proven to be extremely successful around the world and is very differ-

ent for National Commercial Bank, Scotiabank and others that are majority-owned by

wealthy investors or large international corporations. They must sell customers as much as

they can at the highest possible price. Central bank numbers indicate that privately owned Commented [jm3]:
Commented [jm4R3]: http://jamaica-gleaner.com/arti-
commercial banks have been paying on average less than one per cent on savings accounts in cle/business/20181207/jan-keil-jamaica-needs-co-operative-
banks
the past, while charging on average more than 16 per cent on loans. JN and VMBS pay their

customers more on their savings and charge much less on average not more than nine per cent

on their loans

Cohen argues that the financial sector is being constantly disrupted, with customers always

wanting more at less cost, while asking for a better banking experience. He said that his own

recent experience, backed up by research in the financial sector, convinced him that banks

would have to contend with rivalry emanating from beyond their own shores and so must

change or die.

2
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Building Societies Formatted: Font: (Default) Times New Roman, 12 pt,

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A building society, unlike a traditional bank, is not a commercial institution, but is a Formatted: Font: (Default) Times New Roman, 12 pt

type of institution that provides financial services to its members. Building societies are

owned entirely by their members and traditionally offered mortgages and demand-deposit

accounts. Since they areBuilding societies are mutual organizations, meaning organization

meaning they member owed, and member has one vote, regardless of how much money they

have invested or borrowed or how many accounts they have. For this reason, building socie-

ties focus on providing value by way of higher saving rates, lower mortgage rates and no or

low fees. Because of the way in which they are organised, building societies do not need to

pay dividends to shareholders. This means that building societies can charge less to borrow-

ers and pay more to savers. The net margin, therefore, is narrowed. Additionally, building so- Commented [jm5]: http://businesscasestudies.co.uk/build-
ing-societies-association/adding-value-the-case-for-building-
societies/conclusion.html
cieties generally tend to be more inclusive in their approach, that is, their products and ser-

vices often find favour even with lower-income households. High-rate savings products, for

example, are likely to have lower minimum balance requirements than stockholder-organised

3
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financial institutions “For the reasons stated above, the reported surpluses of a mutual build-

ing society do not reflect the value returned to the members by way of pricing benefits related

to its product and service offerings. To that extent, therefore, the reported returns on equity Commented [jm6]: http://www.jamaicaob-
server.com/business/VMBS-leads-building-societies-in-re-
straining-fee-increases_19152530
are lower than they would have been, had fees and charges been applied at prevailing market

rates." stated Richard Powell, former Victoria Mutual Building Society President in a 2015

interview.

Building societies in modern day have expanded their product offerings throughout the years

so as to maintain competitiveness in the increasingly competitive financial services industry.

Jamaica's mutual building societies now provide a complete range of financial services to

members, such as savings, investments, wealth management, stockbroking, general insurance

and money-transfer services as well as credit cards and other financial services.

The number of building societies that make up the financial services industry in Jamaica have

decreased by a sharp fifty percent in the last nine years from four institutions to merely two

due to demutualization of First Caribbean International Building Society and Jamaica Na-

tional Building Society into commercial banks. As at December 2010 the sector consisted of

the institutions mentioned above, as well as Victoria Mutual (VMBS) and Scotia Jamaica

Building Societies with VBMS as the only member-owned building societies remaining.

SJBS is commercially owned.

Total assets in the sector fell from $168 bmillion JMD in 2010 to $145 bmillion in

2018 showing a decrease of 15.86 percent. Between 2010 and 2012 the market share of build-

ing societies increased. In 2013 the market share of building societies fell due to an increase

in the market share of merchant banks. The sharp increase in assets from 2010 to 2012 is

thought to be as a result of. From 2014 to 2018 the market share of building societies de-

creased by 11.3% from 20.0% to 8.7% The decrease in assets in the sector from $278,737

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million in December 2016 to $ 134,968 million in December 2017 was mainly due to Jamaica

National Building SocietyFCIB and JN leaving the sector and becoming a commercial banks.

This decline in assets has been exacerbated because JN’s assets contributed to more than 50%

of the sector’s assets. Additionally, the market share of the sector as a percentage from 2014

to 2016 reliably fell by .3 to .4 due to increases in the market shares of commercial banks.

Assets in the sector grew by an average of 1.11% from 2011 to 2018. A look at the ta-

ble below shows that growth in assets in the sector was not nearly as smooth with a period of

slow growth in 2013 and somewhat rapid growth in 2016 followed by a significant decline in

growth. There was also a spike in asset growth in 2011 mainly attributable to tax surpluses

from JN and a doubling of asset growth in SJBS. The slowed growth in 2013 was because

First Caribbean International left the sector and became a commercial bank. Growth in 2016

was mainly driven by JN, which had over 15% growth in assets compared to 7% in the previ-

ous year, growing from $133 billion to $153 billion due to a $900 million increase in mort-

gage origination and lending respectively. The negative growth in assets in 2017 was because Commented [jm7]: https://jnbank.com//wp-content/up-
loads/2018/01/JNAnnualReport2016.pdf
JN left the sector and became a commercial bank.

Change in Assets in Jamaica's Building Society Sector Formatted: Font: (Default) Times New Roman, 12 pt,
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Year 2010 2011 2012 2013 2014 2015 2016 2017 2018
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Assets 167.839 185.394 201.368 211.088 230.592 246.727 278.737 135.376 145.053
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% Change 5.6% 10.46% 8.62% 4.83% 9.24% 7.00% 12.97% -51.43% 7.15%
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Deposit growth in the sector averaged 6.9% in the nine year period between 2010 and Formatted: Centered, Line spacing: Double
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2018. The increase from 5.1% from 2011 to 2012 was due to more aggressive savings initia- Font color: Auto
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tives in JN and VMBS. The increase in 2015 was also attributable to JN and VMBS. The in-
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crease in deposits for JN was due to a shift of 1,500 repurchase agreements, valued at approx- Formatted: Font: (Default) Times New Roman, 12 pt,
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imately $765 Million from JN Fund Managers to JNBS while VBMS attributed that to in-

creased referrals from existing members and customers, competitively priced products and

customized savings solutions, as well as increased engagement with Members through fre-

quent surveys and other feedback mechanisms. The fluctuations in deposits between 2016 to

2018 were due to the JN leaving the sector and becoming a commercial bank as mentioned

above. Total liabilities and equity witnessed increases of 17.16 percent and 2.89 percent re-

spectively during the year. Growth of the banking sector was attributed to an increase of

15.25 percent in the balance sheet size of local banks. Foreign banks comprising 3.00 percent
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share in total assets of banking sector recorded an increase of 42.31 percent during CY17.
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Profit before and after tax decreased by Rs. 59.22 billion or 18.55 percent and Rs. 38.32 bil- Formatted: Centered, Line spacing: Double
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lion or 19.83 percent respectively during the year CY17 over CY16.
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Change in Deposits in Jamaica's Building Society Sector Formatted: Font: Not Bold
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Year 2010 2011 2012 2013 2014 2015 2016 2017 2018
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Deposits 115.891 121.783 131.438 141.353 152.225 168.023 189.867 86.316 Formatted: Font: Not Bold
90.230
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% Change 5.3% 5.1% 7.9% 7.5% 7.7% 10.4% 13.0% -54.5% 4.5%
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Building Society Liquidity Ratios Formatted: Font: Not Bold
2010 2011 2012 2013 2014 2015 2016 2017 2018
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Current 1.18 1.20 1.20 1.19 1.20 1.20 1.97 1.25 1.25
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Ratio
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Building Society Capital Adequacy Ratios
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Year 2010 2011 2012 2013 2014 2015 2016 2017 Formatted: Centered, Line spacing:
2018 Double
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Capital Adequacy Ratio 22.1% 20.6% 18.2% 20.8% 22.8% 20.6% 17.1% 23.3% Formatted: Line spacing:
24.1% Double
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Looking at the profitability ratios below, we can see that the sector’s pre-tax profit margin Formatted: Left, Line spacing: Double

fluctuated quite wildly between 2010 and 2018, however there was no difference between the

figures in 2010 versus 2018. Points of interest within the period are between 2014 and 2016,

in which the net profit margin steadily declined, following an upward trend in previous years.

The pre tax profit margin in 2017 was also unusual as there was a sharp increase of nearly

15% following a downward trend. operational profitability slowly dropped each year from Formatted: Highlight

2015-2018. While we also see that the company’s EBT is slowly declining, its total revenue

is increasing year over year. This may indicate that the company’s expenses are growing

faster than its revenues, meaning that the bakery’s future profitability may be in danger.

Building Societies Profitability Ratios Formatted: Font: Bold

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Year 2010 2011 2012 2013 2014 2015 2016 2017 2018
Formatted Table

Pre - tax Profit Margin 16.4% 24.5% 22.0% 28.5% 22.7% 17.6% 14.8% 32.1% 16.9% Formatted: Font: Bold
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Return on Assets 1.7% 2.3% 1.9% 2.4% 2.0% 1.5% 1.2% 1.5% 1.3% Formatted: Line spacing: Double
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Building Society Return on Equity Ratios Formatted: Line spacing: Double
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2010 2011 2012 2013 2014 2015 2016 2017 2018
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Net Income (ROA*As- 2.79 4.23 3.92 5.13 4.54 3.68 3.35 2.09 1.90 Formatted: Line spacing: Double

sets)(billions)

Assets (billions) 167. 185. 201. 211. 230. 246. 278. 135. 145.05 Formatted: Line spacing: Double

84 39 37 09 59 73 74 38

Liabilities (billions) 141. 154. 168. 176. 192. 206. 141. 108. 116.23 Formatted: Line spacing: Double

69 35 16 77 39 02 69 51

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Equity (assets - liabilities) 26.1 31.0 33.2 34.3 38.2 40.7 137. 26.8 28.82 Formatted: Line spacing: Double

(billions) 4 4 1 2 1 1 04 6

ROE 1.14 1.86 1.39 2.24 1.41 0.82 0.06 0.61 0.43% Formatted: Line spacing: Double

% % % % % % % %

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The market share of building societies declined by 0.3 percentage point to 8.7

2017: the market share of building societies declined by 11.6 percentage points to 9.0

per cent. This was largely as a result of two institutions already in the sector receiving

commercial banking licenses

2016: the market share of building societies declined by 0.3% to 19.3 per cent.

2015: the market share of building societies declined by 0.4 percentage point to 19.6 per

cent

2014: the market share of building societies declined by 0.3 percentage to 20.0

2013: Market share of commercial banks and FIA licensees increased during 2013 at

the expense of building societies.

In 2012, building societies increased its share of the market

Merchant Banks Formatted: Font: Bold, Not Italic, No underline

Formatted: Heading 1

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Financial In- Formatted Table

stitution Dec-11 Dec-112 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 De
BNS, FCIB,
BNS, FCIB, Citi- BNS, FCIB, BNS, FCIB, Citi- BNS
Citibank, FGB, BNS, FCIB, Citi-
BNS, FCIB, Citibank, BNS, FCIB, Citibank, bank, FGB, RBC, Citibank, FGB bank, FGB, Citi
RBC, Peoples bank, FGB, Peo-
Commercial FGB, RBC Peoples Co- FGB, RBC Peoples Peoples Cooper- Peoples Coop- Peoples Coop- FGB,
Cooperative ples Cooperative
Banks operative Bank of Ja- Cooperative Bank ative Bank of Ja- erative Bank erative Bank of Ban
Bank of Ja- Bank of Jamaica,
maica of Jamaica maica, Sagicor of Jamaica, Jamaica, Sagi- Bank,
maica, Sagicor Sagicor Bank
Bank Sagicor Bank cor Bank B
Bank

9
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Victoria Mu- Victoria Mu-

tual, Scotia Ja- tual, Scotia Ja- Victoria Mu-
Victoria Mutual, Victoria Mutual, maica Building Victoria Mutual, maica Build- tual, Scotia Ja- Victo
Victoria Mutual, Sco- Scotia Jamaica Scotia Jamaica Society, Ja- Scotia Jamaica ing Society, maica Building tual,
tia Jamaica Building Building Society, Ja- Building Society, maica Na- Building Society, Jamaica Na- Society, Ja- Jam
Building So- Society, Jamaica Na- maica National Jamaica National tional Building Jamaica National tional Building maica National Build
cieties tional Building Society Building Society Building Society Society Building Society Society Building Society ci
JMMB, Capital JMMB, Capi- JMMB, Capital
JMMB, Capital and JMMB, Capital and Credit JMMB, Capital tal and Credit and Credit Mer-
MF&G
JMMB, Capital and Credit Merchant and Credit Mer- Merchant and Credit Mer- Merchant chant Bank,
and F
Credit Merchant Bank, MF&G Trust chant Bank, Bank, MF&G chant Bank, Bank, MF&G MF&G Trust
Lim
Merchant Bank, MF&G Trust and Finance Lim- MF&G Trust and Trust and Fi- MF&G Trust and Trust and Fi- and Finance
Banks and Finance Limited ited Finance Limited nance Limited Finance Limited nance Limited Limited
Commercial banks make up the largest group of depositary institutions measured by asset

size. They accept deposits and issue loans of varying composition. Commercial bank liabili-

ties include several types of non-deposit sources of funds and loans include a broad range

such as consumer, commercial and real estate loans. In 2011 Jamaica had 11 commercial

banks. This figure decreased in 2014 when the Royal Canadian Bank removed itself from the

country. This figure later increased in 2017 when JMMB and Jamaica National became com-

mercial banks.

Industry Comparisons Formatted: Font: (Default) Times New Roman, 12 pt,

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Conclusion
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Bold
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10