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Depositors could pull funds from banks
By admin | November 25, 2007
Source: Sunday Herald | Published November 25th 2007
Many depositors who pumped the over $282 billion into the island’s six commercial banks as at the end of June say that they will not be putting any more money into the formal commercial banking system even, if Carlos Hill’s Cash Plus Limited goes belly up or bust. They argue that Cash Plus Limited, which is currently experiencing cash flow problems because it is using short-term customer deposits to fund long-term real estate purchases, is giving them a much better return than the banks, so they are prepared to take the risk involved.
Data released by the Derick Latibeaudiere led central bank indicate that average deposit rate of the average interest rate the island’s commercial banks pay their depositors to use their funds stood at 5 per cent in June, while the average amount they charge for a loan was about 20 per cent. This means that the average savings rate was way below the inflation rate, while the loan rate was at least 14 percentage points above the inflation rate.
The data also indicated that the average deposit rate of 5 per cent per annum paid by the commercial banks was way below the 10 per cent per month paid by Cash Plus Limited. The central bank also pointed that total commercial bank loans and advances were $160 billion or about 35 cents out of every dollar of their total assets which stood at $432 billion, with 45 per cent of this amount used to purchase personal items such as motor cars, rather than for productive purposes.
Meanwhile, depositors say that the banks are giving Cash Plus Limited a fight by invoking the provision of the Money Laundering Act, related to suspicious transactions. The Act stipulates that it is the duty of a financial institution to report to the relevant authority any transactions it deems to be suspicious, while paying special attention to all complex and unusual transactions or unusual patterns of transactions whether completed or not. A financial institution is also required to report any transaction which it feels is inconsistent with the normal transaction carried out by a customer with the institution.
Reports are that many of the island’s leading commercial banks released a circular last week, warning employees to refer customers who are members of Cash Plus Limited, World Wise and the other unregulated financial schemes to their compliance departments before releasing any funds drawn on the accounts of any of these schemes. This move has resulted in a cash crunch which has resulted in a delay in payments to clients of Cash Plus and other unregulated schemes.
This move triggered a “run” on Cash Plus Limited which has tied up significant portions of its customers’ deposits, or so called loans into the purchase of high-priced real estate such as Drax Hall Limited and the Hilton Hotel. Hill has accused the banks of sabotaging the business, but this has subsequently been dismissed by Patrick Hylton, president of the Jamaica Bankers Association (JBA), who stressed that he was unaware of the circular spoken about by Hill.
Last week Wednesday hundreds of Cash Plus depositors turned up at its Premier Plaza-based office to find out about their November returns, only to hear that these will not be paid until December 3, although they have the cheques in their possession. Hill, however, says that Cash Plus Limited will soon be issuing an international credit card to its customers and wiring their funds into their accounts, in order to circumvent the local commercial banks which he accuses of conspiring against his organization.
Topics: cash plus, investment |
December 2nd, 2007 at 7:59 am
THE SHIP IS SINKING! Cash Plus is going down. It is not a sustainable business. Somebody please tell me of another business outside of Jamaica that can generate profits year on year of over 200% per annum. Please! everybody wake up and smell the coffee before it is too late.