– IMF says concentrated ownership could leave Jamaica at risk of ‘contagion’

– Concerns raised about supervision of financial conglomerates

The International Monetary Fund (IMF) is recommending further strengthening of Jamaica’s financial sector amid concerns about the supervision of financial conglomerates.

In its just released Article IV Consultation Report, the IMF lauded the Government on the management of the financial sector, ever though some lingering concerns persist with regard to the supervision of conglomerates and the country’s Anti-Money Laundering and Counter the Finance of Terrorism (AML/CFT) regime.

In its report, the IMF highlights that Jamaica’s “financial stability indicators indicate that the financial system is well-capitalised and liquid”.

Added the Fund: “Deposit taking-institutions’ balance sheets have been helped by regulatory forbearance and liquidity support by the BOJ. Their Capital Adequacy Ratio at end-2020 was 14.3 per cent (well above the regulatory minimum of 10 per cent) and non-performing loans have remained below three per cent.”

The IMF said it observed that non-deposit taking institutions are also more than sufficiently capitalised, profitable and stable. It said that the Bank of Jamaica’s macro prudential assessment suggests that financial sector risks are contained.

Areas of concerns highlighted

However, the Fund said there was need for the supervision of financial conglomerates to be strengthened as, it stressed, the financial sector is dominated by complex financial conglomerates that operate in multiple jurisdictions.

Some large groups’ headquarters are based in jurisdictions that have different oversight practices and cross-border and financial subsectors linkages are concentrated in a few entities.

The IMF argued that risks arise from concentrated ownership, related party and large group exposures, and off-balance sheet positions.

According to the IMF mission team that assessed Jamaica’s macro-economic performance, “even with proper separation between bank and nonbank group members, direct and indirect exposures could be a source of contagion”.

Said the team: “Strong efforts are needed to finalise adoption of a legislative framework for the special resolution regime for the orderly resolution of distressed financial institutions and group-wide supervision and continue advancement with data gathering and analytics particularly of inter-institution linkages and cross-border exposures.”

Regarding the country’s AML/CFT regime, the IMF is recommending further strengthening of the AML/CFT regime. This is in addition to other recommendations for a swift implementation of the action plan agreed with the Financial Action Task Force (FATF), which it says will support Jamaica’s timely exit from the FATF grey list while strengthening its correspondent banking relationship.

The IMF notes that the recently adopted national risk assessment provides the Government with a better understanding of the country’s ML/TF risks and will help to address key priorities identified together with the FATF.