· BANK OF JAMAICA PRINCIPAL OFFICERS As at 31 December 2013 GOVERNOR & SUPERVISOR OF BANKS Mr....

ANNUAL REPORT

2013

Report and Statement of Accounts for the

Year Ended 31 December 2013

© 2014 Bank of JamaicaNethersole Place

KingstonJamaica

Telephone: (876) 922 0750-9Fax: (876) 967 4265

Email: [email protected]: www.boj.org.jm

ISSN 0067 3668

Printed in Jamaica

Mission Statement

The mission of the Bank of Jamaica

is to formulate and implement

monetary and regulatory policies

to safeguard the value of the domestic

currency and to ensure the soundness

and development of the financial system

by being a strong and efficient

organisation with highly motivated

and professional employees

working for the benefit of

the people of Jamaica.

BANK OF JAMAICA

PRINCIPAL OFFICERSAs at 31 December 2013

GOVERNOR & SUPERVISOR OF BANKS Mr. Brian Wynter

SENIOR DEPUTY GOVERNOR Mr. John Robinson

DEPUTY GOVERNORS Mrs. Gayon Hosin - Financial Institutions Supervisory Division

Mr. Livingstone Morrison - Administration & Technical Services and Finance and Technology Division

GENERAL COUNSEL

Mr. Robin Sykes - Corporate Secretary’s Office

DIVISION CHIEFS Mr. Calvin Brown - Administration & Technical Services Division

Ms. Maurene Simms - Financial Institutions Supervisory Division

Mrs. Natalie Haynes - Banking & Market Operations Division

Dr. Wayne Robinson - Research & Economic Programming Division

FINANCIAL CONTROLLER - DIVISION CHIEF Ms. Angela Foote - Finance and Technology Division

CHIEF AUDIT EXECUTIVE - DIVISION CHIEF Mr. Ian Williams - Internal Audit Division

Abbreviations

Foreword by the Governor

1. Bank of Jamaica: Our Role and Function 1

2. The Economy and Monetary Policy Review 32.1 Economic Overview 3 2.2 International Economic Developments 72.3 Balance of Payments 132.4 Foreign Exchange Market 17

Box 1: Jamaica’s Medium-term Economic & Financial Programme - FY2013/14 to FY2017/18 19

2.5 Prices 252.6 Money and Credit 332.7 Production 422.8 The Stock Market 502.9 Public Finance 542.10 Monetary Policy and Interest Rates 62

Box 2: Enhancements to Liquidity Management Framework 632.11 Economic Outlook 69

3. Financial System Surveillance and Policy 713.1 Supervision of Deposit-taking Institutions (DTIs) 713.2 Supervision of Cambios and Remittance Companies 903.3 Financial System Stability Assessment of DTIs 933.4 Financial Legislation 102

4. Financial Market Operations 109 4.1 Open Market Operations 1094.2 International Reserves 1154.3 Reserve Management 120

5. Payment System Oversight 123

6. Banking & Depository Services 131

7. Currency Operations 137

CONTENTS

8. Administration 141

9. Governance 145

10. Community Outreach 147

11. Bank of Jamaica’s Strategic Objectives 2012-2015 149

12. Calendar of Monetary Policy Developments 153

Final Accounts for the Year Ended 31 December 2013 i Appendices xlvii

ABBREVIATIONS

ABM Automated Banking MachinesABT Alcohol, Beverages & TobaccoACH Automated Clearing HouseAML Anti-money Laundering ARP Average Realized PriceASBA Association of Banking Supervisors of the AmericasAvg Average BCP Business Communication PlanBCP Basel Core Principle Bn BillionBOE Bank of EnglandBOJ Bank of JamaicaBoJ Bank of JapanBOJ-SWEP Bank of Jamaica Summer Work Experience ProgrammeBOP Balance of PaymentsBRMO Bi -Monthly Repurchase Operationbps Basis points

CAD Canadian Dollar/Current Account DeficitCAP Clarendon Alumina PartnersCAR Capital Adequacy RatioCARTAC Caribbean Regional Technical Assistance CentreCCMB Capital & Credit Merchant BankCD Certificate of DepositCEO Chief Operating OfficerCEMLA Centre for Latin America Monetary StudiesCF Clothing & FootwearCFATF Caribbean Financial Action Task ForceCPC Chief Parliamentary CounselCFT Counter-Financing of TerrorismCOM CommunicationCPI Consumer Price IndexCPI-AF Consumer Price Index excluding Agriculture and FuelCPI-FF Consumer Price Index excluding Food and FuelCRA Credit Reporting ActCRR Cash Reserve RequirementCSD Central Securities DepositoryCTMS Central Treasury Management System

DNFBPs Designated Non-Financial Businesses & ProfessionsDSGE Dynamic Stochastic General EquilibriumDTIs Deposit-taking InstitutionsDVBP Dollar Value of a Basis Point

EBIS Enterprise Business Intelligence SystemECB European Central BankED EducationEFF Extended Fund FacilityELMF Enhancements to Liquidity Management FrameworkEU European UnionEWS Early Warning System

FATF Financial Action Task ForceFed Federal Reserve (US)FCIBS First Caribbean Building SocietyFFIT Full-Fledged Inflation TargetingFHC Financial Holding CompanyFHERM Furniture, Household Equipment & Routine Household MaintenanceFIA Financial Institutions ActFIDs Financial Investigations DivisionFIDA Financial Investigations Division ActFIU Financial Intelligence UnitFNB Food and Non-alcoholic Beveragesf.o.b. Free on boardFRC Financial Regulatory CouncilFSB Financial Stability BoardFPP Fiscal Policy PaperFSAP Financial Sector Assessment ProgrammeFX Foreign ExchangeFY Fiscal Year

GBP Great Britain PoundGCT General Consumption TaxGDP Gross Domestic ProductGFA Gross Foreign AssetsGKMA Greater Kingston Metropolitan AreaGOJ Government of Jamaica

HLTH HealthHWEG Housing, Water, Electricity, Gas and Other Fuels

IDB Inter-American Development BankIFPAS Inflation Forecast & Policy Assessment SystemIMF International Monetary FundIPCP Index of Primary Commodity PricesIT Information Technology

JDX Jamaica Debt ExchangeJMD Jamaican DollarJMMB Jamaica Money Market BrokersJSE Jamaica Stock Exchange

LOI Letter of IntentLRS Local Registered StockLTO Large Tax Payer Office

MaFI Macro-Financial IndexMEFP Memorandum of Economic & Financial PoliciesMIIC Miscellaneous Goods & ServicesMOU Memorandum of UnderstandingMN MillionMPIs Micro-prudential Index

NCBJ National Commercial Bank Jamaica LimitedNDA Net Domestic AssetsNDX National Debt ExchangeNII Net Interest IncomeNIR Net International ReservesNPL Non-Performing LoansNPS National Payment SystemNWC National Water Commission

OMO Open Market OperationsOMT Outright Monetary TransactionOPBs Other Public BodiesOSFI Office of the Superintendent of Financial InstitutionsOUC Other Urban Centres

PAYE Pay As You Earn (income tax)PBs Public BodiesPBOC People’s Bank of ChinaPD Primary DealersPOCA Proceeds of Crime ActPOS Point of Salepps Percentage pointsPSE Public Sector EntityPSIP Public Sector Investment Programme

QPC Quantitative performance Criteria

R&A Restaurants AccommodationRA Rural AreasR&C Recreation & CultureROAA Return on Average AssetsRSPs Remittance Service ProviderRTGS Real Time Gross Settlement

SCT Special Consumption TaxSDR Special Drawing RightsSIPPA Security Interest in Personal Property ActSLF Standing Liquidity Facility

SPBS Selected Public BodiesTAJ Tax Administration DepartmentTPA Terrorism Prevention ActTRAN TransportTRIM Trimmed Mean

USA United States of AmericaUSAID United States Agency for International DevelopmentUSD US dollarUTECH University of TechnologyUWI University of the West Indies

WASR Weighted Average Selling RateWATBY Weighted Average Treasury Bill YieldWGPSLAC Working Group on Payment Systems for Latin America and the CaribbeanWTI West Texas Intermediate (crude oil)

YOY Year over Year

FOREWORD by the governor

During 2013, the primary factors influencing the Bank’s operations were

ongoing fiscal consolidation, the implementation of a national debt ex-

change and the approval of a medium-term economic programme sup-

ported by a four-year Extended Fund Facility (EFF) from the IMF. Public

uncertainty surrounding the approval of the EFF and the ability of the

Authorities to meet the quantitative targets and structural benchmarks

served to challenge the conduct of monetary policy. In addition, slower

growth in the global economy, partly influenced by concerns surrounding

the US Federal Reserve’s tapering of its bond purchases, served to temper

external demand conditions.

Against this background, the Bank lowered its policy interest rate early in the year. During the year, the Bank

also enhanced its liquidity management operations through the offer of longer dated instruments. The liquid-

ity management framework was further enhanced by the introduction of a regular cycle of two-week repur-

chase agreements to alleviate periodic liquidity constraints faced by the deposit-taking sector. In addition,

the Bank introduced a Standing Liquidity Facility (SLF) to provide automatic access to overnight liquidity for

DTIs.

Despite the approval of the EFF by the IMF’s Executive Board which, among other things, resulted in greater

inflows from the multilateral agencies, there was lingering uncertainty among investors. This uncertainty was

manifested in a reduction in net private capital inflows which contributed to a faster pace of depreciation in

the exchange rate. The accelerated pace of depreciation was also in the context of relatively low net interna-

tional reserves and a high current account deficit. Notwithstanding, the greater flexibility in the exchange

rate allowed for an adjustment in relative prices and an improvement in Jamaica’s external competitiveness.

During 2013, the Bank occasionally intervened in the foreign exchange market to smooth supply and demand

conditions and intermediate funds through the Public Sector Entities facility.

Inflation for 2013 was 9.5 per cent relative to 8.0 per cent in 2012 and marks the third consecutive year of

single-digit inflation. The uptick in inflation was against the background of significant administrative ad-

justments in transport and utility rates, continued depreciation in the exchange rate and increased crude oil

prices. The impact of these inflationary impulses was moderated by generally weak domestic demand condi-

tions, reduction in international grains prices and lower communication costs. The relatively weak domestic

demand conditions, which persisted from the previous year, were influenced by declining real wages and

higher unemployment. Against this background, there was marginal growth of 0.2 per cent in real GDP for

2013.

During the review year, DTIs remained largely resilient to macro-prudential stress tests due to continued

strong capital positions. The DTIs performed creditably in response to hypothetical shocks despite weak eco-

nomic activity, depreciation of the Jamaica Dollar and lower earnings performance due to the implementation

of the NDX. In particular, the stress test results revealed that average post-shock capital adequacy ratios for

the banking system largely remained above the 10.0 per cent minimum benchmark in response to hypotheti-

cal market, credit and liquidity shocks.

There were no amendments to financial legislation in 2013 as the country’s legislative agenda was focused

on enacting laws consistent with benchmarks set under the EFF-supported programme. However, the policy

focus of the Bank with respect to financial supervision continued to be the development of the Omnibus Bank-

ing Bill which will serve to consolidate existing pieces of legislation and regulations that govern DTIs. The

Omnibus Banking Bill will also incorporate enhanced supervisory standards in keeping with developments

in international standards in recent years. The resulting Act will, among other things, provide the Bank with

greater supervisory autonomy, address counterparty exposure limits and establish a consolidated supervi-

sory framework. Other policy matters that were of importance included the refinement of draft Credit Union

Regulations and a special survey of bank fees and charges. This survey was commissioned by Parliament in

response to the public’s concern about the fees being charged by commercial banks.

The Bank of Jamaica continued to provide a range of banking services to its customers during 2013. In this

regard, the Bank operated the JamClear Real Time Gross Settlement (RTGS) system and provided administra-

tive support to the Automated Clearing House (ACH) system, owned and operated by the commercial banks.

Consistent with its risk mitigation strategy and its commitment to having large value transactions settled in

the RTGS, the Bank lowered the ACH value threshold to $2.0 million from $3.0 million. Additionally, with the

implementation of the Government’s Central Treasury Management System, the Accountant General’s De-

partment was granted access to the ACH. This led to significant efficiency gains to the payment system given

that the Government is the single most significant initiator of retail transactions.

During the review year, the Bank also continued to explore ways in which it could increase the efficiency and

quality of the resources that are employed in its operations. Accordingly, organizational reviews of some de-

partments which have been impacted by expanded or new mandates were conducted to ensure that the nec-

essary staffing and work arrangements were properly aligned to support the prescribed objectives. In terms

of training, the Bank facilitated 134 programmes involving 586 participants. Forums on health and wellness

were also organized and conducted during the year. The Bank’s Energy Management Programme recorded

its fourth consecutive year of reduction in energy consumption while the Environmental Management Pro-

gramme yielded positive results with improvements in air and water quality, reduction in the use of paper and

the elimination of the use of styrofoam products.

The work of the Bank in 2013 was dominated by the negotiation of the EFF with the IMF and the subsequent

monitoring and achievements of targets. The EFF was necessary to support a comprehensive economic pro-

gramme aimed at progressively raising the rate of real GDP and per capita income growth. This transforma-

tion was urgently needed as, in the context of a cycle of low growth and unsustainable public debt, Jamaica’s

access to financial markets had become severely impaired. All the quarterly quantitative and associated in-

dicative targets were met.

As a key member of the negotiating team, I want to express gratitude to staff members who have worked with

integrity and aplomb, continuing to render loyal service to country. I also pay tribute to members of manage-

ment and the Board for their assistance in the running of the Bank in a year when the Bank was faced with

numerous challenges. Specifically, I want to thank Mrs. Myrtle Halsall who retired at the end of 2013 as Sen-

ior Deputy Governor and Deputy Chairman of the Board after almost 35 years of service to the Bank. Let me

also congratulate Mr. John Robinson who succeeded her as Senior Deputy Governor and Deputy Chairman

of the Board. In general, I am grateful to all members of staff for their continued hard work and commitment

to the goals of the Bank.

In many respects, the outlook for the Jamaican economy is positive. Growth in real GDP is expected to accel-

erate in 2014, given continued improvements in Jamaica’s external competiveness and an expected strength-

ening of global output. This stronger growth is expected to be driven primarily by increased external demand

as domestic demand conditions are anticipated to remain relatively weak. Headline inflation is projected

to decelerate relative to the rate recorded for 2013. Furthermore, it is anticipated that with continued fiscal

restraint there will be improvements in the fiscal and debt dynamics that should facilitate improved inves-

tor confidence. These improvements will provide the opportunity to address the continuing concerns about

the high level of unemployment and declining real wages. Against this background, the Bank will remain

focussed on maintaining single-digit inflation and achieving the monetary targets under the economic pro-

gramme.

Brian Wynter

GovernorBank of Jamaica

- 1 -

1. Bank of Jamaica: Our Role & Function

Bank of Jamaica (BOJ), established by the

Bank of Jamaica Act (1960), is responsible for

the implementation of sound and consistent

monetary policies, while ensuring financial

system stability through robust supervisory

and regulatory policies. The achievement of

these objectives is critical to the attainment of

sustainable growth in the Jamaican economy.

The two-fold nature of the Bank’s operations is

captured in its mission statement:

The mission of the Bank of Jamaica is to

formulate and implement monetary and

regulatory policies to safeguard the value of the

domestic currency and to ensure the soundness

and development of the financial system by

being a strong and efficient organization with

highly motivated and professional employees

working for the benefit of the people of Jamaica.

Bank of Jamaica conducts monetary policy

with the aim of achieving inflation in line with

that of our major trading partners. While the

Bank does not operate an explicit inflation

targeting regime, at the beginning of each year,

the Minister of Finance announces an inflation

target range for the current fiscal year, based

on the BOJ’s recommendation. In formulating

monetary policy to achieve this target, the

Bank takes into consideration all prevailing

and prospective developments in the macro

economy, fiscal operations, external sector as

well as relevant market information. A decision

to change the stance of monetary policy can be

reflected in a number of adjustments. These

include changes in the rates paid on the Bank’s

certificates of deposit and adjustments to the

liquid asset and cash reserve ratios.

In fulfilling its mandate to maintain financial

system stability, the BOJ has supervisory and

regulatory oversight of commercial banks and

other licensed deposit-taking institutions.

The BOJ routinely monitors institutions’

compliance with all the relevant legislation

and regulations to ensure the highest level of

prudence and integrity in the management

of such organizations. The Bank’s overall

responsibility for financial stability is supported

by micro- and macro-prudential assessments,

which are underpinned by the results from

early warning systems and risk models.

The Bank’s responsibilities also include:

• oversight of the operation of the payments

system and the foreign exchange market;

• the issue and redemption of currency;

• the provision of banking services to the

Government and commercial banks

as well as fiscal agency services to the

Government; and

• management of the external reserves of

Jamaica.

- 3 -

2. The Economy & Monetary Policy Review

2. The Financial Systemenhancements to these arrangements were done

on 16 December for DTIs. These enhancements

included a Standing Liquidity Facility (SLF)

under which DTIs have automatic access to

overnight funding and a bi-monthly repurchase

operation (BMRO) under which additional

support could be accessed. During 2013, the

Bank also occasionally intervened in the foreign

exchange market to smooth supply and demand

conditions and continued its intermediation

through the Public Sector Entities (PSE) facility.

During 2013, foreign exchange market

developments were largely conditioned by

the uncertainty surrounding Jamaica’s near-

term macroeconomic outlook. Additionally, the

domestic exchange rate continued to adjust in

the context of an unsustainable current account

deficit. Consequently, the foreign exchange

market reflected intermittent periods of

volatility, particularly during the March quarter,

as the excess demand for foreign currency

outweighed the supply to the system. The

conditions associated with the demand-supply

imbalance were also exacerbated by uncertainty

surrounding the timing and content of an

agreement with the IMF and the relatively low

level of the net international reserves (NIR). In

the context of these developments, the Jamaica

Dollar reflected a point-to-point depreciation of

12.6 per cent vis-à-vis the US Dollar in 2013,

following a depreciation of 6.9 per cent for 2012.

2.1. Economic Overview

The Bank of Jamaica (BOJ) reduced its signal

rate, the interest rate payable on its 30-day

Certificate of Deposit (CD), on one occasion in

2013. This policy action, taken on 25 February,

was effected in a context of continued weak

domestic demand conditions and a relatively

favourable inflation outlook. The Bank’s

policy stance was consistent with the lower

domestic interest rates which followed the

successful implementation of the National

Debt Exchange (NDX) by the Government of

Jamaica (GOJ) and revenue measures aimed

at improving fiscal sustainability. The BOJ’s

focus on meeting the monetary targets in the

economic programme and efforts to contain

inflation expectations influenced the decision

to maintain the rate at that level, 5.75 per

cent, for the remainder of the calendar year.

However, against the background of the NDX,

fiscal consolidation and the implementation

of the Central Treasury Management System,

the Bank augmented its liquidity management

operations, by offering a suite of special open-

market operations (OMO) instruments with

varying tenors. These operations were enhanced

by the introduction of special repurchase

agreements in the September quarter, in order

to alleviate periodic liquidity constraints faced

by deposit-taking institutions (DTIs). Further

- 4 -The Economy & Monetary Policy Review

Bank of Jamaica

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modest increases in tourism and remittance

inflows relative to 2012. Weak domestic

demand conditions were underpinned by

increased unemployment, a fall in real

wages as well as low business and consumer

confidence. Growth was recorded in both the

tradable and non-tradable industries, and was

mainly reflective of expansions in Mining

& Quarrying, Construction & Installation,

Hotels & Restaurants, Transport, Storage &

Communication and Finance & Insurance

Services.

In the context of uncertainty, tight liquidity

conditions, concentration of liquidity and

a generally weak domestic economy, there

were mixed movements in market determined

interest rates. Specifically, the weighted

average yields on GOJ 30-day and 90-day

Treasury bills declined by 6 basis points (bps)

and 14 bps to 6.25 per cent and 7.53 per cent,

respectively, for the year. On the other hand,

there was an increase of 107 bps to 8.25 per cent

in the weighted average yield on the 180-day

instrument. The movements in the Treasury

bill yields reflected investors’ preference for

shorter-term investments in the context of the

accelerated pace of depreciation of the Jamaica

Dollar. With regard to private money market

rates, there were increases in the overnight,

inter-bank and 30-day rates. In contrast, there

was a decline in the weighted average interest

rate on commercial banks’ foreign and local

currency denominated loans to the private

sector. The overall weighted average lending

Despite the sharp level of depreciation, inflation

remained in single digit for the calendar year.

Specifically, headline inflation, as measured

by the annual point-to-point change in the

All Jamaica Consumer Price Index (CPI), was

9.5 per cent for 2013 relative to 8.0 per cent

for 2012. The uptick in inflation for the review

year was largely influenced by administrative

increases in bus and taxi fares as well as water

and sewage rates. Inflationary pressures also

emanated from the continued depreciation

of the domestic exchange rate coupled with

increased crude oil prices. The impact of

these impulses was, however, moderated by

reductions in international grains prices and

communication costs as well as generally

weak domestic demand conditions. With

respect to the core inflation measures, the

CPI without Agriculture and Fuel (CPI-AF)

and the CPI without Food and Fuel (CPI-FF)

increased while the Trimmed Mean (TRIM)

declined relative to 2012. The increases in

CPI-AF and CPI-FF largely reflected the

non-recurrence of the significant reduction

in communication costs in 2012, coupled

with increases in the costs of utilities, some

household durables as well as health services.

The domestic economy recorded growth of 0.2

per cent for 2013, following a contraction of 0.5

per cent for 2012. This expansion in economic

activity was largely driven by greater external

demand, the impact of which was partly offset

by weak domestic demand. Improvements in

international economic conditions facilitated

- 5 -

Annual Report 2013

The Economy & Monetary Policy Review

The

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rate on local currency denominated loans

declined by 95 bps to 17.49 per cent at end-2013,

in contrast to an increase of 41 bps in 2012. The

change in the overall private sector loan rate

reflected declines in rates on all loan categories.

Against the background of these developments,

the monetary base expanded by 6.1 per cent for

2013, relative to an expansion of 6.5 per cent

for 2012. This deceleration was reflected in a

sharp slowdown in the growth of the commercial

banks’ local currency cash reserves as well

as a decline in the banks’ current account

relative to an expansion in 2012. The impact

of these developments on base money was

partially offset by acceleration in the growth

of currency issue to 7.9 per cent from 3.3 per

cent for 2012. An increase in the net domestic

assets (NDA) was the source of the expansion

in the monetary base as there was a decline in

the NIR. At end-2013, the monetary base was

largely in line with programme projections,

while the NIR and NDA targets outlined

in the programme were comfortably met.

For 2013, growth in the measure of broad

Jamaica Dollar money supply that excludes

foreign currency deposits (M3J) accelerated

to 4.8 per cent from 0.6 per cent in 2012.

This expansion largely reflected the impact

of an exceptional transaction, the merger of a

building society with its affiliate commercial

bank. The stock of commercial bank credit to

the private sector grew by 16.3 per cent and

was largely denominated in Jamaica Dollar

loans and advances, which expanded by 18.3

per cent relative to growth of 15.9 per cent for

2012. The expansion in loans and advances was

reflected in both business and personal lending.

Concurrently, the ratio of non-performing

loans to total loans declined to 5.6 per cent at

end-2013 from 6.8 per cent at end-2012. The

improvement in the quality of commercial

banks’ business loans portfolio largely reflected

significant increases in loan write-offs and to a

lesser extent net repayments by some sectors.

Jamaica’s balance of payments is estimated

to have improved for 2013 relative to 2012.

Provisional data indicated that Jamaica’s

current account deficit (CAD) improved by

US$339.1 million to US$1 566.2 million or

11.0 per cent of GDP for 2013, relative to a

CAD of 12.9 per cent of GDP for 2012. The

improvement for 2013 was reflected in all sub-

accounts, particularly the trade balance, due to

a sharp decline in imports. The lower imports

occurred in the context of continued weak

domestic demand conditions, declines in the

prices of international non-fuel commodities

as well as the impact of the exchange rate

depreciation. This reduction was primarily

reflected in fuel and all non-fuel categories of

imports, with the exception of Manufactured

Goods, Miscellaneous Manufactured Goods

and Crude Materials. Net Private and Official

Investment inflows were insufficient to finance

the deficits on the capital and current accounts.

Consequently, the NIR of the Bank fell by

US$77.7 million to US$1 047.8 million at end-


Bank of Jamaica

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decelerate relative to the rate recorded in 2013.

The outlook for inflation is also predicated on

the non-recurrence of administrative price ad-

justments that took place in 2013, declining

international commodity prices and continued

excess domestic capacity conditions. The main

risks to the inflation forecast include adverse

weather, the impact of fiscal adjustments and

volatility in international commodity prices. For

growth, the main risks are slower than antici-

pated global growth, delays in key infrastruc-

tural projects, adverse weather and lower than

expected consumer and business confidence.

In this regard, the Bank will remain focussed on

maintaining single-digit inflation and achiev-

ing the monetary targets outlined in the pro-

gramme under the EFF while ensuring appro-

priate levels of liquidity in the financial system.

2013, with gross reserves representing 13.1

weeks of projected goods and services imports.

The budget for the Central Government was

formulated within the context of the macroeco-

nomic projections and obligations under the

IMF four-year EFF. Against this background,

for the period April to December 2013, Cen-

tral Government operations resulted in a fiscal

deficit of $19.6 billion, relative to the budg-

eted deficit of $24.8 billion and the deficit of

$47.5 billion for the corresponding period in

2012. This performance facilitated the attain-

ment of a primary surplus of $61.7 billion for

the period, exceeding the EFF target by $89.6

million. The fiscal deficit reflected lower than

budgeted expenditure in a context of weak-

er than budgeted tax revenue. The financ-

ing of the deficit as well as debt amortization

of approximately $35.5 billion was sourced

mainly from the multilateral lending agen-

cies. As a consequence, there were no public

offers of debt instruments during the period.

Growth in the domestic economy is expected to

accelerate in 2014, given continued improve-

ments in Jamaica’s external competiveness

and a strengthening of global output. This fore-

cast assumes continued expansions in Mining

& Quarrying, Agriculture, Forestry & Fish-

ing, Construction and Hotels & Restaurants.

Growth is expected to be driven by increased

external demand as domestic demand condi-

tions are anticipated to remain weak, due to the

protracted decline in real wages. In this con-

text, headline inflation for 2014 is projected to

- 7 -

Annual Report 2013


The

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2.2. International Economic

Developments

2.2.1. Overview

Global growth moderated in 2013, relative to

2012, reflecting the impact of slower economic

activity in some advanced and emerging

market economies. In particular, there was

a deceleration in growth in the USA, largely

reflecting a contraction in government spending

relative to the previous year. The impact of the

slower growth in the USA was partly offset by

improved performance in most of the other

advanced economies, including the Euro area

and Japan. Emerging market economies were

negatively affected by concerns surrounding

the US Federal Reserve’s (Fed) tapering of its

monthly bond purchases. This anxiety about a

decision by the Fed underscored the decline

in economic growth for emerging market

economies as investors reduced investment in

risky assets. However, a decision to actually

taper was not taken until the end of the year.

During the review year, a number of central

banks in both advanced and emerging market

economies maintained an expansionary

monetary policy stance aimed at inducing

growth. Notwithstanding the execution of these

policies, there was a deceleration in global

inflation stemming from depressed demand

conditions and generally lower commodity

prices.

2.2.2. Output

Growth in the global economy is estimated at

3.0 per cent for 2013 compared to 3.1 per cent for

2012. This outturn reflected marginally slower

growth rates in both advanced and developing

economies. Advanced economies are estimated

to have registered growth of 1.3 per cent for

2013 relative to the expansion of 1.4 per cent for

2012 while developing countries are assessed

to have expanded by 4.7 per cent in comparison

to 4.9 per cent for 2012 (see Table 1). China

Table 1

Country

2012 2013* 2012 2013* 2012 2013* 2012 2013*

Advanced Economies 1.4 1.3 8 8.1 2 1.4 n/a n/a

of which

USA 2.8 1.9 8.1 7.6 2.1 1.5 0.0 - 0.3 0.0 - 0.3

UK 0.3 1.7 8 7.7 2.8 2.6 0.5 0.5

Euro Area -0.7 -0.4 11.4 12.3 2.5 1.4 0.8 0.3

Canada 1.7 1.7 7.3 7.1 1.5 0.9 1 1

Japan 1.4 1.7 4.4 4.2 0 0.4 0.1 0.1Sources: The World Economic Outlook Update estimates as at, October 2013 and January 2014 as well as, statistical offices of individual countries.

*Estimates ** Annual average *** End-of-period

GDPUnemployment

Rate Inflation Rate**

INDUSTRIAL ECONOMIESReal GDP, Consumer Prices and Unemployment Rates

(Annual percentage change and per cent of labour force)

CB Target Interest Rates***


Bank of Jamaica

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continued to record the fastest rate of growth

among emerging and developing economies

for 2013 (see Table 2).

With respect to the advanced economies, the

slower pace of growth principally reflected a

deceleration in the US economy emanating

from reduced government expenditure

associated with the implementation of

spending cuts at the start of the year as well as

a government shutdown in October. However,

arising from its quantitative easing programme,

the USA continued to realize expansions in

consumption and investment expenditure,

albeit at a decelerated pace. The Euro Area

registered a smaller contraction for 2013,

when compared with the previous year, as the

region slowly emerged from a deep recession.

The continuation of austerity measures amid

persistently high unemployment and debt to

GDP ratios in the region, hampered growth in

some member countries, particularly Italy and

Spain. Nonetheless, these countries showed

improvements while growth in Germany

decelerated. There was an acceleration in

economic growth in Japan for 2013, following

the Bank of Japan’s monetary easing programme

as well as the government’s fiscal stimulus

which was implemented to end deflation and

stimulate growth.

For the developing countries, overall growth in

economic output continued to decelerate. This

estimate largely reflects the impact of tighter

financial conditions and monetary policy

positions in mid-2013. In this context, emerging

market economies have been significantly

affected by an outflow of capital, which primarily

emanated from concerns surrounding the Fed’s

decision to begin tapering its monthly bond

purchases. Furthermore, political uncertainty

in some countries supported the lower growth

estimate for developing countries. In particular,

the Middle East and North Africa region

recorded a deceleration in output growth to 2.1

per cent for 2013 from 4.6 per cent for 2012. The

estimate for the review year mainly reflected

the impact of slower export-led growth in the

context of sanctions by the West on exports from

Iran as well as heightened geopolitical tensions

in Egypt and Syria.

2.2.3. Monetary Policy

In the context of weaker-than-expected

demand conditions, the central banks of

selected advanced economies maintained an

expansionary monetary policy stance during

2013. In particular, the Fed continued its

purchase of Treasury securities at a pace of

US$45.0 billion per month and additional

agency mortgage-backed securities at $40.0

billion in a third round of its quantitative easing

(QE3). The Fed also maintained its target

interest rates within the range of 0.0 per cent

to 0.25 per cent in keeping with its mandate of

achieving a long-run unemployment rate below

6.5 per cent and projected inflation between

one and two years ahead remaining below 2.5

per cent.

- 9 -

Annual Report 2013


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Table 2

2012 2013* 2012 2013*

Emerging and Developing Economies 4.9 4.7 6.1 6.2

Latin America and the Caribbean 3.0 2.6 5.9 6.7

Argentina 1.9 3.5 10.0 10.5

Brazil 1.0 2.3 5.4 6.3

Chile 5.6 4.4 3.0 1.7

Colombia 4.0 3.7 3.2 2.2

Dominican Republic 3.9 2.0 3.7 4.5

Ecuador 5.1 4.0 5.1 2.8

Mexico 3.7 1.2 4.1 3.6

Peru 6.3 5.4 3.7 2.8

Uruguay 3.9 3.5 8.1 8.5

Venezuela 5.6 1.0 21.1 37.9

Caribbean*** 2.3 1.7 5.0 5.0

Antigua & Barbuda 1.6 1.7 3.4 2.0

Barbados 0.0 -0.8 4.5 2.5

Dominica -1.7 1.1 1.4 2.0

Guyana 4.8 5.3 2.6 4.1

Jamaica**** -0.5 0.2 8.0 9.5

St. Kitts & Nevis -0.9 1.9 1.4 3.0

St. Vincent & Grenadines 1.5 1.3 2.6 2.1

Trinidad & Tobago 0.2 1.6 9.3 5.6

Developing Asia 6.4 6.3 4.7 5.0

China 7.7 7.7 2.7 2.7

India 3.2 4.4 10.4 10.9

Indonesia 6.2 5.3 4.3 7.3

Malaysia 5.6 4.7 1.7 2.0

Philippines 6.8 6.8 3.2 2.8

Thailand 6.5 3.1 3.0 2.2

Middle East and North Africa 4.6 2.1 10.8 12.3Sources: The World Economic Outlook Update, October 2013; January 2014*, statistical offices of individual countries,

*Estimates, **Annual average, ***GDP weighted, **** Point-to-point

SELECTED DEVELOPING COUNTRIESReal GDP & Consumer Prices

(Annual per cent Change)

CountryGDP Inflation Rate**


Bank of Jamaica

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target interest rates at 6.0 per cent and 8.25 per

cent, respectively. Conversely, the Central Bank

of Brazil increased its Selic rate by 275 bps to

10.0 per cent in order to restrain inflationary

pressures.

2.2.4. Inflation

There was a deceleration in global inflation in

2013. The deceleration largely reflected a decline

in primary commodity prices, underpinned by

subdued demand conditions in advanced as

well as emerging and developing economies.

With respect to advanced economies, the

annual average inflation rate decelerated to

1.4 per cent in 2013 from 2.0 per cent in 2012

(see Table 1). In contrast, developing countries

inflation was relatively stable recording an

uptick of 0.1 percentage point to 6.2 per cent in

average inflation for 2013 (see Table 2).

2.2.5. Selected Exchange Rates

Selected international currencies such as the

Canadian dollar (CAD), the Great Britain Pound

(GBP), the Japanese Yen, the Brazilian Real

and the Indian Rupee depreciated against the

US dollar (USD) while the Euro, the Chinese

Yuan and the Mexican Peso appreciated during

the year (see Table 3). The depreciation of the

CAD, the GBP, the Real and the Rupee mainly

reflected the impact of concerns regarding a

moderation in the Fed’s QE3 programme while

the depreciation of the Yen can be attributed

to the BoJ’s monetary easing measures aimed

at reversing that country’s trend of deflation.

The appreciation of the Euro emanated from

With the exception of the European Central

Bank (ECB) which lowered its target interest

rates in May and November of the year under

review, all central banks of the advanced

economies maintained their target interest

rates at the levels as at end-2012. In addition,

the ECB maintained its Outright Monetary

Transaction (OMT) programme and the Bank

of England (BOE) left the size of its asset

purchase programme unchanged at £375.0

billion.1 The Bank of Japan (BoJ), however,

implemented additional monetary easing in

2013. Furthermore, the BoJ adopted a price

stability target of 2.0 per cent which replaced

the previous target of 1.0 per cent. Under the

revised price stability target, the BoJ pledged to

pursue monetary easing in order to achieve its

inflation target by 2015. The BoJ also undertook

steps to further expand liquidity through its

commitment to increase the monetary base at

an annual pace of about ¥60.0 to ¥70.0 trillion,

primarily reflecting additional purchases of

long-term Japanese government bonds.

The central banks of some large emerging

market countries also maintained their

accommodative monetary policy stance for

2013. In particular, the Reserve Bank of India

reduced its key rates by 25 basis points (bps)

to 7.75 per cent, in order to inject liquidity into

the financial system while the People’s Bank of

China (PBoC) and the Bank of Russia kept their

1 The OMT involved the pledge by the ECB to purchase

distressed government bonds with short-dated maturities of up to

about tthree years in unlimited quantities.

- 11 -

Annual Report 2013


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an improvement in macroeconomic conditions

in the region. The appreciation in the Yuan

largely reflected the impact of speculation that

the Peoples’ Bank of China would implement

measures to increase the value of the currency

so as to reduce its reliance on export-led growth.

2.2.6. Commodity Markets

The IMF’s Index of Primary Commodity

Prices (IPCP) declined by 1.6 per cent in 2013,

following a fall of 3.2 per cent in 2012 (see

Table 4). This contraction reflected declines in

both the Energy and Non-fuel Commodities

indices. The Energy index fell in the context

of lower prices for Brent and Dubai crude oil

prices, the impact of which was partly offset by

higher prices for the West Texas Intermediate

(WTI). Brent and Dubai prices fell amid an

increase in shipments of crude oil of the North

Sea blend. WTI prices reflected the impact of

increased geopolitical tensions in Egypt and

fears surrounding a possible American-led

military strike against Syria in August and

September as well as positive macroeconomic

developments in the USA. The impact of

these factors on WTI prices was tempered by

increased fuel inventories in the USA for the

year.

The reduction in the Non-fuel Commodities

index reflected declines in both Edibles and

Industrial Inputs. Of note, the decline in Edibles

mirrored the sharp fall in Beverages as there was

an increase in Food. Similarly, Industrial Inputs

reflected a reduction in Metals as there was a rise

in Agricultural Raw Materials. 2

2 Agricultrual raw materials include timber, cotton, wool, rubber

and hides.

Table 3

2012 2013 2012 2013

Canadian Dollar 1.00 0.97 -1.1 -2.9

Japanese Yen/1 79.79 97.46 0.2 22.1

Great Britain Pound 1.59 1.56 -1.2 -1.3

Euro 1.29 1.33 -7.6 3.3

Real 0.51 0.47 -14.2 -9.5

Yuan 0.16 0.16 2.4 2.6

Mexican Peso 0.08 0.08 -5.8 3.0

Rupee 0.02 0.02 -12.8 -8.6Source: Bloomberg

1. Expressed as local currency per unit of US dollars (in accordance with international convention)

Annual Per cent Change

ADVANCED ECONOMIES: EXCHANGE RATES(Annual Average)

US Dollars per Unit of National Currency


Bank of Jamaica

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Downward price movements in Beverages largely

reflected a fall of 23.0 per cent in the price of

Arabica coffee due to strong production in Brazil

and Colombia, the world’s largest and second-

largest producers, respectively. The impact of

this decline was partly offset by an increase in

cocoa prices associated with excess demand for

the beans from the West African states of Ivory

Coast and Ghana, the two largest growers. The

rise in Food reflected increases in the prices of

vegetable oils and protein meals as well as meat amid greater demand from China and Japan.3

However, there were partially offsetting declines

3 Vegetable oils and protein meals include fish meal, olive oil ,

ground nuts.

in grains prices, particularly corn and soybean.

Corn prices reflected the impact of record

production levels in the USA due to favourable

weather conditions. Soybean prices declined in

the context of increased global supplies.

With respect to Metals, lower prices resulted from

an increase in the capacity of China’s aluminium

industry. This increased capacity contributed to

an excess of the commodity on the global market.

In this context, aluminium prices declined by 7.9

per cent in 2013, following a fall of 15.4 per cent

for 2012.

Table 4

SUMMARY OF WORLD COMMODITY PRICES Annual Average per cent change

2012 2013/1

All Primary Commodities - 3.2 - 1.6

1. Non-fuel Commodities - 10.0 - 1.2

1.1 Edibles - 4.2 - 0.1

(a) Food - 2.4 1.1

(b) Beverages - 18.5 - 11.9

1.2 Industrial Inputs - 15.5 - 2.3 (a) Agricultural Raw

Materials - 12.7 1.4

(b) Metals - 16.8 - 4.2

2. Energy 0.7 - 1.8

Petroleum/2 1.0 - 1.0

(a) WTI - 0.9 4.0

(b) Brent 0.9 - 2.9

(c) Dubai 2.7 - 3.2

Source: IMF 1/ Provisional 2/ Simple Average of West Texas Intermediate (WTI), Brent and Dubai Crude oil prices

- 13 -

Annual Report 2013


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2.3. Balance of Payments

2.3.1. Overview

Provisional data indicate that Jamaica’s current

account deficit (CAD) improved by US$315.5

million to US$1 413.5 million or 10.0 per cent

of GDP for 2013 (see Chart 1 and Table 5).

This out-turn was relative to a CAD of 11.7

per cent of GDP in 2012. The improvement

for 2013 was reflected in all sub-accounts,

with the exception of the Income sub-account.

In particular, the current account outturn

largely reflected an improvement in the trade

balance, due to a sharp decline in imports. The

lower level of imports was in the context of

continued weak domestic demand conditions

and declines in the prices of international non-

fuel commodities (see International Economic

Developments and Production).

Net Private and Official Investment inflows

were insufficient to finance the deficits on the

capital and current accounts. Consequently,

the net international reserves (NIR) of the Bank

fell by US$77.8 million to US$1 047.9 million

at end-2013, with gross reserves representing

12.8 weeks of projected goods and services

imports.

2.3.2. Merchandise Trade

For 2013, the merchandise trade deficit

narrowed by US$181.9 million relative to

the deficit in 2012 (see Table 5). Within the

merchandise trade balance, the value of imports

(f.o.b.) declined by US$331.3 million or 5.6 per

cent, the impact of which was partly offset by a

reduction of US$149.4 million or 8.6 per cent in

earnings from exports.

The estimated contraction in imports primarily

reflected a reduction of US$150.8 million or

Chart 1: Jamaica: Current Account Deficit to GDP Ratio


Bank of Jamaica

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Table 5

2012 1/ 2013 2/ Change % Change

1. CURRENT ACCOUNT - 1 729.0 - 1 413.5 315.5 - 18.2

% of GDP 11.7 10.0

A. GOODS BALANCE - 4 158.0 - 3 976.2 181.9 - 4.4

Exports (f.o.b.) 1 746.7 1 597.3 - 149.4 - 8.6

Imports (f.o.b.) 5 904.7 5 573.4 - 331.3 - 5.6

B. SERVICES BALANCE 588.5 614.1 25.6 4.4

Transportation - 752.5 - 699.5 52.9 - 7.0

Travel 1 881.2 1 902.7 21.5 1.1

Other Services - 540.3 - 589.0 - 48.8 9.0

GOODS & SERVICES BALANCE - 3 569.5 - 3 362.0 207.5 - 5.8

C. INCOME - 207.3 - 267.3 - 60.0 29.0

Compensation of employees 65.6 29.9 - 35.7 - 54.4

Investment income - 272.9 - 297.2 - 24.3 8.9

D. CURRENT TRANSFERS 2 047.9 2 215.9 168.0 8.2

General Government 172.3 259.3 87.0 50.5

Other Sectors 1 875.5 1 956.6 81.1 4.3

2. CAPITAL & FINANCIAL A/C 1 729.0 1 413.5 - 315.5 - 18.2

A. CAPITAL ACCOUNT - 26.2 - 12.8 13.4 - 51.2

General Government 5.9 18.9 13.0 222.0

Other Sectors - 32.1 - 31.7 0.4 - 1.3

B. FINANCIAL ACCOUNT 1 755.2 1 426.3 - 328.9 - 18.7

Official Investment 238.6 503.4 264.7 110.9 Private Investment 3/ 676.1 845.2 169.1 25.0 Reserves 4/ 840.5 77.81/ Revised 2/ Provis ional 3/ Includes Errors & Omiss ions 4/ Minus Denotes increase

SUMMARY OF BALANCE OF PAYMENTS(US$MN)

- 15 -

Annual Report 2013


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16.3 per cent in spending on Chemicals. There

were also declines in all non-fuel categories of

imports, with the exception of Crude Materials

and Food. These declines primarily reflected

the impact of increased global supplies on select

commodity prices, in particular, for Edibles and

Industrial Inputs (see International Economic

Developments and Production).

The performance of exports in 2013 largely

resulted from a contraction of US$123.8

million or 19.3 per cent in Non-Traditional

Exports. This contraction largely reflected

lower receipts from chemicals, primarily

ethanol. Specifically, there was a cessation of

ethanol exports due to unfavourable market

conditions. There was also a reduction of 3.8

per cent in earnings from Major Traditional

Exports, reflecting a contraction of 40.3

per cent in sugar export volumes as well

as a decline of 5.4 per cent in the average

realised price (ARP) of the commodity. Partly

offsetting the decline in earnings from sugar

was a 3.0 per cent increase in receipts from

alumina. This increase was influenced by

an expansion of 8.5 per cent in volumes as

prices fell by 5.0 per cent.

2.3.3. Services

Net earnings from Services increased by an

estimated 4.4 per cent to US$614.1 million for

2013. This outturn reflected a fall in the deficit

on Transportation as well as an improvement

in the surplus on Travel, the impact of which

was partly offset by a worsening in the deficit

on Other Services. The narrowing of the deficit

on Transportation was largely attributed to

lower freight and insurance payments given

the decline in imports. Higher earnings from

Travel reflected growth of 1.6 per cent in foreign

national stop-over visitor arrivals relative to

2012. With regard to Other Services, there was

an increase of US$48.8 million in the deficit due

mainly to respective contractions of US$55.4

million, US$14.3 million and US$13.6 million

in payments for Insurance; Personal, Cultural &

Recreational as well as Financial Services (see

Table 5).

2.3.4. Income

For 2013, the deficit on the income sub-account

widened by US$60.0 million or 29.0 per cent

to US$267.3 million. This deterioration

principally reflected a decline in the surplus

on Compensation of Employees due to higher

outflows by non-residents working in Jamaica

as well as higher investment income outflows

of deposit-taking institutions (see Table 5).

2.3.5. Current Transfers

The surplus on the current transfers sub-account

expanded by US$168.0 million or 8.2 per cent

in 2013, reflecting increases of US$87.0 million

in Official Transfers and US$81.1 million in

Private Transfers. Official Transfers reflected

an increase in gross inflows of US$81.9 million

and a decline of US$5.1 million in gross

outflows. Private Transfers reflected an increase

in gross inflows of US$40.1 million which was


Bank of Jamaica

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The improvement in Net Official Investments

stemmed from a rise of US$526.7 million

in Gross Official Inflows and was largely

underpinned by project loans of US$413.3

million from multilateral and bilateral

institutions (see Table 6). The impact of these

inflows was partly offset by an increase in Gross

Official Outflows in the context of a build-

up in the Bank of Jamaica’s liabilities during

the year, related to borrowing from the IMF.

Net Private and Official Investments were

insufficient to finance the deficits on the capital

and current accounts. As a result, the NIR of

the Bank fell by US$77.8 million to US$1 047.9

million at end-2013. Gross Foreign Assets at end-

2013 were US$1 817.6 million, representing 12.8

weeks of projected goods and services imports.

supported by a decline in gross outflows of

US$41.0 million. (see Table 5)

2.3.6. Capital and Financial Account

The Capital Account recorded a deficit of

US$12.8 million in 2013, relative to a deficit

of US$26.2 million in 2012. This improvement

reflected relatively large grants from mainly

the United States Agency for International

Development (USAID) and the European

Union. There was a decline of US$328.9

million in the surplus on the Financial Account

reflecting a lower drawdown of reserves.

Partially offsetting this impact were increases of

US$264.7 million and US$169.1 million in Net

Official Investments and Private Investment

inflows, respectively (see Table 5).

Table 6

20121/ 20132/ Change

GROSS OFFICIAL INFLOWS 941.3 1 468.0 526.7

Project Loan 127.0 413.3 286.3

Other Assistance [1] 814.3 1 054.7 240.4

GROSS OFFICIAL OUTFLOWS 720.3 955.7 235.3

Government Direct 576.6 415.9 - 160.8

Bank of Jamaica 93.2 453.3 360.1

Other Official 50.5 86.5 36.0

NET OFFICIAL INVESTMENTS 221.0 512.4 291.41/ Revised2/ Provisional

OFFICIAL INVESTMENT FLOWS(US$MN)

[1] This includes loan receipts from the IMF to the Bank of Jamaica.These are s imultaneous ly treated as an asset and a l iabi l i ty.

- 17 -

Annual Report 2013


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2.4. Foreign Exchange Market

During 2013, foreign exchange market

developments were conditioned by the

uncertainty surrounding Jamaica’s near-term

macroeconomic outlook. Additionally, the

exchange rate continued to adjust in the context

of an unsustainable current account deficit. In

the March quarter, the Government concluded

discussions with the staff of the International

Monetary Fund for a four-year Extended Fund

Facility to support its medium-term economic

programme. One of the main objectives of the

programme is to correct Jamaica’s balance

of payments position, as the current account

deficit had expanded to an unsustainable level.

The foreign exchange market reflected

intermittent periods of volatility during 2013,

particularly during the March quarter, as the

demand for foreign currency outweighed

the supply to the system. The impact of this

imbalance on the foreign exchange market

was exacerbated by the relatively low net

international reserves, which limited the

capacity of the Bank to augment market supply.

Against this background, total purchases

reported by authorized foreign currency traders

declined to US$8 512.6 million for 2013 from

US$10 181.0 million for 2012. Concurrently,

total foreign currency sales declined to US$8

657.8 million from US$10 278.8 million for

2012 (see Table 7).

In the context of these developments, the

Jamaica Dollar reflected a point-to-point

depreciation of 12.6 per cent to $106.38 vis-

à-vis the US dollar for 2013, following a

depreciation of 6.9 per cent for 2012. The

Jamaica Dollar also depreciated against its

other major counterparts. Specifically, the local

currency depreciated by 6.4 per cent to $99.72

against the Canadian dollar and 13.2 per cent

to $175.84 against the Great Britain Pound for

2013.

Table 7

% Change % Change

Quarter 2012 2013 2012 2013

March 2 754.6 1 950.5 - 29.2 2 850.0 1 938.5 - 32.0June 2 686.0 2 243.8 - 16.5 2 738.1 2 463.3 - 10.0September 2 552.9 2 144.9 - 16.0 2 525.4 2 094.1 - 17.1

December 2 187.5 2 173.4 - 0.6 2 165.3 2 162.0 - 0.2Total 10 181.0 8 512.6 10 278.8 8 657.8

All Currencies converted to USD

Includes BOJ Intervention

Total Purchases and Sales of Foreign Exchange (US$ Million)2012 - 2013

Purchases Sales


Bank of Jamaica

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The March quarter was characterised by

relatively low US dollar supply, as the reported

purchases by authorised foreign currency

traders declined to US$1 950.5 million from

US$2 754.6 million for the corresponding period

of 2012. These lower supplies coincided with

a reduction in net private capital inflows and

reduced foreign currency earnings. Similarly,

the average daily earner inflows and sales to end

users declined to US$26.1 million and US$25.9

million, respectively, from US$29.5 million and

US$31.2 million for the corresponding quarter

in 2012 (see Table 8 & Table 9). Consequently,

the weighted average selling rate (WASR)

depreciated by 5.98 per cent for the March

quarter, representing the sharpest quarterly

adjustment in the exchange rate for 2013. For

the March 2012 quarter, the WASR depreciated

by 0.8 per cent. These developments occurred

in a context of the general uncertainty about

(i) the timeline for finalization of the country’s

medium-term economic programme with the

IMF and (ii) the possible impact of the fiscal

and structural adjustments which would be

implemented under the programme.

There was a slower pace of depreciation in

the ensuing quarters of 2013, following the

approval of the economic programme by

the Executive Board of the IMF on 01 May

2013 (see Box 1). This approval led to the

disbursement of foreign currency loans and Table 8

Table 9

QuarterFrom

EarnersInter-

Dealer TotalTo End-

usersInter-

Dealer Total

March 29.5 13.1 42.6 31.2 13.0 44.2June 28.6 11.0 39.6 29.4 11.0 40.4September 27.1 9.6 36.7 26.7 9.6 36.3December 26.3 7.8 34.1 25.9 7.9 33.8Daily Average 27.9 10.4 38.3 28.3 10.4 38.7All Currencies converted to USD

DAILY AVERAGE TRADING VOLUMES (US$ Million)Excluding Intervention 2012

Sales to: Purchases From:

QuarterFrom

EarnersInter-

Dealer TotalTo End-

usersInter-

Dealer Total

March 26.1 5.9 32.0 25.9 5.9 31.8June 28.4 6.5 34.9 31.7 6.6 38.2September 26.3 6.7 33.0 25.5 6.7 32.2December 27.4 6.0 33.4 27.4 5.8 33.2Daily Average 27.1 6.3 33.3 27.6 6.2 33.9All Currencies converted to USD

Excluding Intervention 2013DAILY AVERAGE TRADING VOLUMES (US$ Million)

Purchases From: Sales to:

- 19 -

Annual Report 2013


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b. Time-bound structural reforms aimed at significantly

strengthening Jamaica’s external competitiveness

and generating higher levels of factor productivity;

c. Catalytic and strategic private/public investments;

and

d. The provision of appropriate safety nets to ensure

social stability during the period of economic

transformation.

Prior Actions

The GOJ and the IMF agreed on the need for front-

loading of policy actions and a focus on institutional

change in order to underpin the credibility of the

economic programme. The major prior actions included:-

a. The completion of a debt exchange for domestic

GOJ bonds to achieve savings of 8.5 per cent of GDP

consistent with a reduction in the public debt-to-GDP

ratio to below 100.0 per cent by 2020.

b. Approval by Cabinet to cease the granting of

discretionary waivers with some exclusions for

charitable organizations and purposes as well as to

cap total discretionary waivers with some exclusions

for charitable organizations and purposes. In

addition, the GOJ committed to not approving any

new waivers or renewing any waiver category or other

tax incentive;

c. The conclusion of a multi-year agreement with major

trade unions which limits nominal wage and merit

increases to public sector workers over FY2012/13 to

FY2014/15; and

d. Approval by Parliament of the Debt Law, which

consolidates various debt related acts and helps

strengthen debt management.

Policy & Structural Reforms

Under the EFF-supported programme, the GOJ

Box 1: Jamaica’s Medium-term Economic & Financial Programme - FY2013/14 to FY2017/18

IntroductionOn 01 May 2013, the International Monetary Fund’s

(IMF) Executive Board approved a request by the

Government of Jamaica (GOJ) for a 48-month Extended

Fund Facility (EFF) in an amount of Special Drawing

Rights (SDR) 615.38 million (US$1.25 billion) or 225.0

per cent of quota. In its Letter of Intent (LOI), the

GOJ indicated that an EFF was necessary to support

a comprehensive economic programme aimed at

progressively raising the rate of real GDP and per capita

income growth. This transformation was urgently

needed as, in the context of a cycle of low growth and

unsustainable public debt, Jamaica’s access to financial

markets had become severely impaired. The GOJ’s

Memorandum of Economic and Financial Policies

(MEFP), which accompanied the LOI, outlined the

policies and measures that the Government committed

to implement to address these economic issues.

Objective

Jamaica’s medium-term economic and financial

programme is underpinned by the recognition that fiscal

and debt sustainability are necessary conditions for

macroeconomic stability and economic growth. In this

regard, a sharp reduction in the country’s debt burden,

which will lead to a decline in the Government’s demand

for domestic financial resources, will allow for higher

private sector led growth. Such an environment will

facilitate an increase in targeted public sector spending

toward the catalytic development of infrastructure

to support growth. The overarching pillars of this

programme which are aimed at fostering investments

and sustainable growth are:-

a. Time-bound fiscal consolidation, supported by

fundamental fiscal and monetary policy reforms

aimed at creating a stable, predictable and resilient

macroeconomic environment;


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committed to critical reforms aimed at improving fiscal

and debt sustainability as well as growth. These reforms

include:-

(I) Fiscal Reforms

Institutional Reforms

a) Government to conceptualize and adopt a legally

binding fiscal rule to ensure a sustainable budgetary

balance;

b) Government to introduce a 5-year public sector

investment programme (PSIP), beginning with

FY2013/14;

c) Government to finalize the divestment of Clarendon

Alumina Partners or implement an asset lease

agreement; and

d) Government to finalize a review of public sector

employment and remuneration that serves to inform

policy reform.

Tax Reforms

e) Government to implement the Cabinet’s decision

stipulating the immediate cessation of granting of

discretionary waivers;

f) Parliament to adopt amendments to the relevant

tax acts to harmonize the tax treatment for charities

across tax types and remove ministerial discretion to

grant waivers for charities and charitable purposes;

and

g) Government to table an Omnibus Tax Incentive Act in

the House of Representatives and cease the granting

of tax incentives and any discretionary tax waivers

under the regime prior to the Omnibus Tax Incentive

Act.

Tax Administration Reforms

h) Parliament to adopt amendments to the Revenue

Administration Act to (i) provide access to third-party

information, to enhance compliance management,

and (ii) empower the Tax Administration Department

(TAJ) to require mandatory-filing for groups of

taxpayers and/or types of taxes; and

i) Government to increase the professional staff of the

Large Taxpayer Office (LTO) to 120 staff members.

(II) Financial Sector Reforms

j) Government to establish and operate a Central

Collateral Registry;

k) Government to reform the securities dealers sector

by implementing a legal and regulatory framework

conducive to Collective Investment Schemes in

consultation with Fund staff; and

l) Parliament to enact Omnibus Banking Law consistent

with Fund staff advice to facilitate effective supervision

of the financial sector.

(III) Growth-Enhancing Structural Reforms

m. Establish Jamaica as a logistics hub by including

expanding port, cargo and maritime facilities and

economic zones;

n. Implement energy sector initiatives to achieve fuel-

source diversification, facilitate energy conservation

and promote liberalization in delivery to achieve

progressive reductions in the cost of energy;

o. Strengthen the resilience of the country to natural

disasters through Climate Change Adaptation and

Disaster Risk Reduction initiatives and targeted

public infrastructure projects; and

p. Implement measures to improve the business

conditions and financing for micro-, small- and

medium-sized enterprises and address investment

issues pertaining to construction permits, trading

across borders and business registration.

Financing

In addition to IMF loan allocations, the programme

assumes financing from the Inter-American Development

Bank (IDB) and World Bank of approximately US$1.0

billion during the four-year EFF programme. The GOJ

will also receive bilateral grant flows from the European

- 21 -

Annual Report 2013


The

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y

Union and access financing from the PetroCaribe

facility. Canada also pledged to provide technical and

bilateral assistance to support the programme. The GOJ

will source the remaining financing from the domestic

financial market. Following the implementation of

prior actions and successful reviews for the June and

September quarters, Jamaica received drawdowns of

SDR 176.7 million (approximately US$268.6 million)

from the IMF as well as funding of US$190.0 million

from the IDB and World Bank in 2013.

Programme Monitoring

The four-year EFF will be monitored through quarterly

assessments of quantitative performance criteria (QPC)

and structural benchmarks. The main QPCs for the

Central Government include the primary balance and

the overall balance of the public sector. In addition,

there are minimum social spending requirements to

mitigate the impact of the economic transformation on

the most vulnerable. There are also QPCs for the Bank

of Jamaica, which are the net international reserves and

the net domestic assets.

Performance under the EFF Programme to December

2013

Overall policy implementation under the programme

has been strong and structural reforms are progressing.

Specifically, all quantitative and associated indicative

performance criteria were attained for the June,

September and December 2013 quarters (see Table 1*).

In addition, all structural benchmark reforms for the

review period were implemented in a timely manner (see

Table 2).

The documentation of the GOJ’s performance under the

EFF to date as well as time-bound plans and specific

updates to some elements of the four-year economic

programme are outlined in a Letter of Intent and an

additional supplement to the April 17, 2013 MEFP which

are to be submitted to the Executive Board of the IMF in

March 2014.

2013

End-Dec End-Dec End-Dec End-Mar End-Jun End-Sep End-Dec

Prog. Actual 3/ Stock 4/ PC PC PC Proposed PC

Fiscal targets1. Primary balance of the central government (floor) 5/ 61.6 61.7 … 111.5 15.5 38.4 66.02. Tax Revenues (floor) 5/10/ 232.7 242.7 … 357.5 80.0 166.0 253.43. Overall balance of the public sector (floor) 5/ - 37.3 - 27.3 … - 7.4 - 19.3 - 30.2 - 37.04. Central government direct debt (ceiling) 5/6/ 92.9 53.7 1 672.0 70.3 15.7 23.2 26.55. Central government guaranteed debt (ceiling) 5/ - 13.0 - 13.0 … - 14.0 4.0 2.7 0.16. Central government accumulation of domestic arrears (ceiling) 7/13/14/ 0.0 - 0.3 21.6 0.0 0.0 0.0 0.07. Central government accumulation of tax refund arrears (ceiling) 8/13/14/ 0.0 - 2.7 24.6 0.0 0.0 0.0 0.08. Consolidated government accumulation of external debt payment arrears (ceiling) 7/13/ 0.0 0.0 … 0.0 0.0 0.0 0.09. Social spending (floor) 10/11/ 14.4 16.6 … 20.1 4.2 8.9 14.8

Monetary targets10. Cumulative change in net international reserves (floor) 9/12/15/ - 220.5 - 81.8 1 045.2 194.4 194.8 187.8 210.311. Cumulative change in net domestic assets (ceiling) 12/15/ 26.4 13.7 - 7.6 - 21.4 - 21.6 - 17.2 - 11.9

1/ Targets as defined in the Technica l Memorandum of Understanding.

2/ Including modi fied performance cri teria .

4/ Based on the origina l program exchange rates .

3/ Based on the revised program exchange rates (see the TMU).

5/ Cumulative flows from Apri l 1 through March 31.

6/ Excludes government guaranteed debt. The centra l government di rect debt excludes IMF credi ts .

7/ Includes debt payments , suppl ies and other committed spending as per contractua l obl igations .

8/ Includes tax refund arrears as s tipulated by law.

9/ In mi l l ions on U.S. dol l lars .

10/ Indicative target.

11/ Defined as a minimum annual expenditure on speci fied socia l protection ini tiatives and programmes.

12/ Cumulative change from end-December 2013 except the end December 2013 PC, which i s cumulative change from end-December 2012.

13/ Continuous performance cri terion.

14/ The data for the s tock are as of end-March 2013 rather than end-December 2013.

15/ The end-December 2012 NIR and NDA were US$1138.5 mi l l ion and J$-9.5 bi l l ion respectively.

Table 1*: Jamaica: Quantitative Performance Criteria 1/2/

(in Billions of Jamaican Dollars)

2013 2014


Bank of Jamaica

The

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MeasuresImplementation

Structural Benchmarks Timing Status

Institutional fiscal reforms

1a. Government to present to Fund staff a conceptual proposal for the design of a fiscal rule. 31-Aug-13 Met1b. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be incorporated in the annual budgets startingwith the 2014/2015 budget. 31-Mar-142. Government to finalize a review of public sector employment and remuneration that serves to inform policy reform. 31-Mar-143. Cabinet to approve a detailed budget calendar consistent with top-down expenditure ceilings, for the 2014/15 budget. 30-Nov-13 Met4. Government to ensure there is: (i) no financing of Clarendon Alumina Production (CAP) by the government or any public body, including Petro Caribe; and(ii) no new government guarantee for CAP or use of public assets (other than shares in CAP and assets owned by CAP) as collateral for third-party financing ofCAP Continuous Met

5. Government to tablel in parliament a budget for 2014/15 consistent with the program. 30-Apr-146. Government to table in parliament a comprehensive Public Sector Investment Program (MEFP paragraph 17) 30-Apr-14

Tax Reform

7. Government to implement the Cabinet decision stipulating the immediate cessation of granting of discretionary waivers as stipulated in the TMU. Continuous Met8. Parliament to adopt amendments to the relevant tax acts to harmonize the tax treatment for charities across tax types and remove ministerial discretion togrant waivers for charities purposes as described in paragraph 34 of the April 17, 2013 MEFP. 31-May-13 Met

9a. Government to table a Charities Bill in the House of Representatives, guided by TA provided by the IDB and in consultation with Fund staff. 30-Sep-13 Met

9b. Government to cease the granting of waivers to charities other than under the Charities Bill. 30-Nov-13 Met10a. Government to table Omnibus Tax Incentive Act in the House of Representatives, guided by TA provided by the IDB and in consultation with Fund staff, toeliminate ministerial discretionary powers to grant or validate any tax relief, and put in place a transparent regime for limited tax incentives. 30-Sep-13 Met with delay

10b. Government to cease the granting of tax incentives under the regime prior to the Fiscal Incentives Legislation. 31-Dec-13 Met11. Broader tax reform to become effective, including the modernization of taxes, with limited exemptions, and lower tax rates (paragraphs 6, 7, 8 and 9 of theDecember 2013 MEFP) and as stipulated in the current MEFP. 31-Mar-14

12. Government to table in parliament amendments to the GCT as stipulated in paragraph 11 of the MEFP. 30-Jun-14

Proposed new structural

benchmark13. Government to conduct an entity by entity review of all grandfathered entities and of their specific tax incentives in the context of the new tax incentiveslegislation by end-2014/15. 31-Jan-15

Tax Administration

14. Government to make e-filing mandatory for LTO clients with respect to General Consumption Tax (GCT) and Corporate Income Tax (CIT) 31-Mar-14

Financial sector

15. Government to Establish and Operate a Central Collateral Registry. 31-Dec-13 Met16. Government to implement a legal and regulatory framework conducive to Collective Investment Schemes (Paragraph 45 of he MEFP of April 17, 2013) inconsultation with Fund staff. 31-Dec-13 Met

17. Government to table legislative changes regarding unlawful financial operations, consistent with Fund TA advice provided in July 2010. 31-Mar-14Revised structural

benchmark

18. Government to submit proposals for a distinct treatment for retail repo client interests in the legal and regulatory framework to the relevant financialindustry for consultation (MEFP Paragraph 25) in consultation with Fund staff. 31-Mar-14


benchmark19. Government to establish a distinct treatment for retail repo client interests in the legal and regulatory framework (MEFP Paragraph 25) in consultation withFund staff. 30-Jun-14

Reset from March 31, 2004

20. Government to table the Omnibus Banking Law consistent with Fund staff advice to facilitate effective supervision of the financial sector. 31-Mar-14Revised structural

benchmark

Growth enhancing structural reforms

21. Government to implement a new (AMANDA) tracking system to track approval of construction permits across all parish councils. 30-Dec-14


benchmark

22. Government to table in parliament the electricity Act. 30-Sep-14


benchmark

Table 2*: Jamaica: Structural Progam Conditionality

Status/Timing

- 23 -

Annual Report 2013


The

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grants from multilateral institutions as well

as improvement in investor confidence. Tight

Jamaica Dollar liquidity conditions consequent

on the implementation of the NDX, greater

efficiency of the Government in managing its

revenue and expenditure activities through the

CTMS, as well as the Bank’s action of issuing

special OMO instruments to tighten JMD

liquidity also contributed to the slowdown in the

pace of depreciation. As a result, the average

quarterly depreciation for June to December

2013 was 2.4 per cent, compared to the average

quarterly depreciation of 2.1 per cent for June

to December 2012.

For the June 2013 quarter, the annual decline in

the total reported trading volumes was 16.5 per

cent and 10.0 per cent for purchases and sales,

respectively (see Table 7). This translated into

a slight recovery in foreign exchange market

supply, as the reported purchases from earners

increased by US$2.3 million to a daily average

of US$28.4 million. Consequently, the WASR

depreciated by 2.45 per cent for the quarter.

The tight Jamaica Dollar liquidity conditions

which underpinned moderation in the pace

of depreciation in the WASR during the June

quarter continued during the September

quarter. Additionally, the quarter was marked

by the positive feedback from international

agencies on Jamaica’s success in attaining

performance targets under the EFF for the

June quarter. Accordingly, the depreciation

in the WASR slowed to 2.1 per cent for the

September quarter. Total purchases reported by

authorised foreign exchange dealers declined

to US$2 144.9 million from US$2 552.9 million

while total sales fell to $2 094.1 million from

$2 525.4 million for the corresponding quarter

of 2012. In this regard, the market remained

generally stable for the quarter, which was

consistent with the marked improvement

in the trade balance on Jamaica’s external

accounts during the first six months of 2013.

During the December quarter, the market

remained generally stable, despite the seasonal

increase in demand for foreign currency

associated with the usual expansion in imports

during the quarter. The increased demand for

foreign exchange was primarily met by market

supply. This was reflected in the daily average

purchases from earners of US$27.4 million

and sales of the same amount to clients (see

Chart 2). Notwithstanding the general balance

in the market, the Bank sold US$70.0 million

to the market early in the quarter, which was

necessitated by the characteristically low

market supplies during that period. This action

was in addition to the continued monetary

policy initiatives that were being pursued from

the previous two quarters. Consequently, the

depreciation in the WASR was limited to 2.62

per cent for the December 2013 quarter, slowing

relative to the 3.27 per cent depreciation

for the corresponding quarter of 2012.

Notwithstanding the intervention sales

during the year, there were also periods


Bank of Jamaica

The

Eco

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y

when the Bank purchased USD from the

market, mainly to alleviate tight Jamaica

Dollar liquidity conditions. In this regard,

the BOJ purchased a total of US$442.8

million from foreign exchange market traders

during 2013, resulting in net trading room

purchases of US$294.6 million for the year.

The distribution of market activity between the

main intermediaries was broadly unchanged

during 2013. Authorised dealers remained the

dominant market intermediary, with market

share of 54.0 per cent of total foreign exchange

sales compared with 54.3 per cent for 2012. For

cambios, the group’s market share was 46.0

per cent compared with 45.7 per cent for 2012.

Chart 2: Bank of Jamaica: Foreign Exchange Market Intervention (Spot Market) 2013

160 120 80 40 0 40 80 120 160

50 40 30 20 10 0 10 20 30 40 50

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

<----------------Purchases(US$mn)---------------->|<---------------Sales(US$mn)---------------->

Frequency (%)*

Frequency

Volume

*[(Number of days of FX intervention / Number of days per month ) X 100]

- 25 -

Annual Report 2013


The

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2.5. Prices

2.5.1. Overview

Headline inflation, as measured by the point-

to-point change in the All Jamaica Consumer

Price Index (CPI), was 9.5 per cent for 2013

relative to 8.0 per cent for 2012 (see Chart 3).

The outturn was achieved in the context of a

targeted inflation range of 8.5 to 10.5 per cent

for FY2013/14. The acceleration in inflation

for the review year was largely influenced by

administrative increases in bus and taxi fares

as well as water and sewage rates. Inflationary

pressures also emanated from continued

depreciation of the domestic exchange rate

coupled with increased oil prices. The impact

of these impulses was, however, moderated by

reductions in international grains prices and

communication costs as well as generally weak

domestic demand conditions.

Of the three measures of core inflation

monitored by the Bank, two increased in 2013.

Specifically, the CPI excluding Food and Fuel

(CPI-FF) and CPI excluding Agriculture and

Fuel (CPI-AF) increased by 7.0 per cent and

7.4 per cent, respectively, compared to 1.8 per

cent and 5.4 per cent in 2012. In contrast, the

Trimmed Mean (TRIM) declined to 4.5 per cent

in 2013 from 6.0 per cent in 2012. The generally

higher levels of core inflation largely reflected

the non-recurrence of the significant reduction

in communication costs in 2012, coupled with

increases in the costs of water and sewage,

some household durables as well as health

services. In addition, the higher core measures

reflected the impact of some pass-through of

exchange rate depreciation.

For 2013, Other Urban Centres (OUC) and

Rural Areas (RA) recorded inflation of 10.1 per

Chart 3: Headline Inflation

Source: STATIN


Bank of Jamaica

The

Eco

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y

cent and 9.0 per cent, respectively, relative

to 6.9 per cent and 7.0 per cent for 2012.

In contrast, the rate of price increase in the

Greater Kingston Metropolitan Area (GKMA)

decelerated to 9.6 per cent from 10.0 per cent

for 2012. The relatively higher inflation across

the regions in 2013 was primarily reflected in

Transport (TRAN) and Communication (COM)

(see Chart 4 & Appendix A).

2.5.2. Component and Contributing Factors

to Inflation

The higher inflation in 2013 mainly reflected a

rise of 20.4 per cent in TRAN relative to 2.5 per

cent in 2012 (see Chart 5 & Appendix B). This

acceleration was due primarily to the increase in

bus and taxi fares. In addition, Housing, Water,

Electricity, Gas & Other Fuels (HWEG) and

Miscellaneous Goods & Services (MIS) rose

by 10.0 per cent and 10.3 per cent, respectively,

relative to 5.3 per cent and 6.0 per cent in

2012. The movement in HWEG reflected the

administrative increase in water and sewage

rates as well as the impact of higher electricity

rates. For MIS the increase mainly captured

price adjustments for personal care as well as

funeral related costs. Additionally, the higher

inflation in 2013 reflected a smaller reduction

in communication costs of 4.2 per cent during

the year, when compared to the 39.4 per cent

decline in 2012. Of note, FNB increased by 7.9

per cent relative to 14.3 per cent in 2012.

For 2013, FNB, TRAN and HWEG accounted

for approximately 73.6 per cent of the annual

inflation (see Chart 6). In particular, FNB

accounted for 31.8 per cent of inflation relative

to 77.6 per cent for 2012, when domestic food

prices reflected the impact of drought conditions

and Hurricane Sandy (see Appendix A). TRAN

and HWEG accounted for 28.1 per cent and

13.7 per cent relative to 4.6 per cent and 9.7 per

cent respectively, in 2012.

2.5.3. Domestic Agriculture Supply

Domestic agriculture supplies expanded in

2013, reflecting recovery from the contraction in

2012 when the agriculture sector was adversely

affected by Hurricane Sandy (see Production).

Consequent on the recovery in supplies, prices

of vegetables & starchy foods increased by only

5.7 per cent contributing 4.2 per cent to overall

inflation for 2013 (see Appendix A). This

reflected a deceleration relative to inflation of

28.4 per cent among vegetable & starchy foods

in 2012 (see Chart 7).

2.5.4. Imported Inflation

Imported inflation in 2013 was influenced

by rising fuel prices and an accelerated pace

of depreciation in the domestic currency. In

particular, the average price of crude oil as

measured by the West Texas Intermediate (WTI)

increased by 10.9 per cent, in contrast to a

decline of 10.5 per cent for 2012. The movement

in crude oil price in 2013 largely reflected the

impact of tensions in the Middle East (see

International Economic Developments).

Higher crude oil prices contributed to increased

prices within HWEG and TRAN.

- 27 -

Annual Report 2013


The

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Chart 4: Annual Inflation & YOY Change by Region

Source: STATIN


Bank of Jamaica

The

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y

Chart 5: YOY Percentage Change in Inflation

Chart 6: Inflation contribution by Division

7.9

11.0

9.2

11.5

7.3

5.9

20.4

4.25.9

4.0

7.8

10.3

FNB

ATB

CF

HWEG

FHERM

HLTH

TRAN

COM

R&C

ED

R&A

MIS

31.1

1.6

3.2

15.5

3.8

2.0

27.5

1.8

2.1

0.9

5.19.0

%Inflation (2013) All Jamaica %Share (2013)

Blue bars = positive and Red bars = negative

MIS= Miscellaneous Goods & Services, R&A=Restaurants & Accommodation, ED=Education, R&C=Recreation & Culture, COM=Communication, TRAN= Transport, HLTH=Health, FHERM=Furniture, Household Equipment & Routine Household Maintenance, HWEG=Housing, Water, Electricity, Gas & Other Fuels, C&F=Clothing & Footwear, ABT=Alcohol, Beverages & Tobacco, FNB=Food & Non-Alcoholic Beverages

7.9

11.0

9.2

10.0

7.3

5.9

20.4

4.2

5.9

4.07.8

10.3

FNB

ATB

CF

HWEG

FHERM

HLTH

TRAN

COM

R&C

ED

R&A

MIS

6.4

4.9

2.4

4.7

1.3

2.8

17.9

35.2

0.8

0.3

2.5

4.3

% Inflation (2013) All Jamaica Change (yoy %ppt)

Source: STATIN

- 29 -

Annual Report 2013


The

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There was a decline of 20.9 per cent in the Bank’s

grains price index, relative to the increase of

11.6 per cent in 2012 (see Chart 8). Consistent

with the decline in international grain prices,

there were lower rates of price increases among

processed foods which contributed, in part, to

the lower inflation in FNB for 2013.

The weighted average selling rate (WASR)

of the Jamaica Dollar vis-á-vis the US dollar

Chart 7: Average Supplies of Agriculture Produce

depreciated by 12.6 per cent for 2013 compared

to 6.9 per cent for 2012. Despite an estimated

reduction in the pass-through of depreciation

to prices, some inflationary pressures were

evident in the energy and services segments,

in particular HWEG, Health, and Restaurants

& Accommodation Services. In addition, the

depreciation contributed to higher prices

among durable goods.

2012

Yellow Yam

Irish Potato

Ripe Plantains

Sweet Potato

Dasheen

Carrot

Cabbage

Red Peas

Tomato (Plummie)

Escallion & Thyme

Callaloo

Pumpkin

Lettuce

Star

ches

(Ton

nes)

Vege

tabl

es (T

onne

s)

Actual Avg. of previous 5-years2013

-4.8

75.3

-47.3

27.2

51.3

34.2

39.4

27.4

28.8

34.3

18.5

90.6

14.2

Actual (%)

Source: Rural Agricultural Development Authority (RADA)


Bank of Jamaica

The

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y

Chart 8: Trends in WTI Crude Oil Price and BOJ Grains Index

AVG EOP AVG EOP AVG EOPWTI Prices Grain Prices Exchange Rate

2012 94.21 88.27 380.87 397.12 89.01 92.982013 97.98 97.91 350.89 314.43 100.78 106.382012 (yoy%) -1.0 -10.45 2.4 11.6 3.4 7.42013 (yoy%) 4.0 10.92 -7.9 -20.8 13.2 14.4

-10

0

10

20

30

40

50

60

70

80

-50

0

50

100

150

200

250

300

350

400

2012

2013

2012 (yoy%)

2013 (yoy%)

2.5.5. Administered and Other Price

Adjustments

On 25 August 2013, bus and taxi fares

increased by 25.0 per cent. Consequently,

TRAN contributed approximately 71.7 per cent

of the inflation for September 2013 and was the

main contributor to the increase for the year.

Additionally, water and sewage rates were

increased by between 13.0 per cent and 18.0

per cent on 03 October 2013. Consequently,

Water Supply and Miscellaneous Services

related to the Dwelling contributed 4.1 per

cent to inflation for the year. There was also an

average increase of 6.0 per cent in wages for

artisans in February 2013 which had a minimal

impact on the CPI for the year.

2.5.6. Demand and Supply Conditions

Some short-term indicators of domestic

demand reflected mixed results throughout

the year. These indicators include PAYE

receipts and the values of debit & credit card

transactions, imports and non-business loans.

In real terms, PAYE receipts and imports

reflected declines of 6.6 per cent and 0.7 per

cent, respectively, relative to declines of 3.5 per

cent and 3.2 per cent in 2012. In contrast, the

real value of debit and credit card transactions

as well as non-business loans increased by

5.9 per cent and 13.9 per cent, respectively,

following increases of 2.9 per cent and 14.8

per cent for 2012. Despite the mixed outturn

for 2013, generally weak demand existed in

Sources: Bloomberg & BOJ

- 31 -

Annual Report 2013


The

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the domestic economy indicated by declining

real wages and higher unemployment (see

Chart 9 & Production).

Despite a slight narrowing of the output gap,

actual output remained significantly below

potential reflecting continued excess capacity

conditions. This occurred in spite of an

estimated growth in output during the second

half of the year (see Chart 10). However, excess

capacity among industrial suppliers combined

with weak domestic demand continued to

restrain price adjustments during the year.

2.5.7. Inflation Expectations

The Bank’s survey of inflation expectations

indicated that the average expected annual

inflation among businesses for 2013 was 10.5

per cent, above the actual outturn of 9.5 per cent

for the year and inflation expectations of 8.2

per cent in 2012 (see Chart 11). During 2013,

average expectations for calendar year inflation

was generally stable and was mainly influenced

by the sharper depreciation in the domestic

exchange rate as well as the higher cost of

utility and transportation. Despite these factors,

the average gap between actual inflation and

inflation expectations by businesses narrowed.

A

15

20

25

30

35

40

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

J$million deflated

Real PAYE

Polynomial Trend

B

120

140

160

180

200

220

240

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

J$million

Real DebitCredit Tran

Polynomial Trend

C

0123456789

10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

US$Billion

Real Import Value

Polynomial Trend

D

450

500

550

600

650

700

750

800

850

900

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

J$million

Real NonBusiness Loans

Polynomial Trend

Chart 9: Domestic Demand Indicators (Import Value & PAYE)

Sources: MOF, JETS, STATIN, BOJ


Bank of Jamaica

The

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Chart 10: Trends in Domestic Output Gap

Chart 11: Headline Inflation versus Expectations

Sources: STATIN, BOJ

Source: STATIN

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Apr-12

May-12

Jun-12

Sep-12

Oct-12

Nov-12

Jan-13

Mar-13

Apr-13

May-13

Jun-13

Aug-13

Sep-13

Oct-13

Dec-13

Exp(all) 12.94 12 11.76 11.91 7.945 8.335 8.062 8.418 8.128 8.045 8.165 8.253 10.75 10.74 10.29 10.46 10.22 10.12 10.77 10.47Actual (Headline) 7.847 7.227 8.073 6.008 7.285 7.2 6.9 6.7 6.654 7.166 7.4 8.4 9.13 9.149 9.218 8.757 9.54 10.46 10.33 10.16

0

5

10

15

20

25

30

Ann

ual I

nfla

tion

(%)

Exp(all)

Actual (Headline)

Mar Jun Sep Dec2012 0.3% -0.2% -0.5% -1.2%2013 -1.5% -1.1% -1.1% -1.0%

-2.0%

-1.0%

0.0%

1.0%

- 33 -

Annual Report 2013


The

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2.6. Money and Credit

2.6.1. Money Supply

For 2013, growth in broad Jamaica Dollar

money supply (M3J) accelerated to 4.8 per

cent from 0.6 per cent for 2012 (see Table 10).1

In real terms, there was a decline of 4.5 per

cent in M3J for 2013, following a contraction

of 6.9 per cent for 2012. The stronger nominal

growth in M3J for 2013 largely reflected the

impact of the merger of a building society with

its affiliate commercial bank in August 2013.

Without this transaction, the nominal growth in

money supply would have been 2.8 per cent.

Of note, the growth for 2013 was well below the

average expansion of 6.4 per cent for the last

five calendar years.

The increase in M3J for 2013 mainly reflected

growth of 7.1 per cent and 4.4 per cent in

currency in circulation and local currency

deposits, respectively.2 For local currency

deposits, the expansion of 4.4 per cent was well

above the increase of 0.1 per cent for 2012 and

reflected growth in all categories of deposits.

In particular, there were relatively strong

increases in savings and other deposits, which

reflected an expansion in savings deposits

held by business firms and the impact of the

aforementioned merger, respectively.

1 M3J is the measure of broad money which is comprised of currency

in circulation and local currency deposits which consist of demand,

savings, time and other deposits denominated in Jamaica Dollars.

2 Local currency deposits consist of demand, savings,

time and other deposits denominated in Jamaica Dollar.

At end-2013, the money multiplier

corresponding to M3J was 3.62 relative to 3.66

at end-2012. This decline mainly reflected an

increase in the currency to deposit ratio. The

higher ratio of currency to deposits reflected

the relatively sharp increase in currency in

circulation relative to the expansion in deposits.

However, in real terms, there was a decline of

2.3 per cent in currency in circulation for 2013

following to a contraction of 4.1 per cent for

2012. The continued contraction in currency

in circulation, in real terms, occurred in the

context of a fall in real incomes and a higher

level of unemployment.

For the review year, growth in the measure of

money supply that includes foreign currency

deposits, M3*, accelerated to 7.9 per cent from

5.4 per cent for 2012. Within M3* the Jamaica

Dollar value of foreign currency deposits grew

by 16.5 per cent, relative to 21.6 per cent in the

previous year. The expansion in the Jamaica

Dollar value of these foreign currency deposits

reflected an increase of 1.7 per cent in the US

dollar stock and a 12.6 per cent depreciation

in the weighted average selling rate (WASR)

of the Jamaica Dollar vis-à-vis the US dollar.

For 2012, there was growth of 13.4 per cent

in the US dollar stock and depreciation of 6.9

per cent in the WASR. The growth in the US

dollar stock of foreign currency deposits largely

reflected expansions in savings and demand

deposits held by business firms, particularly

in the March 2013 quarter, when their savings

deposits increased by 41.3 per cent. As a result


Bank of Jamaica

The

Eco

nom

y

Table 10

2012 2013 2012 2013Total Money Supply (M3)* 25 084.6 38 536.0 5.4 7.9

Money Supply (M3J) 2 135.9 17 191.5 0.6 4.8

Money Supply (M2J) 8 828.7 14 087.7 3.6 5.5Money Supply (M1J) 5 151.6 4 975.9 4.6 4.2

Currency with the public 1 880.9 3 906.7 3.6 7.1Demand Deposits 3 270.7 1 069.2 5.5 1.7

Quasi Money 3 677.1 9 111.7 2.8 6.7Savings Deposits 771.8 8 245.6 0.8 8.0Time Deposits 2 905.3 866.1 9.9 2.7

Other Deposits -6 692.8 3 103.8 - 6.1 3.0Foreign Currency Deposits 22 948.8 21 344.5 21.6 16.5

Sources of Change in Money Supply2012 2013 2012 2013

TOTAL 25 084.6 38 536.0 5.4 7.9

Net Foreign Assets -62 906.4 20 143.0 - 33.9 16.4

Bank of Jamaica -72 296.9 -1 928.1 - 41.8 - 1.9Commercial Banks 9 390.5 22 071.1 73.6 99.6

Credit to Private Sector 40 055.8 45 491.8 16.7 16.3Local Currency 38 739.1 40 827.7 24.0 20.4Foreign Currency 1 316.7 4 664.1 1.7 5.9

Net Claims on Public Sector 37 759.6 10 919.1 18.5 4.5Net Claims on Financial Institutions

21.2 -6 128.3 - 0.1 22.8

BOJ Open Market Operations/1 51 224.3 -2 272.7 - 51.8 4.8

Other Items (Net) -41 069.8 -29 616.8 100.2 36.1/1 A negative flow represents an increase in the stock.

COMPONENTS OF CHANGE IN MONEY SUPPLYFlows (J$MN) % Change

Flows (J$MN) % Change

of the increase in foreign currency deposits,

the ratio of foreign currency deposits to total

deposits was 32.3 per cent at end-2013, relative

to 29.9 per cent at end-2012 (see Chart 12).

The main source of the expansion in M3* for

2013 was an increase of $45.5 billion (16.3 per

cent) in private sector credit as well as growth of

$22.1 billion (99.6 per cent) in net foreign assets

of commercial banks, which largely reflected an

increase of 26.6 billion (31.5 per cent) in assets.

The impact of these expansionary impulses was

partially offset by an increase of $2.3 billion

(4.8 per cent) in the stock of OMO liabilities as

well as a decline of $1.9 billion (1.9 per cent)

in the net international reserves (see Monetary

Policy Management).

2.6.2. Private Sector Credit

For the year ended December 2013, the stock

of commercial bank credit to the private

sector grew by 16.3 per cent and was largely

- 35 -

Annual Report 2013


The

Eco

nom

y

Chart 12: Foreign Currency Deposits to Total Deposits - December 2003 to December 2013

denominated in Jamaica Dollars (see Table 11).

The outturn for 2013 compares to the increase

of 16.7 per cent for 2012 and the average

growth of 11.2 per cent for the last five

calendar years. The increase in private sector

credit for 2013 primarily reflected significant

growth in personal loans as a consequence of

an expansion in unsecured consumer loans

in the first quarter and the transfer of the loan

portfolio of a building society to a commercial

bank in August 2013. Abstracting the transfer

of the loan portfolio of the building society,

commercial bank credit to the private sector

would have grown by 13.2 per cent for the

calendar year.

2.6.3. Loans and Advances

Loans and advances, the largest component of

private sector credit, expanded by 18.3 per cent

($51.1 billion) relative to growth of 15.9 per

cent ($38.4 billion) in 2012. This expansion was

reflected in both business and personal lending

(see Table 12). The expansion in private sector

credit for the review year reflected growth in all

quarters. In particular, robust increases were

observed in the March and September quarters.

The stock of loans to businesses increased by

12.0 per cent for 2013, following growth of 10.7

per cent for 2012 (see Table 12). For the review

year, the growth in business loans was reflected

in all sectors, in particular Distribution (9.7 per

cent), Electricity, Gas & Water (36.1 per cent) and

Professional & Other Services (14.7 per cent). The

expansion in credit to Distribution was mainly

observed in the March and June quarters and

reflected local currency denominated loans to

companies within the sugar industry and the

food and drink sub-sector. For Electricity, Gas &

Water, the expansion primarily reflected credit

extended in the fuel and energy industries.


Bank of Jamaica

The

Eco

nom

y

Table 12

Table 11

2012 2013Total Private Sector Credit 40 055.8 45 491.8

% Change 16.7 16.3of which

Loans and Advances to Domestic Residents 39 290.0 46 549.5Corporate Securities 767.2 (1 058.4)

TOTAL CREDIT TO THE PRIVATE SECTORfor Year Ended 31 December

(Flow J$MN)

2012 2013 2012 2013 2012 2013Public Sector 30 138.3 22 837.3 -3 760.0 -7 300.9 - 11.1 - 24.2Private Sector 279 882.6 330 990.5 38 353.8 51 107.9 15.9 18.3

Business Lending 146 039.9 163 619.5 14 140.0 17 579.6 10.7 12.0

Agriculture & Fishing 6 138.2 7 733.8 772.1 1 595.5 14.4 26.0

Mining & Quarrying 693.0 747.7 136.7 54.7 24.6 7.9

Manufacturing 12 041.4 12 608.8 4 270.1 567.4 54.9 4.7 Construction & Land Dev. 21 115.4 23 217.9 36.4 2 102.4 0.2 10.0 Transport, Storage & Comm. 11 886.5 13 338.3 - 25.1 1 451.8 - 0.2 12.2 Tourism 26 335.4 27 535.1 -5 057.4 1 199.7 - 16.1 4.6 Distribution 40 077.4 43 966.8 9 600.2 3 889.4 31.5 9.7 Electricity, Gas & Water 8 827.0 12 015.4 3 093.4 3 188.5 54.0 36.1 Entertainment 1 132.5 2 045.7 618.6 913.2 >100.0 >101.0 Professional & Other Services 17 793.1 20 410.0 695.1 2 616.9 4.1 14.7 Personal & Other Lending 133 842.6 167 371.0 24 213.7 33 528.4 22.1 25.1 Personal 127 342.8 156 312.7 25 150.0 28 969.9 24.6 22.7 Overseas Residents 6 499.9 11 058.3 - 936.2 4 558.5 - 12.6 70.1

COMMERCIAL BANKS'Distribution of Total Loans & Advances to the Private Sector (JM$MN)

For Year Ended 31 December 2013Stock Flows %

- 37 -

Annual Report 2013


The

Eco

nom

y

Growth in Personal & Other Lending accelerated

by 25.1 per cent in 2013 relative to an increase

of 22.1 per cent in 2012 and represented the

largest annual expansion since 1997. Of this

expansion, personal loans to domestic residents

grew by 22.7 per cent. The robust growth in

personal lending was reflected in mortgage

loans, instalment credit and term loans which

increased by 148.7 per cent ($9.4 billion),

20.6 per cent ($8.9 billion) and 17.6 per cent

($7.0 billion), respectively. The performance

of mortgage loans was attributable to the

aforementioned transfer of a building society’s

mortgage loan portfolio. With respect to

instalment credit, the expansion primarily

reflected loans issued for motor cars and debt

consolidation which increased by 38.1 per cent

and 23.8 per cent, respectively. For 2012, there

were respective increases of 34.2 per cent and

52.0 per cent in loans for motor cars and debt

consolidation.

Foreign currency loans to the private sector

declined by 1.0 per cent for 2013, following a

reduction of 9.6 per cent for 2012 (see Table

13). Notable net repayments were observed

in Distribution, Tourism and Construction &

Land Development. To a large extent, the fall

in foreign currency loans was due to significant

write-offs by the commercial banks.

Table 13

2012 2013 2012 2013 2012 2013

Private Sector 908 795 899 736 -96 887 -9 059 - 9.6 - 1.0

Business Lending 792 058 730 926 -63 176 -61 132 - 7.4 - 7.7

Agriculture & Fishing 15 514 18 406 -6 104 2 892 - 28.2 18.6

Mining & Quarrying 934 102 929 - 832 >100.0 - 89.1

Manufacturing 44 009 37 297 16 537 -6 712 60.2 - 15.3

Construction & Land Dev. 142 556 135 907 -24 388 -6 649 - 14.6 - 4.7

Transport, Storage & Comm. 73 559 72 267 -4 682 -1 292 - 6.0 - 1.8

Tourism 260 494 239 885 -68 073 -20 609 - 20.7 - 7.9

Distribution 132 759 108 751 29 112 -24 008 28.1 - 18.1

Electricity, Gas & Water 68 995 69 099 15 279 104 28.4 0.2

Entertainment 3 485 4 296 2 156 811 >100.0 23.3

Professional & Other Services 49 753 44 916 -23 942 -4 837 - 32.5 - 9.7

Personal & Other Lending 116 737 168 810 -33 711 52 073 - 22.4 44.6

Personal 69 221 78 876 -5 385 9 655 - 7.2 13.9

Overseas Residents 47 516 89 934 -28 326 42 418 - 37.3 89.3

Stocks Flows %

COMMERCIAL BANKS'Distribution of Foreign Currency Loans & Advances to the Private Sector (US$MN)

For Year Ended 31 December 2013


Bank of Jamaica

The

Eco

nom

y

2.6.4. Non-performing Loans

At end-2013 there was an improvement in the

quality of the commercial bank loan portfolio

relative to end-2012 (see Chart 13). This

improvement was consistent throughout the

calendar year. In this regard, the ratio of non-

performing loans to total loans declined to 5.4

per cent at end-2013 from 7.0 per cent at end-

2012.3 Similarly, non-performing loans as a

ratio of total private sector loans declined to

5.6 per cent at end-2013 from 7.5 per cent at

end-2012. The improvement in the commercial

banks’ business loans portfolio largely reflected

loan write-offs and to a lesser extent net

repayment of non-performing business loans

by some sectors. Net loan write-offs amounted

3 Non-performing loans refers to loans overdue for 3 months

and over.

to $6.1 billion in 2013 and represented 2.0

per cent of average outstanding private sector

loans. For 2012, net loan write-off was $3.2

billion, the equivalent of 1.0 per cent of average

outstanding private sector loans.

2.6.5. Interest Rates

For 2013, there was a trend decline in the

weighted average interest rate on commercial

banks’ foreign and local currency denominated

loans to the private sector. The overall spread

on local currency loans declined, while there

was an increase in the spread on foreign

currency loans for 2013.

2.6.5.1. Interest Rates- Domestic Currency

The overall weighted average lending rate on

local currency denominated loans declined by

Chart 13: Loan Quality - Ratio of Non-performing Loans to Total & Private Sector Loans

1.62.22.83.44.04.65.25.86.47.07.68.28.89.4

10.0

Per

Cen

t

Year

Non-performing to Total Loans Non-performing to Private Sector Loans

- 39 -

Annual Report 2013


The

Eco

nom

y

95 basis points (bps) to 17.49 per cent at end-

2013, in contrast to the increase of 41 bps in

2012 (see Table 13A). The movement in the rate

during 2013 reflected a decline of 102 bps in the

weighted average lending rate to the private

sector, the impact of which was partially offset

by an increase of 15 bps in the rate to the public

sector. With respect to the change in the overall

private sector loan rate, there were declines in

all loans categories. In particular, there was a

reduction of 115 bps in the weighted average

interest rate on instalment credit following the

decline of 124 bps for 2012, despite the overall

increase in rates to the private sector for that

year.

For the review year, the overall interest rate

spread on local currency denominated loans

declined by 89 bps to 15.45 per cent, in contrast

to the increase of 75 bps for the preceding year

(see Table 13B). The reduction in the overall

interest rate spread occurred in the context of

a fall of 95 bps in the weighted average loan

rate as well as a slight decline in the weighted

average deposit rate. The lower interest rate

spread was solely reflected in the private sector

loans as there was an increase in the spread on

public sector loans.

Table 13A

2008 2009 2010 2011 2012 2013

Overall 21.65 21.06 20.43 18.03 18.44 17.49

Public Sector 20.76 17.12 10.79 9.98 9.94 10.09

Local Govt. & Other Public Entities 19.64 16.37 10.16 10.61 10.69 10.99Central Government 23.45 17.89 11.07 9.77 9.72 9.96

Private Sector 21.77 21.40 20.92 18.31 18.64 17.62

Instalment 20.56 21.58 20.96 19.20 17.96 16.81

Mortgage 7.57 8.10 16.93 12.36 9.90 9.88

Personal 26.37 25.31 25.90 21.66 25.21 24.77

Commercial 18.44 17.72 16.29 14.63 12.87 12.76

COMMERCIAL BANKS Local Currency Weighted Average Interest Rates (%)

End of Period


Bank of Jamaica

The

Eco

nom

y

Table 13B

2008 2009 2010 2011 2012 2013

Weighted Average Local Currency Deposit Rate

6.87 6.32 2.95 2.44 2.10 2.04

Overall Spread 14.78 14.74 17.48 15.59 16.34 15.45

Spread by Sector Public Sector 13.88 10.80 7.84 7.54 7.84 8.05 Local Govt. & Other Public Entities 12.77 10.05 7.21 8.17 8.59 8.95 Central Government 16.58 11.56 8.12 7.33 7.62 7.92

Private Sector 14.90 15.07 17.97 15.87 16.54 15.58 Instalment 13.69 15.25 18.01 16.76 15.86 14.77 Mortgage 0.70 1.78 13.98 9.92 7.80 7.84 Personal 19.49 18.99 22.95 19.22 23.11 22.73 Commercial 11.57 11.40 13.34 12.19 10.77 10.72

End of Period

COMMERCIAL BANKS Local Currency Interest Rate Spreads

2.6.5.2. Interest Rates- Foreign Currency

The weighted average interest rate on foreign

currency denominated loans declined by 16

bps to 7.39 per cent at end-2013 (see Table

14). This decline was reflected in respective

reductions of 34 bps and 11 bps in the weighted

average interest rates on public and private

sector loans. The change in the weighted

average interest rate on private sector loans

was reflected in lower rates for mortgage and

commercial loans as there were increased rates

for instalment credit and personal loans.

The overall interest rate spread on foreign

currency denominated loans increased by 6 bps

to 6.33 per cent at end-2013 (see Table 15). This

increase occurred in the context of a decline of

22 bps in the weighted average deposit rate to

1.06 per cent. The higher spread was reflected

in all categories of private sector loans except

mortgage loans. Notwithstanding an overall

decline in the spread on public sector loans,

there was an increase in the spread on Central

Government loans.

- 41 -

Annual Report 2013


The

Eco

nom

y

Table 14

Table 15

2008 2009 2010 2011 2012 2013

Weighted Average Foreign Currency Deposit Rate

3.02 2.70 1.41 2.71 1.28 1.06

Overall Spread 5.94 6.31 7.20 5.22 6.27 6.33

Spread by SectorPublic Sector 5.96 6.57 4.80 4.63 5.56 5.44 Local Govt. & Other Public Entities 5.96 6.30 6.85 4.86 5.54 5.35 Central Government 5.94 7.24 5.39 4.17 5.60 5.95

Private Sector 5.93 6.24 7.67 5.75 6.45 6.55 Instalment 6.31 7.36 7.70 7.25 6.56 7.53 Mortgage n/a n/a n/a n/a 8.16 5.87 Personal 11.01 11.36 11.52 11.05 14.12 14.56 Commercial 5.43 5.81 7.35 5.33 5.87 5.95

End of Period

COMMERCIAL BANKS Foreign Currency Interest Rate Spreads (%)

2008 2009 2010 2011 2012 2013

Overall 8.96 9.01 8.61 7.93 7.55 7.39

Public Sector 8.98 9.27 6.21 7.34 6.84 6.50

Local Govt. & Other

Public Entities 8.98 9.00 8.26 7.57 6.82 6.41

Central Government 8.96 9.94 6.80 6.88 6.88 7.02

Private Sector 8.95 8.94 9.08 8.46 7.73 7.62

Instalment 9.33 10.06 9.11 9.96 7.84 8.59

Mortgage n/a n/a 9.65 8.66 9.44 6.93

Personal 14.03 14.06 12.93 13.76 15.40 15.63

Commercial 8.45 8.51 8.76 8.04 7.15 7.02

COMMERCIAL BANKS Foreign Currency Weighted Average Interest Rates (%)

(End of Period)


Bank of Jamaica

The

Eco

nom

y

2.7. Production

2.7.1. Overview

The domestic economy recorded growth of 0.2

per cent for 2013, following a contraction of 0.5

per cent for 2012 (see Chart 14). The expansion

in economic activity was largely driven by

greater external demand, the impact of which

was partly offset by weak domestic demand.

Improvement in international economic

conditions facilitated modest increases in

tourism and remittance inflows relative to

2012. Domestic demand conditions were

underpinned by increased unemployment, a

fall in real wages as well as low business and

consumer confidence, reflecting uncertainty

about the achievement of the targets under the

four-year Extended Fund Facility supported

programme with the IMF. In addition, drought

conditions in the first half of the year had an

adverse impact on economic activity.

Economic growth for 2013 was reflective of

increases of 0.3 per cent and 0.2 per cent in

the tradable and non-tradable industries,

respectively, relative to contractions of 1.6 per

cent and 0.3 per cent for 2012. The growth

in the review year was recorded in Mining

& Quarrying, Construction & Installation,

Hotels & Restaurants, Transport, Storage &

Communication and Finance & Insurance

Services (see Table 16). There were declines in

Agriculture, Forestry & Fishing, Manufacture

and Electricity & Water Supply.

Chart 14: Real GDP Growth Rates: 2000 - 2013

0.81.3

0.7

3.7

1.30.9

2.9

1.4

-0.8

-3.4

-1.4

1.4

-0.5

0.2

-4

-3

-2

-1

0

1

2

3

4

5

-23

-18

-13

-8

-3

2

7

12

17

22

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Per c

ent

Per c

ent

Real GDP Growth (R.H.S.)Tradable Sectors (L.H.S.)Non-Tradable Sectors (L.H.S.)

Source: STATIN

- 43 -

Annual Report 2013


The

Eco

nom

y

2.7.2. Performance by Industry

Mining & Quarrying recorded an expansion of

3.8 per cent for 2013 following contraction of 8.7

per cent for the previous year. The performance

of the industry reflected an increase of 2.4 per

cent in total bauxite production in contrast

to a contraction of 8.8 per cent for 2012. The

expansion in total bauxite production was

reflected in an increase of 5.5 per cent in alumina

production as crude bauxite production fell by

1.7 per cent relative to the previous year. Higher

capacity utilization contributed to the increase

in alumina output. During the review period,

the capacity utilisation rate for the alumina

industry increased to 40.4 per cent from 38.3

per cent for 2012. On the other hand, the

capacity utilisation rate for the bauxite industry

fell to 89.6 per cent from 91.2 per cent for the

previous year. Lower capacity utilization in the

bauxite industry was attributed to disruptions

in production due to problems partly associated

with a dredging project which affected dock

space at Port Rhoades. Additionally, slower

ship rotation, a decline in the volume of bauxite

ordered by refineries and rainfall adversely

affected production.

Table 16

Source: STATIN

Growth (%) Contribution Growth (%) Contribution

GOODS -1.8 100.4 0.4 60.5

Agriculture, Forestry & Fishing 2.5 -28.1 -0.5 -12.8

Mining & Quarrying -8.7 76.4 3.8 81.1

Manufacture -1.0 18.0 -0.8 -38.0

Construction -4.4 76.2 1.8 78.0

SERVICES -0.2 31.3 0.1 36.6

Electricity & Water -2.2 14.3 -2.0 -31.8

Wholesale & Retail Trade, Repairs & Installation -1.6 62.9 -0.1 -7.9

Hotels & Restaurants 1.8 -17.4 0.9 22.2

Transport, Storage & Communication -0.1 1.3 0.2 14.4

Financing & Insurance Services 0.9 -18.7 0.5 27.6

Real Estates, Renting & Business Activities -0.4 7.6 0.3 16.2

Producers of Government Services -0.1 3.2 -0.2 -11.1

Other Services 1.1 -15.5 0.1 2.6

INANCIAL INTERMEDIATION SERVICES INDIRECTLY MEASURED

-2.9 -13.8 -0.3 -8.2

TOTAL VALUE ADDED -0.5 100.0 0.2 100.0

INDUSTRIAL CONTRIBUTION TO GDP GROWTH (%)2012 2013

INDUSTRIES


Bank of Jamaica

The

Eco

nom

y

There was an estimated expansion of 1.8 per

cent in Construction & Installation in contrast

to a decline of 4.4 per cent for 2012. The

industry’s performance reflected increases in

both residential and non-residential projects.

The expansion in residential projects was

inferred from data from the National Housing

Trust which indicated an increase of 9.4 per cent

in housing starts, following a decline of 30.1

per cent for 2012. Non-residential construction

expanded based on the implementation of

projects under the Major Infrastructural

Development Programme, several hotel projects

and the continuation of Highway 2000. Growth

in residential and non-residential projects was

supported by an increase in cement production.

Hotels & Restaurants increased by 0.9 per cent

compared to growth of 1.8 per cent for 2012,

mainly reflected in Hotels. The expansion in

Hotels was inferred from increases of 1.1 per

cent and 0.2 per cent in stop-over visitor arrivals

and expenditure, respectively, relative to the

previous year. Visitor arrivals benefited from

additional flights from the United Kingdom,

Russia, Costa Rica, Cuba and Canada as well as

inaugural flights from Germany and Sweden.

Stop-over visitor arrivals for the review period

was also bolstered by marketing activities by

the Jamaica Tourist Board and an influx of

visitors for the Jamaica Diaspora Conference.

However, there was some offsetting impact from

flight rationalization by Caribbean Airlines

and adverse winter conditions in the USA and

Canada which affected air travel in the first half

of the year.

Transport, Storage & Communication grew by

0.2 per cent for 2013, following five consecutive

years of decline averaging 2.2 per cent. With

the exception of the June 2013 quarter which

was flat, the industry’s value-added expanded

consistently throughout the year. Improvement

in the industry’s output reflected the

performance of Communication as Transport

declined. Expansion in Communication was

inferred from growth in telecommunications

activities due to the reduction in call rates,

which led to an increase in the average revenue

per mobile user. The performance of Transport

reflected declines in water and air transport.

Reduction in water transport was primarily

attributed to a contraction of 2.5 per cent in the

number of ships calling, including cruise liners

at Jamaican ports. The fall in ship calls was

primarily attributed to a shift in the itinerary of

selected cruise lines away from the Caribbean

given high cost of fuel as well as passengers’

desire for new destinations, during the first part

of the year. Air transportation was negatively

affected by flight rationalization by Caribbean

Airlines.

Financing & Insurance Services recorded an

expansion of 0.5 per cent in the context of the

National Debt Exchange in February 2013.

This was relative to growth of 0.9 per cent for

2012. The resilience of the industry was largely

influenced by portfolio diversification. In

addition, growth in the industry was reflective

- 45 -

Annual Report 2013


The

Eco

nom

y

of increased service charges, fees & commission

as well as foreign exchange gains.

Following two consecutive years of growth due

largely to enhanced productivity, Agriculture,

Forestry & Fishing contracted by 0.5 per cent

for 2013. This outturn reflected an average

decline of 8.8 per cent in the first half of the

year as there was average growth of 7.7 per cent

in the second half of the year. The industry’s

performance reflected a fall in traditional

export crops as domestic crop production

increased. The contraction in export agriculture

predominantly reflected lower output for cocoa,

sugar and pimento as there were improvements

in citrus and coffee exports (see Table 17).

For the review period, domestic crop production

reflected recovery from the impact of Hurricane

Sandy in October 2012 and subsequent

drought conditions in the March and June 2013

quarters (see Table 18). This performance was

influenced by improved weather conditions

which allowed for a greater level of planting

and reaping of crops. Additionally, there were

several support programmes including the

Hurricane Sandy Recovery Programme, the

Irish Potato Programme and the Jamaica Agro-

Park Development Programme.1 The impact of

these positive developments was partially offset

by a marginal fall in productivity as measured

by output per hectare relative to 2012 (see

Chart 15).

In a context of weak demand and higher input

cost, Manufacture recorded a contraction of

1 The Jamaica Agro-Park Development Programme is aimed at

expanding the production of agricultural products which have viable

domestic and export markets and for which Jamaican farmers have

the competitive advantage. Nine agro-parks are planned, of which

four have been established and are at various stages of development.

Table 17

Sources: Sugar Corporation of Jamaica; and Bank of Jamaica estimates

CROP 2012 2013 % Change

Exports (‘000 tonnes)

Sugar 136.6 121.1 - 11.3

Citrus 4.7 13.1 179.4

Cocoa 1.0 0.5 - 50.9

Coffee 0.8 0.8 1.7

Pimento 0.3 0.2 - 29.1

Production (000’ tonnes)

Sugar cane 1 557.6 1 305.3 - 16.2

SELECTED AGRICULTURAL EXPORTS


Bank of Jamaica

The

Eco

nom

y

Chart 15: Output per Hectare 2000 - 2013

0.8 per cent for 2013, following a decline of 1.0

per cent for 2012. Value added for the industry

is estimated to have declined consistently

throughout the review period and reflected

contractions of 1.8 per cent and 0.1 per cent in

Other Manufacturing and Food, Beverages &

Tobacco, respectively.

Source: Ministry of Agriculture

Table 18

The decline in Other Manufacturing largely

reflected reductions in Refined Petroleum and

Chemical Products as Non-Metallic Mineral

Products increased for 2013. Chemical

Products largely mirrored a fall in ethanol

production, primarily influenced by higher

price for feedstock compared to that faced by its

12.0

12.2

12.4

12.6

12.8

13.0

13.2

13.4

13.6

13.8

14.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Per c

ent

%

Crop Group Change

2012 2013

Yams 145.1 138.8 -4.3

Vegetables 224.1 233.2 4.1

Other tubers 45.7 41.7 -8.8

Fruits 45.0 46.3 2.9

Condiments 46.9 52.3 11.6

Plantains 36.2 30.9 -14.5

Potatoes 57.6 61.6 7.1

Legumes 5.3 5.5 4.5

Cereals 3.1 3.0 -4.0

Total 610.1 614.9 0.8

(‘000 tonnes)

SELECTED DOMESTIC CROP Production

- 47 -

Annual Report 2013


The

Eco

nom

y

Table 19

competitor in Brazil, rendering local production

unprofitable. The expansion in Non-Metallic

Mineral Products mainly reflected growth of

8.5 per cent in cement production, relative to a

decline of 0.8 per cent for 2012, influenced by

increased activities in the Construction industry

and higher external demand.

With the exception of poultry meat, all

categories within Food, Beverages & Tobacco

are assessed to have declined for 2013 when

compared with the outturn for 2012 (see Table

19). The reduction in sugar, in particular, was

attributed to several factors, including the

late start of reaping activities and industrial

disputes at one sugar factory.

Electricity & Water Supply declined by 2.0 per

cent for 2013, reflecting average contraction

of 2.9 per cent in the first three quarters and

expansion of 1.0 per cent for the December

2013 quarter. Both electricity consumption and

water production are assessed to have declined

for the year. The reduction in electricity

consumption was influenced by disruptions in

transmission due to technical losses and theft.

Water production was affected by drought

conditions in the first half of the year.

2.7.3. Labour Productivity & Wages

Labour market conditions continued to

deteriorate in 2013 with the unemployment

rate (UR) increasing to 15.3 per cent from

ITEM 2012 2013 % Change

Production (‘000 kgs)

Poultry Meat 101 509.0 103 263.3 1.7

Sugar 136 645.0 121 138.0 -11.3

Molasses 58 870.0 42 923.0 -27.1

Edible Oil 21 102.0 19 027.0 -9.8Non-Metallic Minerals

760 316.0 824 828.0 8.5

Animal Feeds 408 139.0 401 241.0 -1.7

Production (‘000 litres)Non-Alcoholic Beverages

166 848.3 180 078.7 7.9

Petroleum Products 1 328 546.2 1 281 526.2 -3.5

Alcoholic Beverages 72 972.9 67 107.0 -8.0

000 gallons

Ethanol Volume 64 055.2 47 168.2 -26.4

Source: Planning Institute of Jamaica

SELECTED MANUFACTURING ITEMS


Bank of Jamaica

The

Eco

nom

y

Source: STATIN

13.9 per cent and 12.7 per cent in 2012 and

2011, respectively. The increase in UR was

reflective of a 2.1 per cent increase in the

labour force, which outweighed growth of 0.5

per cent in employment. This outturn was

associated with a 1.0 percentage point increase

in the job-seeking rate relative to the previous

year. Manufacture, Hotels & Restaurants,

Financial Intermediation and Transport,

Storage & Communication were the industries

that recorded declines in employment, as

employment increased in all other industries

(see Table 20).

For 2013, real wages declined by 4.7 per cent

following a contraction of 4.8 per cent for 2012.

This reduction was observed in all industries

with the exception of Mining & Quarrying and

Wholesale & Retail Trade.

There were no inflationary pressures

emanating from the labour market in 2013,

as the movement in real wages was below

both measures of productivity (see Chart 16).

Specifically, labour productivity, measured

as output per hour worked, improved by

0.7 per cent for 2013 when compared to the

Table 20

2012 2013 % Change

Total Labour Force ('000) 1281.9 1308.7 2.1

Employed Labour Force ('000) 1103.4 1109.1 0.5

Unemployment Rate (%) 13.9 15.3 9.5

Job Seeking Rate (%) 8.8 9.8 10.5

Agriculture, Forestry & Fishing 201.2 202.4 0.6

Mining, Quarrying & Refining 4.9 5.4 10.8

Manufacture 77.0 71.9 -6.6

Electricity, Gas & Water 7.7 8.5 9.4

Construction & Installation 81.1 83.0 2.4

Wholesale & Retail, Hotels & Restaurants Services 221.4 221.5 0.1

Hotels & Restaurants Services 76.3 75.8 -0.7

Transport, Storage & Communications 73.1 72.7 -0.5

Financial Intermediation 26.3 26.0 -1.0

Real Estate, Renting and Business Activities 57.7 65.9 14.2

SELECTED LABOUR FORCE INDICATORS

- 49 -

Annual Report 2013


The

Eco

nom

y

Chart 16: Labour Productivity vs. Real Wages 2000 - 2013

contraction of 3.5 per cent for the previous

year. In contrast, output per worker, another

measure of labour productivity, declined by

0.3 per cent. The fall in output per worker was

primarily concentrated in Agriculture, Forestry

& Fishing, Mining & Quarrying, Electricity,

Gas & Water, Construction and Finance &

Insurance Services.


Bank of Jamaica

The

Eco

nom

y

2.8. The Stock MarketAll indices of the Jamaica Stock Exchange

(JSE) declined for 2013, with the exception of

the JSE Junior Market Index. In particular, the

JSE Main Index fell by 12.5 per cent for 2013

following a decline of 3.4 per cent recorded

for the previous year (see Chart 17). Similarly,

the All Jamaica Composite and Select indices

declined by 10.2 per cent and 12.6 per cent,

respectively, in comparison to declines of 10.8

per cent and 13.4 per cent for 2012. On the other

hand, the JSE Junior Market Index increased

by 17.0 per cent in contrast to a decline of 13.5

per cent for 2012.

The performance of the JSE indices for 2013

occurred against the background of a weak

domestic economy and low investor confidence.

Furthermore, the average monthly returns on

foreign currency and domestic fixed income

investments exceeded the average monthly

returns on equities. In particular, the monthly

returns on the JSE Index averaged negative

1.1 per cent while those on the money market

securities and average monthly depreciation

gains on foreign currency investments were

0.6 per cent and 1.1 per cent, respectively (see

Foreign Exchange Market & Chart 18).

Chart 17: Annual Growth of the JSE Index: 2004-2013

Chart 18: Average Monthly Returns from Equities, Fixed Income Investments & US Dollar Positions: Comparative Indicators

66.7

-7.2-3.7

7.2

-25.8

4.0 2.3

11.8

-3.4-12.5

-40.0-30.0-20.0-10.0

0.010.020.030.040.050.060.070.080.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Chan

ge in

Inde

x (%

)

Year

-4.5-4.0-3.5-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.5

Mar-13 Jun-13 Sep-13 Dec-13

Retu

rn (%

)

Equities 30-day Repo USD Position

- 51 -

Annual Report 2013


The

Eco

nom

y

On a quarterly basis, all JSE indices declined

except for the June quarter when there was the

signing of an EFF between the IMF and the

GOJ. The quarterly performance of the indices

was consistent with the general uncertainty

in the domestic economy.1 Notably, the three

major JSE indices recorded average quarterly

contraction of 2.6 per cent for 2013 relative to

average quarterly decline of 2.3 per cent for

2012 (see Chart 19). Conversely, the JSE Junior

Market Index recorded an average quarterly

increase of 4.8 per cent for 2013 in contrast to an average quarterly decline of 3.4 per cent for

the previous year.

There were several new listings on both the JSE

Main Market and Junior Market during 2013

(see Table 21).2 The new listings and offerings

on the Main Market aided in countering the

impact of low investor appetite that prevailed

throughout the year. Regarding the Junior

1 The quarterly performance of the stock market indices was also

partially impacted by the mixed earnings performance of the listed

companies throughout the year.

2 In 2013, the depth of the Junior Market increased with the

issue of two notes.

Market, the increase in activity and new listings

coincided with the plan by the Government to

phase out the special income tax incentives

provided to listed companies.3

For the review period, the poor outturn of the

JSE Index was reflected in the performance

of all market indicators. Specifically, the

number of transactions declined by 6.3 per cent

following a reduction of 16.3 per cent for the

previous year. In addition, the volume of stocks

traded decreased by 3.1 per cent following a

decline of 7.7 per cent for the prior year (see

Table 22). Furthermore, the value of stocks

traded decreased by 22.3 per cent relative to

growth of 1.1 per cent in 2012.

3 Specifically, companies that list on the Junior Market before

January 1, 2014 have full relief from income tax during the first five

years of listing, in addition to a 50.0 per cent relief from applicable

taxes in the next five years and would benefit from such schemes

for the remainder of their incentive period. However, companies

that list between January 1, 2014 and December 31, 2016, will only

be entitled to full relief from income tax for a period of five years

from the date of listing.

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13

Chan

ge on

Junio

r Mark

et Ind

ex (%

)

Chan

ge in

Indic

es (%

)

Main JSE Index All Jamaica Composite JSE Select Juniour Market

Chart 19: Quarterly Growth of the JSE Indices: 2011 – 2013


Bank of Jamaica

The

Eco

nom

y

Table 22

Sectoral Performance

The performance of stocks in Manufacturing

was mixed for 2013. Manufacturing accounted

for two of the top ten declining stocks with an

average price decline of 32.0 per cent. On the

other hand, the sector recorded an average

Table 21

JSE New Listings Other DevelopmentsMain Market Junior Market Listing J$bn

Jamaica Stock Exchange Limited Caribbean Cream Limited Jamaica Money Market Brokers Limited7.25% Preference Shares 1.4

Sagicor Real Estate X Fund Limited Eppley Limited 7.50% Preference Shares 38.4

Sagicor Group Jamaica Limited Caribbean Flavours & Fragrances Limited Access Financial Services Limited 9%Unsecured Short Term Notes 0.1

Derrimon Trading Company LimitedJamaica Public Service Company Limited 9.5% 2.5

Knutsford Express Services Limited Cumulative Non-redeemable 'F' Series 0.1Preference Shares 0.4

Medical Disposables & Supplies Limited'

STOCK MARKET DEVELOPMENTS IN 2013

price appreciation of 94.8 per cent for three

of the top advancing stocks, mainly reflecting

stocks of companies with improved earnings

performance. In particular, Caribbean Cement

Company Limited largely benefited from

stronger local sales due to increased domestic

Values (J$mn)

Volumes (mn)

No. of Transactions

Mar-12 3 398.3 272.7 5 466.0

Jun-12 7 101.5 439.0 5 686.0

Sep-12 4 811.5 486.9 4 278.0

Dec-12 2 983.7 232.6 4 062.0

Total 18 295.1 1 431.3 19 492.0

Mar-13 3 591.0 340.7 4 836.0

Jun-13 2 153.6 305.6 4 524.0

Sep-13 2 997.8 316.2 4 552.0

Dec-13 5 465.2 424.0 4 352.0

Total 14 207.7 1 386.4 18 264.0

Annual Change % 2012 2013

Values 1.1 - 22.3

Volumes - 7.7 - 3.1

No. of Transactions - 16.3 - 6.3

2012-2013TRADING ACTIVITIES OF THE MAIN JSE

- 53 -

Annual Report 2013


The

Eco

nom

y

market share as well as higher export sales and

had an increase of 250.0 per cent in stock price

to $3.5 relative to $1.0 in 2012. Communications

also accounted for two of the top declining

stocks with an average price depreciation of

28.1 per cent. However, it should be noted that

Table 23

Table 24

Price( $)

(e.o.p)Price Change

(%)

COMMUNICATIONS

Radio Jamaica 1.3 -34.7

Gleaner Company 10.5 -21.4

MANUFACTURING

Seprod 10.5 -32.3

Berger Paints (Jamaica) 1.8 -31.6

RETAIL

Carreras Limited 36.1 -27.8

FINANCE

National Commercial Bank 16.4 -31.5

Sagicor Investments Jamaica 16.0 -27.7

Mayberry Investments Limited 2.0 -20.0

Scotia Investments Jamaica 25.2 -17.5

OTHER

Pulse Investments 0.9 -13.0

TOP TEN DECLINING STOCKSfor 2013

Price ($)

(e.o.p)Price Change

(%)

MANUFACTURING

Caribbean Cement 3.5 250.0

Kingston Wharves 6.1 21.2

Desnoes & Geddes 5.1 13.3

RETAIL

Hardware & Lumber 6.1 79.4

TOURISM

Ciboney Group 0.1 66.7

CONGLOMERATE

GraceKennedy Limited 55.1 10.1

Jamaica Producers Group 19.0 6.7

FINANCE

Sagicor Group Jamaica 10.2 0.6

OTHER

Palace Amusement 95.0 58.3

Kingston Properties Limited 4.5 19.0

TOP TEN ADVANCING STOCKSfor 2013

the large capitalization stocks, especially those

in Finance were among the top declining stocks

for the period, hence the low outturn in market

activity for the year (see Table 23 & Table 24).

Overall, the advance-to-decline ratio was 10:20

in comparison to 6:24 for 2012.


Bank of Jamaica

The

Eco

nom

y

2.9. Public Finance

2.9.1. Introduction

The budgets for Central Government and

the Public Bodies (PBs) for FY2013/14

were formulated within the context of the

macroeconomic objectives of the 4-year EFF

programme. Consistent with the Government’s

commitment to achieve an overall public sector

surplus of just over 1.0 per cent of GDP by

FY2016/17, the overall public sector deficit was

targeted to improve to a deficit of 0.1 per cent

of GDP at end-FY2013/14 from 4.3 per cent

of GDP for FY2012/13. Central Government

is programmed to achieve a primary surplus

of 7.5 per cent of GDP for FY2013/14, relative

to 5.2 per cent of GDP for FY2012/13, which

is to be maintained over the medium term.

There are also associated indicative targets for

tax revenue and social spending. Achieving

these objectives will require a combination of

corrective revenue and spending measures as

well as structural reforms. The programme also

envisages that the public bodies will achieve

surpluses over the medium term averaging

0.15 per cent of GDP.

The Fiscal Policy Paper (FPP) tabled in April

2013 articulated the Government’s commitment

to comprehensive tax reform, a critical plank

of Jamaica’s economic reform programme.

Tax reform is expected to result in a reduction

of tax expenditures to 2.5 per cent of GDP by

FY2015/16 from around 6.0 per cent of GDP in

FY2012/13. In this regard, key components of

the reform were advanced during the review

year, including the structural benchmarks under

the EFF. Critical among the benchmarks, was

the development and submission to the IMF

in August, of a conceptual framework for the

design of legally binding fiscal rules to enhance

fiscal transparency, ensure a sustainable

budget balance and lock in the gains of fiscal

consolidation. Legislation to enable adoption of

the rules will be enacted by end-March 2014.

In accordance with its plan to improve financial

management within the public sector, the

central treasury management system (CTMS)

with a single treasury account at BOJ (a

structural benchmark) was operational by mid-

2013, well ahead of the March 2014 deadline.

The Charities Bill and the Omnibus Incentives

Tax Bill (the Fiscal Incentives Bill and Income

Tax Relief in relation to Large-scale Projects and

Pioneer Industries) were approved by Parliament

in September 2013. Cabinet also approved the

detailed budget calendar for FY2014/15 on 30

November.

Other structural benchmarks achieved by end-

December 2013 were the legal & regulatory

framework for Collective Investment Schemes

as well as for the Central Collateral Registry.

Based on the forgoing actions, all the structural

benchmarks to 31 December 2013 were

achieved.

The quantitative targets for end-December

2013 were also met. Of note, the primary

- 55 -

Annual Report 2013


The

Eco

nom

y

surplus marginally exceeded the target while

the overall public sector balance to end-

December reflected a lower than targeted fiscal

deficit which more than compensated for the

underperformance of the public bodies.

2.9.2. Central Government Performance

For April-December 2013, Central Government

operations resulted in a fiscal deficit of $19.6

billion, relative to the budgeted deficit of

$24.8 billion (see Tables 25)1. This outturn

1 The C-Efficiency ratio is the share of value-added tax (VAT)

revenue in consumption.

represented a significant contraction relative

to the fiscal deficit of $47.5 billion for April -

December 2012. The primary surplus of $61.7

billion for April - December 2013 exceeded the

EFF target by $89.6 million and was also well

above the primary surplus achieved for April

- December 2012. The current deficit of $4.5

billion for the review period was in contrast

to the implied current surplus target of $4.6

billion, a significant improvement relative to

the outturn for April - December 2012.

Table 25

FY 2012/13 Q1-Q3

FY 2013/14 Q1-Q3

Budget Q1-Q3

Variance %

Revenue & Grants 240 105.7 274 619.4 285 547.2 -10 927.8 - 3.8

Revenue 238 483.9 266 331.5 282 513.3 -16 181.8 - 5.7

Tax Revenue 224 840.5 242 653.2 255 161.3 -12 508.1 - 4.9

Non-Tax Revenue 12 259.1 22 264.7 25 728.8 -3 464.1 - 13.5

Bauxite Levy 882.5 884.2 1 030.2 - 146.0 - 14.2

Capital Revenue 501.7 529.4 593.0 - 63.6 - 10.7

Grants 1 621.8 8 287.9 3 033.9 5 254.0 173.2

Expenditure 287 618.3 294 235.0 310 328.8 -16 093.8 - 5.2

Recurrent Expenditure 265 100.8 270 252.8 277 290.5 -7 037.7 - 2.5

Programmes 66 037.9 69 160.9 69 894.3 - 733.4 - 1.0

Wages & Salaries 112 787.2 119 786.7 121 014.8 -1 228.1 - 1.0

Interest 86 275.7 81 305.2 86 381.4 -5 076.2 - 5.9

Domestic 53 411.1 46 980.0 51 360.9 -4 380.9 - 8.5

Foreign 32 864.6 34 325.2 35 020.5 - 695.3 - 2.0

Capital Expenditure 22 517.5 23 982.2 33 038.3 -9 056.1 - 27.4

Fiscal Balance -47 512.6 -19 615.6 -24 781.6 5 166.0 - 20.8

Current Balance -27 118.6 -4 450.7 4 629.8 -9 080.5 - 196.1

Primary Balance 38 763.1 61 689.6 61 599.8 89.8 0.1

Source: Ministry of Finance

CENTRAL GOVERNMENT SUMMARY ACCOUNTS(J$MN)


Bank of Jamaica

The

Eco

nom

y

Revenue & Grants for April - December 2013

was $10.9 billion below budget but $34.5

billion above the outturn for April – December

2012. The weaker than budgeted performance

over the review period was largely reflected in

a shortfall in Tax Revenue, the impact of which

was partly offset by higher than budgeted grant

receipts consequent on earlier than expected

inflows from the European Union. Within Tax

Revenue, shortfalls were recorded in all sub-

categories. In particular, International Trade

reflected weaker SCT, Custom Duty and GCT

receipts, consistent with lower than expected

imports, the impact of which was partly offset

by higher than budgeted travel tax receipts.

Lower than budgeted Income & Profits

primarily reflected shortfall in PAYE receipts

due to higher than anticipated unemployment

as well as a lower than anticipated compliance.

Production & Consumption largely reflected

lower than budgeted receipts from Education

tax, Betting, Gaming & Lottery and Stamp Duty.

The improvement in Tax Revenue relative

to April – December 2012, largely reflected

stronger receipts from GCT, telephone call tax

and education tax consequent on tax measures

implemented in the year as well as higher travel

tax receipts. In this regard, for April - December

2013, the C-Efficiency (GCT&SCT excluding

arrears) ratio was 60.5 per cent, 1.3 percentage

points above the corresponding period of 2012

but lower than the implied budgeted ratio of

60.9 per cent (see Chart 20)2. Non-Tax Revenue

for the review period exceeded receipts for

April – December 2012 largely due to transfers

from the National Housing Trust.

Expenditure for April - December 2013 was

2 The C-Efficiency ratio is the share of value-added tax (VAT)

revenue in consumption

Chart 20: C-Efficiency Ratios

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14

%

Year

C-Efficiency (GCT/SCT) Linear ( C-Efficiency (GCT/SCT))

- 57 -

Annual Report 2013


The

Eco

nom

y

Source: Planning Institute of Jamaica

Table 26

$16.1 billion below budget, reflected in both

Capital and Recurrent Expenditure. Although

higher in nominal terms by 6.6 per cent, the

outturn for the review period represented a real

cut of 2.9 per cent relative to April - December

2012. Lower than budgeted Capital Expenditure

primarily reflected slower than anticipated

execution of capital projects. Recurrent

Expenditure reflected lower payments in all

categories. In particular, domestic interest

payments were $5.2 billion below budget

consequent on greater than expected savings

from the National Debt Exchange. Lower than

budgeted wages and salaries largely reflected

timing factors associated with the health sector

reclassification.

2.9.3. Financing

For April - December 2013, financing of

the deficit as well as debt amortization of

approximately $35.5 billion was sourced mainly

from the external market. In this regard, the

Government utilized net foreign financing of

$14.4 billion, primarily reflecting loan inflows

of US$130 million, US$90 million and US$60

million from the World Bank, IMF and IDB,

respectively. Additionally, there was net use of

domestic financing of $5.2 billion, reflecting

loan inflows from PetroCaribe as well as a draw-

down in bank balances.

2.9.4. Public Bodies Performance

For April - December 2013, the Public Bodies

recorded a net use of financing of $7.8 billion,

relative to the budgeted $6.1 billion (see Table

26) and $2.2 billion for April - December 2012.

The net use of financing over the review period

was largely reflected in foreign financing, the

impact of which was partly offset by a build-up

in deposits with commercial banks and other

domestic financial institutions.

Q1 Q2 Q3 Q1 - Q3 Q1 - Q3 Variance

6 421.5 -1 887.1 3 268.6 7 803.0 6 100.0 1 703.0

309.0 - 557.7 - 965.5 -1 214.3

1 406.8 635.4 -10 751.0 -8 708.9

-7 984.1 -5 707.8 -8 345.6 -22 037.6

12 689.9 3 743.1 23 330.8 39 763.7

Net use (+) /Net build-up ( -)

ANALYTIC PROFILE OF PUBLIC BODIES FINANCING OUTTURN (J$MN)

FY 2013/14Budget

Public Bodies

BOJ

Comm. Banks

Other Domestic

Foreign


Bank of Jamaica

The

Eco

nom

y

Selected Public Bodies (SPBs)3

The SPBs utilised financing of $17.3 billion (net)

for the period April – December 2013 relative to

the budget of $12.2 billion and in contrast to a

net build-up of $3.5 billion for April- December

2012. This performance mainly reflected net

use of financing from commercial banks, net

amortization in foreign loans and net use of

financing from other domestic institutions (see

Table 27). The main users of commercial bank

financing were National Water Commission

(NWC) and Petrojam; Clarendon Alumina

Partners (CAP) and NWC were the major users

of foreign financing. The overall net use of

financing reflected significantly lower than

anticipated operating surplus by Petrojam as

well as the inclusion of payments related to

prior year operating losses by CAP. The impact

of these excesses was, however, partly offset

by lower than expected use of financing by the

3 Includes: Petrojam, National Water Commission (NWC),

National Housing Trust (NHT), NROCC, National Insurance Fund

(NIF), Port Authority of Jamaica (PAJ).

National Housing Trust (NHT) in a context of

lower than anticipated operational expenses.

Other Public Bodies (OPBs)4

The OPBs recorded a net build-up of $9.5 billion

for April - December 2013 relative to a budget

of $6.1 billion and in contrast to a net use of

financing of $5.7 billion for April - December

2012 (see Table 28). The outturn for the

review period largely reflected the activities of

PetroCaribe and the Road Maintenance Fund.

In this regard, there was a build-up of balances

in commercial banks and other domestic

financial institutions, the impact of which was

partly offset by a net use of foreign financing.

2.9.5. Total Debt Stock

Jamaica’s total stock of debt grew by 6.9 per

cent to $1 938.2 billion for April to December

2013 relative to an increase of 6.0 per cent

in the stock for April to December 2012. (see

4 Includes: PetroCaribe, Road maintenance Fund (RMF), Student

Loan Bureau (SLB), Civil Aviation Authority (CAA)

Table 27


Selected Public Bodies 10 878.7 -1 423.7 7 882.8 17 337.9 12 219.2 5 118.7

BOJ -0.1 - 4.9 5.1 0.1

Comm. Banks 4 998.0 6 110.3 1 132.1 12 240.4

Other Domestic 730.7 9 225.3 -8 327.2 1 628.8

Foreign 5 150.1 -16 754.3 15 072.8 3 468.7


ANALYTIC PROFILE OF SELECTED PUBLIC BODIES FINANCING OUTTURN (J$MN)FY 2013/14

Budget

- 59 -

Annual Report 2013


The

Eco

nom

y

Table 29). The increase in the total debt stock

reflected expansions in domestic and external

debt. At end-2013, the total debt stock reflected

growth of 0.3 per cent in real terms relative to

end-March 2013, compared to a real decline

of 0.1 per cent for the corresponding period in

2012 (see Chart 21).

External Debt

At end-2013, the stock of external debt was

$884.0 billion (US$8 310.0 million) compared

to $804.3 billion (US$8 133.4 million) at end-

March 2013, an increase of $79.7 billion

(US$176.6 million). There was an increase in

the US dollar value of the external debt which

reflected receipt of US$130.0 million and

US$60.0 million from the World Bank and the

IDB, respectively. In addition, there was an

expansion of 9.9 per cent in the Jamaica Dollar

value of the external debt stock relative to end-

March, primarily reflecting the impact of a 7.0

per cent depreciation in the exchange rate over

the nine-month period. The stock of external

debt at end-2013 exceeded the stock at end-

2012 by $767.6 billion (US$54.5 million).

Table 28

Table 29


Other Public Bodies -4 457.3 - 463.4 -4 614.3 -9 534.9 -6 119.2 -3 415.7

BOJ - 690.9 1 505.9 6 797.0 7 612.0

Comm. Banks -3 591.2 -5 474.9 -11 883.1 -20 949.2

Other Domestic -7 714.8 -16 991.8 -7 786.2 -32 492.8

Foreign 7 539.7 20 497.4 8 258.0 36 295.1


FY 2013/14Budget

ANALYTIC PROFILE OF OTHER PUBLIC BODIES FINANCING OUTTURN (J$MN)

December FY-Dec 2012 December FY-Dec 2013

2012 Growth 2013 Growth

(J$MN) % (J$MN) %

Domestic Debt 995 230.9 9.0 1 054 174.0 4.5

External Debt 767 580.3 2.4 884 002.2 9.9

Total Debt 1 762 811.2 6.0 1 938 176.2 6.9

*Source: Ministry of Finance

JAMAICA'S TOTAL PUBLIC SECTOR DEBT


Bank of Jamaica

The

Eco

nom

y

Chart 21: Jamaica’s Total Public Sector Debt (J$Mn.)

Table 30

Central Government accounted for 76.2 per

cent of total external debt at end-2013, relative

to 72.9 per cent at end-March-2013 (see Table

30). The ratio of external debt service to exports

declined to 18.5 per cent at end-2013 from

26.4 per cent at end-2012 mainly due to lower

external amortization. Concurrently, the ratio

of external debt service to actual revenue (less

grants) was 21.3 per cent at end-2013 relative

to 31.7 per cent at end-2012. The lower ratios

indicate continued improvement in external

debt sustainability.

-2-1.5-1-0.500.511.522.533.5

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Per c

ent (

%)

J$ m

n

Total Debt (LHS) Real Growth in Total Debt (RHS)

Dec-11 Dec-12 Mar-13 Dec-13

Central Government 6 376.6 5 985.8 5 931.0 6 291.7

Government Guaranteed 1 399.5 1 419.7 1 368.3 1 269.5

BOJ 850.0 850.0 834.1 748.8

Total 8 626.1 8 255.5 8 133.4 8 310.0

EXTERNAL DEBT BY BORROWER CATEGORYDecember 2011 - December 2013

(US$ MN)


- 61 -

Annual Report 2013


The

Eco

nom

y

Domestic Debt

At end-2013, the stock of domestic debt was

$1 054.2 billion reflecting an increase of 4.5 per

cent relative to end-March 2013. This growth

largely reflected an increase in the foreign

currency component of domestic debt to 23.2

per cent from 20.0 per cent at end-March 2013,

due mainly to the impact of depreciation of

the exchange rate (see Table 31). The fixed

rate portion of domestic debt increased to 67.9

per cent at end-2013 from 66.3 per cent and

56.0 per cent at end-March 2013 and end-

2012, respectively. Despite a shortening of the

maturity profile of the domestic debt at end-

2013, whereby 31.9 per cent was scheduled to

mature within 5 years relative to 23.4 per cent at

end-March 2013, this profile was significantly

better than the profile at end-December 2012

when 53.2 per cent was scheduled to mature

within 5 years, prior to the NDX. Concurrently,

the duration of the GOJ’s domestic debt market

instruments reflected an improvement to 3.15

years at end-2013 relative to 1.55 years at end-

2012 despite falling from 3.69 years at end-

March 2013 (see Chart 22).

Table 31

Chart 22: Duration of the Domestic Debt Portfolio

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Jan

Feb

Mar Ap

rM

ay Jun Jul

Aug

Sep

Oct

Nov De

cJa

nFe

bM

ar Apr

May Jun Jul

Aug

Sep

Oct

Nov De

cJa

nFe

bM

ar Apr

May Jun Jul

Aug

Sep

Oct

Nov De

c

2011 2012 2013

yrs

Total Duration VR Duration FR Duration

Dec-11 Dec-12 Mar-13 Dec-13

Fixed Rate Debt 56.5 56.0 66.3 67.9

Debt maturing in 1-5 years 53.4 53.2 23.4 31.9

Debt maturing in 1-5 years 50.7 53.8 53.2 53.2

Foreign Currency Debt 12.3 18.7 20.0 23.2


STRUCTURE OF DOMESTIC DEBT(Per cent)


Bank of Jamaica

The

Eco

nom

y

2.10. Monetary Policy & Interest Rates

2.10.1. Overview

During 2013, the Bank of Jamaica (BOJ)

reduced the interest rate payable on its 30-day

Certificate of Deposit (CD) on one occasion,

25 February. This policy action was effected

in a context of continued weak domestic

demand conditions and a relatively favourable

inflation outlook. In addition, the Bank’s policy

stance was consistent with the lower domestic

interest rates which followed the successful

implementation of the National Debt Exchange

(NDX) by the Government of Jamaica (GOJ)

and revenue measures aimed at improving

fiscal sustainability. For the remainder of the

calendar year, the BOJ’s focus on meeting the

monetary targets in the economic programme

and efforts to contain inflation expectation, led

to the Bank maintaining its policy rate. Of note,

the rate on the Bank’s overnight instrument

was held at 0.25 per cent and the local currency

cash reserve and liquid assets requirement

were maintained at 12.0 per cent and 26.0 per

cent, respectively, for 2013. However, the Bank

continued to augment its liquidity management

operations, by offering a suite of special open

market operations (OMO) instruments with

varying tenors.

The BOJ’s liquidity management framework

was further enhanced by the introduction

of special repurchase agreements in the

September quarter, to alleviate periodic

liquidity constraints faced by deposit-taking

institutions (DTIs). These special repurchase

operations were conducted with two-week

and overnight tenors. These enhancements

were formalized on 16 December, with the

introduction of a Standing Liquidity Facility

(SLF) and a Bi-Monthly Repurchase Operation

(BMRO) under which DTIs have access to

overnight and fortnightly funding through

repurchase arrangements (see Box 2). The

interest rate on the SLF and BMRO were set at

150 basis points (bps) and 25 bps, respectively,

above the rate on the Bank’s 30-day CD. There

is an aggregate limit for each facility with

each institution having a limit on the amount

of liquidity accessible. During 2013, the Bank

also intervened in the foreign exchange market

to smooth supply and demand conditions and

continued its intermediation through the Public

Sector Entities (PSE) facility.

2.10.2. Developments and Challenges

On 25 February, the Bank reduced the interest

rate payable on its 30-day CD by 50 basis points

(bps) to 5.75 per cent in the context of generally

weak domestic demand conditions and the

expectation of a continuation of favourable

inflation trends (see Chart 23). The decision to

reduce the signal rate was also consistent with

the rates on domestic instruments following the

GOJ’s successful implementation of the NDX

between 12 and 28 February. In particular,

there were declines in interest rates on selected

domestic GOJ securities by between 1.0

percentage point (pp) and 5.0 pps.

- 63 -

Annual Report 2013


The

Eco

nom

y

of institutions and their use of the SLF will also be

continuously monitored. Institutions that access the

facility for more than 15 business days within each

calendar month or for 5 consecutive days will be subject

to enhanced monitoring by the Bank.

Bi-Monthly Repurchase Operation (BMRO)

In order to provide longer term financing to smooth

cyclical monthly liquidity needs, the Bank augmented

the SLF with a Bi-Monthly Repurchase Operation

(BMRO). Under this facility, the BOJ invites bids

from the DTIs every two weeks for a quantum of

repurchase transactions with a tenor of 14 days. The

rate on this facility is set at 25 bps above the rate on

BOJ’s 30-day CD. However, similar to the SLF, this

rate may be adjusted if necessary. The total available

funding through the BMRO is determined in each

period by the BOJ through its projection of the daily

liquidity needs of the system. In addition, the quantum

allocated is guided by the BOJ’s monetary policy

objectives. Following the projected liquidity need, the

Bank invites bids from institutions and then may adjust

the allocation based on the total demand for liquidity

versus its projected supply. The allocation of liquidity to

individual institutions at each operation is determined

by its relative asset size. The collateral required for the

facility is the same as the SLF and each transaction will

be settled in the JamClear®-CSD.

Box 2: Enhancements to the Liquidity Management Framework

Introduction

On 16 December 2013, the Bank of Jamaica (BOJ)

formalized an enhanced liquidity management

framework (ELMF) for deposit-taking institutions

(DTIs). The ELMF was designed to help to alleviate

the effects of liquidity swings on financial institutions

in order to ensure stability in the system. The principal

components of the ELMF are an overnight and a

bi-monthly financing facility through repurchase

arrangements.

Standing Liquidity Facility (SLF)

Overnight financing is available under the ELMF

through the Standing Liquidity Facility (SLF). Under

this facility, DTIs can access liquidity automatically

and on a continuous basis for overnight funding from

the Bank. The interest rate on the SLF is initially

set at 150 basis points above the rate on BOJ’s 30-

day certificate of deposit (CD), but this spread may

be adjusted if necessary. The total available funding

under the SLF was set initially at $3.5 billion, with each

institution able to access a portion based on its relative

asset size. Acceptable securities for the SLF are GOJ

and BOJ securities and all transactions will be settled

in the JamClear®-CSD. In order to manage potential

credit risk, the BOJ will continuously review and refine

the conditions for access to the facility as well as the

allocation limits of the DTIs. In addition, the conduct


Bank of Jamaica

The

Eco

nom

y

Following the implementation of the NDX

and other prior actions, the GOJ’s economic

programme was approved by the IMF under a

four-year Extended Fund Facility (EFF) on 01

May 2013. The approval resulted in Jamaica

receiving loan inflows totaling Special Drawing

Rights (SDR) of $136.8 million (US$207.2

million) from the IMF, of which SDR$58.0

million (US$87.9 million) was allocated for

budgetary support to the GOJ. The inflow to the

Government contributed to an overall build-

up in its accounts at the BOJ and an increase

in the net international reserves (NIR). In a

context where the Bank also net purchased

foreign currency from the market, the NIR and

net domestic assets (NDA) targets outlined in

the programme for the June 2013 quarter were

comfortably met.

Throughout the calendar year, the Central

Bank remained focused on meeting the

monetary targets outlined in the economic

programme. Given this commitment and in

an effort to contain inflation expectation, the

Bank maintained the rate on its 30-day CD

and overnight instrument at 5.75 per cent and

0.25 per cent, respectively, for the remainder of

2013, despite a relatively favourable inflation

outlook. However, the Bank continued to

augment its liquidity management operations

by offering a suite of special instruments of

varying tenors in excess of one year. This

action, coupled with the impact of the NDX,

fiscal consolidation and the implementation

of the CTMS resulted in increased liquidity

absorption from the system. In order to smooth

the distribution of liquidity, the BOJ introduced

special repurchase agreements which included

Chart 23: Interest rate on BOJ 30-day Certificate of Deposit

5.006.007.008.009.00

10.0011.0012.0013.0014.0015.0016.0017.0018.00

Dec-

08

Mar

-09

Jun-

09

Sep-

09

Dec-

09

Mar

-10

Jun-

10

Sep-

10

Dec-

10

Mar

-11

Jun-

11

Sep-

11

Dec-

11

Mar

-12

Jun-

12

Sep-

12

Dec-

12

Mar

-13

Jun-

13

Sep-

13

Dec-

13

(%)

- 65 -

Annual Report 2013


The

Eco

nom

y

a BMRO commencing in September and the

SLF which began in December 2013. In the

context of generally tight Jamaica Dollar

liquidity conditions, some financial institutions

sold foreign currency to the Bank which

contributed to an increase in the NIR. The Bank

also intervened in the foreign exchange market

to smooth supply and demand conditions and

continued its intermediation through the PSE

facility.

2.10.3. Base Money Management

In the context of these developments, the

monetary base expanded by 6.1 per cent for

2013, relative to an expansion of 6.5 per cent

for 2012 (see Table 32). The deceleration was

reflected in a sharp slowdown in the growth

of the commercial banks’ local currency cash

reserves as well as a decline in the banks’

current account relative to an expansion for

2012. The impact of these developments on

base money was partially offset by acceleration

in the growth of currency issue to 7.9 per cent

from 3.3 per cent for 2012. An increase in the

Bank’s holdings of GOJ securities was the

main source of expansion in the monetary

base. At end-2013, the monetary base was

largely in line with the programme projections.

Accordingly, the NIR and NDA targets outlined

in the programme were comfortably met (see

Table 33).

Table 32

2012 2013

Total Jan - Mar Apr - Jun Jul - Sep Oct - Dec Total

Net International Reserves (US$) - 840.5 - 241.3 119.0 - 93.1 137.7 - 77.8

NET INT'L RESERVES (J$) -75 101.1 -17 328.0 11 199.9 -8 761.8 12 961.8 -1 928.1

Assets -75 021.3 -15 215.7 15 320.4 -15 778.1 9 795.0 -5 878.4

Liabilities - 79.8 -2 112.3 -4 120.4 7 016.3 3 166.7 3 950.3

NET DOMESTIC ASSETS 81 039.5 10 974.0 -12 272.5 10 623.2 -1 411.7 7 913.0

Net Claims on Public Sector 41 042.2 25 288.1 -1 581.2 6 996.5 -5 193.5 25 509.9

- Central Government Deposits 30 389.0 -9 969.4 -4 626.2 5 555.2 -9 893.2 -18 933.6

- Government Securities - 377.6 7 060.0 844.2 - 158.9 - 39.3 7 706.1

- Other Public Sector 11 030.9 22 806.0 2 494.0 1 306.9 4 739.0 31 345.9

Net Credit to Banks -2 246.0 -3 356.9 - 618.8 - 735.0 - 376.1 -5 086.8

Open Market Operations 51 224.3 -6 623.5 -5 797.4 6 789.9 3 358.3 -2 272.7

Other -9 030.3 -4 333.7 -4 275.1 -2 428.2 799.6 -10 237.4

MONETARY BASE 5 938.4 -6 354.0 -1 072.6 1 861.4 11 550.1 5 984.9

- Currency Issue 2 037.4 -7 032.2 35.8 495.3 11 618.6 5 117.6

- Cash Reserve 2 986.2 637.1 - 104.7 348.0 904.1 1 784.4

- Current Account 914.8 41.1 -1 003.7 1 018.1 - 972.6 - 917.1

Memo:

NIR Stock (US$MN) e.o.p 1 126.1 884.2 1 003.2 910.1 1 047.8 1 047.8

Growth in Monetary Base (%) 6.5 - 6.5 - 1.2 2.1 12.5 6.1

Inflation (%) 8.0 2.7 1.1 3.7 1.9 9.7

SUMMARY ACCOUNTS OF THE BANK OF JAMAICAFLOWS - J$ MILLION

2013


Bank of Jamaica

The

Eco

nom

y

During the first quarter of 2013, the monetary

base contracted by 6.5 per cent, reflective of

the seasonal decline in currency issue. The

main influences on the monetary base were

a decline of $17.3 billion (US$241.9 million)

in the NIR, net build-up of $10.0 billion in

Central Government deposits at the Bank and

an increase of $6.6 billion in OMO liabilities.

There was a contraction of 1.2 per cent in the

monetary base, during the June 2013 quarter.

This contraction was influenced largely by

an increase of $5.8 billion in OMO liabilities

and a net build-up of $4.6 billion in Central

Government deposits at the Bank. The

increased placement in OMO instruments

was predominantly reflected in the Bank’s

special instruments offered during the period,

particularly a USD Indexed Note. Given

a tightening in Jamaica Dollar liquidity,

institutions sold foreign currency to the Bank.

In this context, the Bank’s overall operations

injected liquidity in the system while GOJ

operations were aborbtive. The funds sold to

the BOJ along with the proceeds from the loan

received from the IMF for budgetary support

contributed to an increase of $11.2 billion

(US$119.0 million) in the NIR for the June

2013 quarter.

The Bank continued to augment its liquidity

management operations with the offer of special

OMO instruments during the September 2013

quarter. These instruments facilitated increased

absorption of liquidity from the system. However,

the impact of this liquidity absorption was offset

by net unwinding of the Bank’s regular menu

of OMO instruments. In addition, in order to

smooth the distribution of domestic liquidity,

the Bank provided funds to deposit-taking

institutions via special repurchase operations

with two-week and overnight tenors. The net

injection of liquidity, which resulted from the

Bank’s OMOs, underpinned an expansion

of 2.1 per cent in the monetary base for the

September quarter.

For the December 2013 quarter, the monetary

base expanded by 12.5 per cent, reflecting

the typical increase in currency demand

associated with the Christmas holiday period.

The expansion in the monetary base was

Table 33

Criteria Outturn

Cumulative change in NIR (floor) - US$Mn - 301.7 - 81.8

Cumulative change in NDA (ceiling) - J$Mn 34.0 13.7

QUANTITATIVE PERFORMANCE CRITERIA* Monetary Targets

for the December 2013 Quarter

*Quantitative Performance Criteria relative to December 2012 quarter and valued at IMF programme rate, reflecting appropriate adjusters for specified flows.

- 67 -

Annual Report 2013


The

Eco

nom

y

Table 34

influenced by an increase of $13.0 billion

(US$137.7 million) in the NIR as there was a

decline of $1.4 billion in the NDA. Within the

NDA, there was a decline in OMO liabilities,

the proceeds of which facilitated net build-up in

Central Government deposits at the Bank. The

net injection through OMOs occurred despite

the continuation of the Bank’s offer of special

instruments. In order to alleviate periods

of domestic liquidity challenges, the Bank

continued to provide funds to deposit-taking

institutions via special repurchase agreements.

On 16 December, the Bank introduced the SLF

under which DTIs have automatic access to

overnight liquidity.

2.10.4. Interest Rates

The Bank reduced the interest rate on

its 30-day CD on one occasion in 2013

but maintained the rate on it’s overnight

instrument at 0.25 per cent. Similarly,

there were mix movements in the weighted

average yields on GOJ Treasury Bills for

the year (see Table 34 & Chart 24). In

particular, the weighted average yields

on GOJ 30-day and 90-day instruments

declined by 6 basis points (bps) and 14

bps to 6.25 per cent and 7.53 per cent,

respectively, for 2013. On the other hand,

there was an increase of 107 bps to 8.25

per cent, in the weighted average yield on

GOJ 180-day instrument. The movements

30-day WATBY

90-day WATBY

180-day WATBY

January 6.34 7.32 7.47

February 5.25 5.50 5.75

March 5.37 5.82 6.22

April 5.63 6.68 6.39

May 5.79 6.62 6.64

June 6.02 6.76 7.12

July 6.20 7.35 7.88

August 6.37 7.34 8.13

September 6.32 7.42 7.96

October 6.28 7.37 7.84

November 6.26 7.57 7.82

December 6.25 7.53 8.25

WEIGHTED AVERAGE TREASURY YIELDS(per cent) - 2013


Bank of Jamaica

The

Eco

nom

y

in the market-determined Treasury Bill

yields reflected investors’ preference for

shorter-term investments in the context of

Chart 24: Weighted Average Treasury Bill Yields (WATBY)

0.001.002.003.004.005.006.007.008.009.00

(%)

30-day WATBY 90-day WATBY 180-day WATBY

an accelerated pace of depreciation of the

Jamaica Dollar.

- 69 -

Annual Report 2013


The

Eco

nom

y

2.11. Economic Outlook

2.11.1. Overview

Economic activity is expected to accelerate

in 2014, given continued improvements in

Jamaica’s external competiveness and a

strengthening of growth in the global economy.

This forecast assumes continued expansions

in Mining & Quarrying, Agriculture, Forestry

& Fishing, Construction and Hotels &

Restaurants. Growth is expected to be driven

by increased external demand as domestic

demand conditions are anticipated to remain

weak, albeit improving relative to 2013, due

to the protracted decline in real wages and

sustained fiscal constraint. In this context,

headline inflation for 2014 is projected to

decelerate relative to the rate recorded in 2013.

The outlook for inflation is also predicated on

the non-recurrence of administrative price

adjustments that took place in 2013, a decline in

international commodity prices and continued

excess domestic capacity conditions.

2.11.2. International Economy

The pace of expansion in the global economy

is projected to increase to 3.8 per cent in 2014

relative to 3.1 per cent in 2013. Growth is

expected to accelerate in the economies of the

USA, UK, Euro Area and Canada primarily

driven by reduced fiscal drag and continued

monetary easing. However, China is expected

to record lower growth in 2014 reflecting the

impact of policy measures aimed at restraining

the expansion of credit. A deceleration is also

anticipated for Japan due to fiscal consolidation.

Average crude oil prices for 2014, as measured

by the West Texas Intermediate (WTI), are

forecast to moderate relative to the increase of

4.0 per cent for 2013. This projection reflects

the impact of high US supplies, the anticipated

tapering of the US Federal Reserve’s stimulus

programme, the interim resolution of Iran’s

nuclear programme as well as easing

geopolitical tensions in the Middle East.

The prices of food-related raw materials are

projected to decline within the range of 1.5 per

cent to 3.5 per cent in 2014. This compares with

an average increase of 3.5 per cent recorded for

the last two years. The outlook for 2014 reflects

anticipated declines for wheat and corn prices,

reflecting increased global supplies resulting

from favourable weather conditions in some of

the major producing countries. Wheat prices

are expected to decline within the range of 2.0

per cent to 4.0 per cent while a contraction of

12 per cent to 15.0 per cent is anticipated for

corn prices. Benchmark Thai rice prices are

also expected to decline within the range of 5.0

per cent to 7.0 per cent reflecting the impact of

high stockpiles and increased competition from

Vietnam.

2.11.3. Domestic Economy

2.11.3.1. Growth

The Jamaican economy is expected to expand

within the range of 0.5 per cent to 1.5 per cent

for 2014, outpacing the growth of 0.2 per cent


Bank of Jamaica

The

Eco

nom

y

recorded in 2013. The major contributors to

output growth are expected to be Mining &

Quarrying, Agriculture, Forestry & Fishing,

Construction and Hotels & Restaurants. Growth

in Mining & Quarrying should reflect increased

capacity utilization within the alumina

industry following production problems

experienced during 2013. Agriculture, Forestry

& Fishing is expected to benefit from increased

cultivation under the Government’s Agro Parks

initiative as well as more favourable weather

conditions relative to 2013. Construction

is expected to be buoyed primarily by on-

going infrastructural projects. For Hotels &

Restaurants, the expansion is premised on

an anticipated increase in stopover arrivals

largely associated with continued economic

recovery in major source markets. The main

risks to the forecast include adverse weather,

slower than anticipated global growth, delays

in key infrastructural projects and lower than

expected consumer and business confidence.

2.11.3.2. Inflation

Domestic inflation, as measured by the change

in the consumer price index (CPI), is projected

to be lower than the outturn of 9.7 per cent in

2013. This projection reflects expected declines

in international commodity prices and the non-

recurrence of administrative price adjustments

that took place in 2013. In addition, domestic

demand conditions are expected to remain

weak, albeit improving relative to 2013. These

factors are expected to temper the lagged

impact of some pass-through of exchange rate

depreciation. The main risks to the forecast

include the impact of fiscal adjustments

and higher than anticipated international

commodity prices.

2.11.3.3. Monetary Policy

Current projections suggest that output growth

should exceed levels attained in 2013 while

inflation should decelerate. In this regard, the

Bank will remain focussed on maintaining

single digit inflation and the monetary targets

outlined under the country’s EFF with the

IMF while ensuring adequate liquidity in the

financial system. In addition, the Bank will

begin to position itself for the implementation

of full-fledged inflation targeting (FFIT) over

the medium term pending a decision by the

Government.

- 71 -

3. Financial System Surveillance and Policy

drafted and have been the subject of extensive

discussions with sector representatives. The

Draft Regulations, once amended to reflect the

current agreements arising from discussions

with the sector, are expected to be presented

by the Minister of Finance to Parliament (see

Section 3.1.2.2 and Section 3.1.5).

Bank of Jamaica’s supervisory responsibilities

for deposit-taking institutions are discharged

through the Financial Institutions Supervisory

Division. The principal aims of supervision are

to promote the safety and soundness of banks

and banking groups as well as the stability

of the financial system. The supervisory

methodology combines annual risk-focussed

on-site examinations of each licensee with on-

going off-site monitoring facilitated primarily

by prudential reporting requirements. This

allows for continuous and timely review of

developments in the financial condition of

supervised entities both at the institutional and

the systemic levels. Feedback from the on- and

off-site assessments is provided by Bank of

Jamaica to licensees’ management and Boards.

This is provided through a composite of formal

meetings, official correspondence and written

reports on examination findings, highlighting

issues of concern and those requiring remedial

actions within specified time frames. Where

there is evidence of ‘unsafe and unsound’

practices, the Bank of Jamaica utilizes sanction

3.1. Supervision of Deposit-taking

Financial Institutions

3.1.1. Introduction

Bank of Jamaica’s responsibility for supervision

of deposit-taking financial institutions derives

from Section 34A of The Bank of Jamaica Act1.

The supervised population comprises:

• Commercial banks licensed under The

Banking Act;

• Merchant banks licensed under The

Financial Institutions Act (hereafter,

FIA licensees); and

• Building societies governed by The

Building Societies Act and The Bank

of Jamaica (Building Societies)

Regulations.

Additionally, credit unions have been

designated by the Minister of Finance as

‘specified financial institutions’ under The

Bank of Jamaica Act, as a preliminary step

towards placing these institutions under the

supervisory oversight of the Bank of Jamaica.

This specification currently enables the Central

Bank to obtain information on their operations.

Regulations to establish a formal supervisory

framework for these entities have been

1 Regulatory responsibility for non-deposit-taking financial institutions rests with the Financial Services Commission which has supervisory oversight of the securities, insurance and private pensions industries.

- 72 -Financial System Surveillance and Policy

Bank of Jamaica

Fina

ncia

l Sys

tem

measures as provided under the respective

financial legislation and in accordance with its

supervisory “Ladder of Enforcement” which

sets out the graduated series of supervisory

actions in response to specific prudential

concerns. Underpinning the entire supervisory

process is a constant review of the legal and

policy framework as well as supervisory

practice to ensure that these remain relevant

as financial markets evolve domestically and

internationally.

3.1.2. Current Priorities in Banking

Supervision

3.1.2.1 Development of the Omnibus Banking

Bill

During 2013, one of the policy focus of the

Bank continued to be the development of the

Omnibus Banking Bill which will serve to

consolidate three pieces of existing deposit-

taking legislation, i.e. The Banking Act, The

Financial Institutions Act and the Bank of

Jamaica (Building Societies) Regulations,

as well as certain provisions of the Building

Societies Act. The Omnibus Banking Bill

will also incorporate enhanced supervisory

standards in keeping with developments

in international standards in recent years

as outlined in the Basel Committee’s Core

Principles for Effective Banking Supervision

(BCPs). 2

2 The Basel Core Principles are international best practice standards for Banking Supervision which are established by the Basel Committee on Banking Supervision.

Based on feedback received from the industry

stakeholder consultation process during the

first quarter of 2013 and discussions with the

IMF in the context of recommendations from

the 2005 FSAP, detailed drafting instructions

for the legislation were developed during

2013. At year end, drafting of the legislation

was in progress and it is expected that the Bill

will be tabled in Parliament by 31 March 2014

for enactment by end-May 2014, pursuant to

timelines under the country’s agreement with

the IMF.

Significant enhancements/provisions proposed

for incorporation in the Omnibus Banking Bill

include: -

i. Supervisory Autonomy

In keeping with recommendations of the IMF

as well as international best practice standards

regarding supervisory autonomy, it is proposed

that provisions be included in the Omnibus

Banking Bill to effectively transfer critical

supervisory functions and responsibilities from

the Minister of Finance. Among the specific

powers proposed for transfer from the office of

the Minister of Finance to the BOJ are issuance

and revocation of deposit-taking licenses;

approval of ownership changes; and fitness

and propriety determinations.

Notably, supervisory determinations made with

respect to issuance of deposit-taking licenses

and approval of ownership changes will only

include, as part of the assessment process,

consultation with the Minister of Finance in

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relation to considerations involving matters

of national interest. Concomitant with the

granting of increased supervisory autonomy,

the Omnibus Banking Bill will:

a. Include provisions to strengthen the

governance and accountability structure of the

Supervisory Authority;

b. Codify in law, timelines for supervisory

determinations in relation to licence

determinations, applications for new businesses

or products, new delivery channels for existing

businesses or products, strategic alliances, joint

ventures and co-branding initiatives; and

c. Provide for the establishment of an

independent body, the Supervisory Appeals

Board, to hear appeals arising from supervisory

determinations in relation to fit and proper

assessments, external auditors’ appointments

and alleged breaches of the Enforceable Code

of Conduct to be established under the Bill.

A key tenet of independence is also, the power

of the Supervisory Authority to set binding

prudential rules to promote the stability of

the deposit-taking sector and to appropriately

address the specific nature of the sector’s

intermediation activities. These include

rules related to minimum capital adequacy,

liquidity requirements, loan classification and

provisioning, among others. The Omnibus

Banking Bill therefore proposes to include

provisions that confer on the Supervisor the

power to issue binding Supervisory Rules to

treat with these operational and prudential

aspects of deposit-taking operations. The

BOJ will continue to provide guidance to the

industry through issuance of Standards of

Sound Practice.

ii. Counterparty Exposure Limits

In keeping with standards established under the

BCPs, the Supervisory Authority has proposed

a comprehensive treatment of large exposures

to more effectively contain risks within the

context of a DTI’s capital resources.

This includes:

a. Revision of large exposure limits which are

established in relation to credit facilities to

now incorporate all ‘counterparty exposures’.

In that regard, the proposed definition of a

large exposure will include all direct and

indirect credit exposures (as captured under

the existing definition of credit facilities),

as well as investments (debt and equity)

and any other counterparty exposure of the

licensee, whether reflected on or off balance

sheet;

b. Standardization of counterparty exposure

limits for all deposit-taking institutions

and the introduction of these limits on a

consolidated basis for the financial holding

company (FHC) and its subsidiaries; and

c. The power to exercise supervisory discretion

in applying the definition of a group of

connected counterparties to ensure that

any connection and association that tie the

fortunes of a group of counterparties will be

accurately reflected within the computation

of the single counterparty exposure.


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It is also proposed that licensees notify

the Supervisor within three months of the

enactment of the Bill of all counterparty

exposures to persons and borrower groups in

excess of statutory limits and the measures

(which may include capital injection) that

the licensee will undertake to reduce such

exposures to applicable limits within a

prescribed transitional period.

iii. Consolidated Supervisory Framework

The Omnibus Banking Bill will include

provisions to further strengthen the existing

framework for the licensing, regulation

and supervision of FHCs and empower the

Supervisor to adequately monitor and, as

appropriate, apply prudential standards to the

FHC for its financial group operations. These

enhancements were dealt with extensively

in the Consultation Paper on “Proposals for

Enhancement of the Legislative Framework for

the Deposit-taking Sector.” 3

iv. Enforceable Code of Conduct

In recognition of the need for principles to guide

licensees in regard to their responsibilities to

customers, the Omnibus Banking Bill proposes

the implementation of an enforceable Code of

Conduct. The Code, details of which will be

developed subsequent to the enactment of the

Bill, will outline specific obligations of DTIs

to their customers on matters relating to the

disclosure of relevant information regarding

3 A copy of the Consultation Paper is available on Bank of Jamaica’s website at: http://www.boj.org.jm/uploads/news/omnibus_consultation_paper_final_311212.pdf

product and service offerings. The Code will,

for example, address the need for (a) clear

language for contracts and communication

with customers; (b) customers’ attention to

be drawn to key terms; (c) notification and

related notice periods for new or changes in

fees; (d) publication of standard competition

information (e.g. fees and charges); and (e)

formal customer dispute resolution processes.

Oversight of compliance with the Code will

be monitored through the Central Bank

supervision and examination processes (i.e.

on- and off-site assessments). Accordingly, the

Supervisory Authority will be appropriately

empowered to obtain information necessary to

establish whether the Code has been breached

as well as impose administrative sanctions

for breaches of, or non-compliance with the

Code. The Bank of Jamaica will also have the

express power to publish statistics on customer

complaints.

It should be noted that the Code will cover only

a sub-set of customer-related issues, that is,

those which may arise if there are breaches of

the Code by DTIs. Other issues and grievances

of consumers of financial services will remain

to be dealt with under substantive consumer

protection mechanisms and agencies, including

the Court where there are contractual issues.

A comprehensive regime treating with the

broader matter of safeguarding of consumer

interests with respect to the offer of financial

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services by both deposit-taking and non-

deposit-taking institutions is being considered

by the Authorities. 4

v. Agent Banking

As a means to achieving greater financial

inclusion and widening access to financial

services, the Omnibus Banking Bill includes

provisions to allow for the extension of

permissible banking services through agents

who meet the requirements for authorisation.

This enhancement is anticipated to allow

DTI customers to conduct certain banking

transactions such as cash deposits and

withdrawals, from third party locations,

including retail outlets or through the use of

mobile technology. The range of permissible

activities in which agents may engage are

proposed to include funds transfers between

accounts, loan repayments, bill payments

and balance inquiries. In recognition of the

significant impact to the stability of the financial

system of such agency banking arrangements,

provisions in the Omnibus Banking Bill will

allow for the issue of guidance on these

arrangements and enforceable prudential rules.

3.1.2.2 Draft Credit Unions Regulations

The Bank of Jamaica has been involved in

the drafting of Regulations that will establish

the supervisory regime for credit unions

4 The Minister of Finance has mandated the Bank of Jamaica to undertake research to inform the development of a framework that would incorporate such a comprehensive approach for the protection of consumers of financial services and make appropriate recommendations.

(see Section 3.1.1 and Section 3.1.4). These

regulations will, among other things, prescribe

prudential criteria covering essential areas such

as capital adequacy, liquid assets, credit limits,

non-accrual and provisioning requirements,

submission of financial statements and

minimum solvency standards. In addition, the

Regulations will outline remedial action that

can be taken by the supervisory authorities

with respect to unsafe and unsound practices

as well as insolvency. At year-end, the draft

Regulations were being revised to reflect

agreements reached with the credit union sub-

sector during the year. Most significantly, this

included an upward revision of the proposed

unsecured lending limit informed within the

context of two key developments which were

deemed to have long term positive impact on

the country’s overall credit risk framework,

namely:

a) The operationalization of the credit

reporting regime with licensing of two

credit bureaux pursuant to passage and

implementation of the Credit Reporting

Act (2010); and

b) The impending implementation

of enhancements to the secured

transactions framework with the

proposed Security Interest in Personal

Property Act (SIPPA), including the

establishment of a Central Registry for

the registration of security interests in

non-realty assets.


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3.1.2.3 Survey of Fees & Charges

With a view to promoting transparency and

access by consumers to comparative information

on fees and charges offered by DTIs, Bank of

Jamaica has published annually, information on

fees and charges of commercial banks, building

societies and FIA licensees on its website since

December 2010. During the review year, the

Bank undertook a special survey on “Fees

and Charges of Deposit-Taking-Institutions”

pursuant to a Resolution of the Honourable

House of Representatives on 05 November

2013, which required that the Bank submit to

the Economy and Production Committee of

Parliament, within 60 days of the Resolution,

a report on the charges being levied by banks

and credit unions as at 31 October 2013. The

Resolution also required that where any of the

supervised banks “operate in other Caribbean

territories and/or any other jurisdiction outside

the Caribbean,” the report should provide the

charges being levied by those banks for the

same or similar services.

The survey was conducted on 55 service items

covering a range of transactions which would

commonly affect the general public relating

to “Current Accounts”, “Savings Accounts”,

“E-banking”, “Credit Card Services” and

certain “Miscellaneous Charges”.5 At year-

end, there were a number of outstanding

survey responses relating to credit unions and

regional and international commercial banking

5 “Miscellaneous Charges” included cost for manager’s cheque and cheque encashment fees.

counterparts. Nonetheless, on 06 January

2014, the Bank submitted an Interim Report to

Parliament to facilitate Parliament proceeding

with its discussions. Thereafter, a further 60

days was granted by Parliament for submission

of the Final Report. This report was submitted

on 14 March 2014. The Interim Report as at

31 October 2013 was published on the BOJ’s

website as was done for the earlier special study

undertaken as at 31 August 2010. 6,7

3.1.3 Supervisory Cooperation and

Interaction

3.1.3.1 Financial Regulatory Council

The Financial Regulatory Council (FRC) was

established in 2000 with the mandate to develop

policies and strategies to facilitate greater co-

ordination and information sharing between

the various supervisory and related agencies

operating in the Jamaican financial sector. The

Council comprises the following members:

• The Governor of the Bank of Jamaica,

Chairman;

• The CEO, Financial Services

Commission;

• The CEO, The Jamaica Deposit

Insurance Company; and

• The Financial Secretary.

The conduct of the FRC is guided by a

Memorandum of Understanding signed by

each member that addresses a range of common

issues, including information sharing.

6 http://www.boj.org.jm/uploads/news/boj_website_copy_interim_report.pdf

7 http://www.boj.org.jm/uploads/news/introduction_to_fees,_charges_tables_31_august_2010.pdf

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The FRC continued to meet during 2013 to

examine issues affecting the financial industry

as well as issues specific to corporate groups

comprising financial entities which are

supervised by the Bank of Jamaica and the

FSC.

3.1.3.2 The Caribbean Group of Banking

Supervisors

During 2013, the Bank continued to serve

as Administrator for the Secretariat of the

CGBS. 8 In May 2013, the Bank also assumed

Chairmanship of the Group for a two-year term.

In 2013, the Secretariat coordinated two

administrative meetings, three Supervisory

Colleges (see Section 3.1.3.3) and in conjunction

with the Banque de la République d’Haiti, the

“XXXI Annual Conference.”9 Five training

programmes were organized and held for the

region with international facilitators from the

Toronto Centre for Leadership Development

(Canada); Federal Reserve System (USA); the

Financial Stability Institute; and the Caribbean

8 The CGBS was established in 1983 under the aegis of the Central Bank Governors of member countries of the Caribbean Community (CARICOM), with the specific mandate to co-ordinate the enhancement of bank supervisory practices in the English speaking Caribbean, consistent with internationally accepted standards. The CGBS was later extended to banking supervisors from non-CARICOM Caribbean territories and now comprises membership from sixteen regional jurisdictions, ten of which are currently core members of CARICOM.

9 A regulatory or supervisory college generally refers to a working group of national banking supervisors (that have supervisory responsibility for entities in cross border group) that is formed for the collective purpose of enhancing effective consolidated supervision of a cross border banking group on an ongoing basis.

Regional Technical Assistance Centre

(CARTAC).10,11,12 The Bank also participated

in and contributed to the discussions of two

Technical Working Groups on the “Development

of a Regional Crisis Management Plan” and

“Basel II/III”.

3.1.3.3 Information Sharing

The Bank is one of 14 signatory jurisdictions

to a regional Information Sharing Agreement

under a Memorandum of Understanding

(MOU), to facilitate cross border cooperation

between home and host supervisory authorities

for regional banking entities. During 2013,

the Bank, under powers of the MOU, engaged

in discussions and exchanged relevant

information with regional jurisdictions with

common banking group presence. Bank

of Jamaica also participated in regional

regulatory colleges organised by CGBS and

Canada’s Office of the Superintendent of

Financial Institutions (OSFI) to discuss matters

of mutual interest pertaining to three cross

border banking groups.

10 The Toronto Centre which was established in 1998 with the support of the Government of Canada, the World Bank, the Schulich School of Business and the IMF, provides leadership training in financial sector supervision.

11 The Financial Stability Institute was jointly established by the Bank for International Settlements and the Basel Committee on Banking Supervision to assist supervisors around the world in improving and strengthening their financial systems.

12 CARTAC is one of eight IMF Regional Technical Assistance Centers (RTACs) located around the world. These Centres were created to help countries strengthen human and institutional capacity to design and implement sound macroeconomic policies that promote growth and reduce poverty. During 2013, CARTAC conducted two programmes.


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3.1.3.4 Association of Banking Supervisors of

the Americas (ASBA)13

Bank of Jamaica is a member of the hemispheric

group, the ASBA. During 2013, the Bank

remained an active contributor to the work of

ASBA as a member of its Technical Committee,

sitting as an invited observer at the Board

meetings, participating in a Working Group on

AML/CFT as well as its Training Committee.

The Bank also presented a paper on challenges

in the implementation of the new Liquidity

Coverage Ratio at the Annual Plenary.

3.1.3.5 Caribbean Financial Action Task Force

(CFATF)

In another area of regional involvement, the

Bank participated in CFATF plenaries and

contributed to the dialogue on enhancing AML/

CFT frameworks of member countries.

3.1.3.6 Financial Stability Board

The Bank participated in Regional Working

Group meetings of the Financial Stability

Board’s Regional Consultative Group for the

Americas on Home-Host Co-operation and

Information Sharing.14

13 ASBA is a regional grouping of 37 Banking Supervisory Authorities whose membership spans 35 jurisdictions encompassing North, Central and South America and the Caribbean, with one non-regional member, Spain.

14 The Financial Stability Board (FSB) was established to coordinate at the international level, the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability. The FSB Secretariat is hosted by the Bank for International Settlements, in Basel, Switzerland.

3.1.4 The Supervised Environment

As at 31 December 2013, there were 12 deposit-

taking licensees operating in Jamaica, down

from 13 at end-2012. During the year, the

assets and liabilities of FirstCaribbean Building

Society (FCIBS) were transferred to its parent,

FirstCaribbean International Bank (Jamaica)

Limited (FCIB) under a scheme of arrangement

effective 16 August 2013. Consequently, FCIBS

surrendered its deposit-taking license issued

under the Building Societies Act, thereby

reducing the number of building societies in

operation to three from four (see Table 35).

Additionally, pursuant to the acquisition of

Capital and Credit Merchant Bank (CCMB) by

JMMB during 2012, the name of CCMB was

changed to JMMB Merchant Bank (gazetted

21 May 2013). The DTIs in operation at 31

December 2013 are reflected in Table 36. These

licensees offered services through 166 physical

branches during the year relative to 172 at

end-2012, as well as through the internet and

Automated Banking Machines (ABMs).

During 2013, the balance sheets of local DTIs

were impacted by several developments in

the domestic economy. These included the

Government’s implementation of the National

Debt Exchange (NDX), which resulted in a

decline in market interest rates.15, 16 There were

15 Under the NDX the tenors of short- to medium-term GOJ debt securities were extended at lower coupon rates.

16 Bank of Jamaica Weighted Average Selling Rates: December 2011: US$1.00 = J$86.6008; December 2012: US$1.00 = J$92.9776; December 2013: US$1.00 = J$106.3777

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**The proposal by the Minister of Finance for the assumption of full supervisory responsibility for the 38 credit unions by the Bank will result in a significant expansion of the supervised deposit-taking population in the future.

also liquidity challenges in the system due to

the NDX as well as the impact of the increased

pace of the implementation of the Central

Treasury Management System (CTMS) by the

Government. The Central Bank responded

to these liquidity challenges by introducing

a Standing Liquidity Facility and Bi-monthly

Repurchase Operations. Licensees’ balance

sheets were also impacted by the depreciation

of the Jamaica Dollar which led to revaluation

gains on foreign currency portfolios. Against

this background, the aggregated assets of DTIs

increased by 10.7 per cent or $94.4 billion to

$977.2 billion as at 31 December 2013, relative

to an expansion of 7.6 per cent or $62.2 billion

for 2012.17 Of the increase for 2013, $51.4

billion was as a result of the expansionary

effects of revaluation gains on foreign currency

portfolios.

17 Assets include acceptances, guarantees and letters of credits and are shown net of provisions for losses under the International Financial Accounting Standards

Table35

Table 36

Sub-sector Institution Name Related Deposit-taking InstitutionBank of Nova Scotia Jamaica Limited (BNSJ) Scotia Jamaica Building Society

Citibank N. A. (CBNA)

FirstCaribbean International Bank (Jamaica) Limited (FISD)First Global Bank Limited (FGB)

National Commercial Bank Jamaica Limited (NCB)

Sagicor Bank (Jamaica) Limited (formerly PanCaribbean Bank Limited)RBC Royal Bank (Jamaica)Limited

JMMB Merchant Bank Limited (formerly Capital & Credit Merchant Bank Limited)

MF&G Trust and Finance Limited

Jamaica National Building Society (JNBS)

Scotia Jamaica Building Society (SJBS) Bank of Nova Scotia Jamaica Limited

Victoria Mutual Building Society (VMBS)

LICENSED DEPOSIT-TAKING INSTITUTIONSas at 31 December 2013

Commercial Banks

FIA Licensees

Building Societies

Supervised Entities 2009 2010 2011 2012 2013

Commercial Banks 7 7 7 7 7

FIA Licensees 3 2 2 2 2

Building Societies 4 4 4 4 3

Total 14 13 13 13 12

MARKET COMPOSITIONNumber of Licensed Deposit-taking Entities*


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Commercial bank assets grew by 12.2 per cent

compared to 7.5 per cent for 2012. The sub-

sector accounted for 75.8 per cent of market

share relative to 74.8 per cent for 2012 (see

Table 37). The growth in assets was largely

reflective of the transfer of assets from FCIBS,

as well as revaluation gains.

NCBJ and BNSJ remained the two largest

commercial banks, with combined market

share of 74.3 per cent at end-2013 relative to

74.7 per cent at end-2012. FCIB’s market share

increased to 8.4 per cent from 7.1 per cent at

end-2012 due to the transfer of assets from

FCIBS.

Notwithstanding the amalgamation of FCIBS

with its parent, the building societies sub-

sector’s asset base grew, albeit by a slower 4.8

per cent for 2013 relative to 8.6 per cent for

2012. The sub-sector’s market share fell to 21.6

per cent at end-2013 from 22.8 per cent at end-

2012. The combined market share of JNBS and

VMBS, the dominant players in the sub-sector,

increased to 90.6 per cent at end-2013 from

87.2 per cent at end- 2012.

The asset base of the FIA sub-sector expanded

by 19.0 per cent during 2013 in contrast to

the contraction of 0.6 per cent for 2012. This

expansion resulted in an improved share of the

DTI market to 2.6 per cent from 2.4 per cent at

the end-2012.

3.1.4.1 Balance Sheet Profile

The growth in the system’s assets was

primarily reflected in loans and advances

which expanded by 14.1 per cent or $57.6

billion to $466.6 billion. This compared with

an increase of 12.9 per cent or $46.7 billion for

2012. New loans and advances grew by $45.9

billion compared to $47.8 billion for 2012 and

were predominantly in domestic currency. The

remaining $11.7 billion reflected the effects

of revaluation gains on the reduced stock of

foreign currency loans. Loan and Advances

continued to be the largest share of system

assets at end-2013, representing 46.7 per cent

relative to 45.1 per cent at end-2012 (see Chart

25).

Investments (including repurchase

transactions) declined by 0.8 per cent or

Table 37

Sub-sector J$BN % J$BN % J$BN %

Commercial Banks 613.6 74.8 659.8 74.8 740.7 75.8

Buildings Societies 185.5 22.6 201.4 22.8 211.1 21.6

FIA licensees 21.4 2.6 21.3 2.4 25.4 2.6System Total 820.5 100.0 882.5 100.0 977.2 100.0

MARKET SHARE OF LICENSED DEPOSIT TAKING INSTITUTIONS

Dec-2011 Dec-2012 Dec-2013As at 31 December

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$2.1 billion to $255.3 billion. This stock of

investments represented a reduced 26.1 per

cent of total assets at end-2013 relative to 29.2

per cent at end-2012. Government of Jamaica

securities continued to account for the largest

portion of the portfolio, being 67.0 per cent

relative to 70.5 per cent for the previous year.

DTI’s holdings of Cash and Bank balances

increased by 21.4 per cent or $32.9 billion at

end-2013 compared to the increase of 5.9 per

cent or $8.6 billion at end-2012. As such, total

Cash and Bank balances of $186.7 billion

represented 19.1 per cent of total assets at end-

2013, relative to 17.4 per cent at end-2012.

Accretion for 2013 was reflected in an increase

of $28.1 billion (US$175.0 million) in balances

held at overseas banks and growth of $6.7

billion (including foreign currency component

of US$15.0 million) in till cash and local

placements.

Deposits expanded by 9.6 per cent or $55.9

billion compared to 10.5 per cent or $55.6

billion for 2012 and were the principal funding

source for growth in system assets. The increase

in deposits primarily reflected an expansion of

19.2 per cent or $43.7 billion in foreign currency

Chart 25: Profile of System Assets 31 December 2011- 2013

31 Dec. 2011 31 Dec. 2012 31 Dec. 2013

Other, 8.0% Other, 8.4% Other, 8.0%

Cash & Bank 17.7%

Cash & Bank, 17.4%

Cash & Bank, 19.1%

Investment(inclu.Repos),

31.3%


29.2%


26.1%

Loans43.0%

Loans45.1%

Loans46.7%


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deposits, largely due to the depreciation of the

Jamaica Dollar as the foreign currency stock

grew by US$100.0 million. This compares

to growth of 17.5 per cent or $34.0 billion,

including an expansion of US$217.0 million,

for 2012. Domestic currency deposits grew

by 3.4 per cent or $12.1 billion, relative to an

increase of 6.5 per cent or $21.7 billion for the

previous year.

New borrowings and equity also provided

supplementary funding for the increase in

assets during 2013. DTIs’ borrowings increased

by 14.2 per cent or $16.4 billion compared to 8.4

per cent or $8.9 billion for 2012. In particular,

commercial banks borrowed a total of $18.0

billion from local institutions as well as under

Repurchase Agreements with the BOJ.18 In

contrast, building societies’ borrowings declined

by $1.5 billion due to the amalgamation of

FCIBS with FCIB. In relation to shareholders’

equity, there was an increase of 9.4 per cent

or $12.3 billion, mainly in commercial banks.

Of this amount, $10.7 billion reflected foreign

currency capital injections, including US$80.0

million in two banks. This was in contrast to a

contraction of 4.1 per cent or $5.6 billion for

2012 due to reported losses as well as dividend

payments.

For 2013, the system’s foreign currency

denominated assets declined by 1.3 per cent or

18 The BOJ introduced a special liquidity arrangement under the Standing Liquidity Facility in addition to the Bi-monthly Repurchase Operations to provide liquidity support to DTIs.

US$49.0 million to US$3.7 billion in contrast to

the increase of 0.9 per cent or US$32.0 million

for 2012. The contraction was largely due to

the sale and maturities of investment securities

(US$164.0 million), a decline in loans and

advances (US$47.0 million) and a reduction

in miscellaneous assets (US$28.0 million). The

impact of these movements was partially offset

by increased overseas placements of US$190.0

million. Foreign currency liabilities grew

marginally by 0.3 per cent or US$12.0 million

compared to an increase of 2.3 per cent or

US$77.0 million for 2012. Additionally, there was

capital injection amounting to US$80.0 million

in two commercial banks. The combined effects

of the net contraction in foreign currency assets

and growth in foreign currency liabilities and

equity resulted in a narrowing of the system’s

long position to US$63.0 million at year-end

relative to US$216.2 million at end-2012. The

reduction was mainly reflected in the decline of

commercial banks’ long position by US$122.0

million to US$21.8 million at end-2013.

3.1.4.2 Liquidity

The respective required ratios for domestic

currency liquid assets held in relation to

domestic currency prescribed liabilities were

maintained by all sub-sectors.19 However,

19 The requirements are differentially applied to societies not meeting the prescribed threshold of residential mortgage lending in relation to savings funds. Societies that meet the prescribed ‘qualifying assets’ threshold attract the lower reserve requirements of 1 per cent and 5 per cent for cash reserve and liquid assets ratios respectively. Societies which do not are requested to meet the cash reserve and liquid assets requirements which apply to banks and FIA licensees which are 12% and 26% respectively.

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the system’s liquid assets ratio fell to 25.3 per

cent at end-2013 from 26.7 per cent at end-

2012, reflecting a tightening of liquidity in the

system. The lower average domestic liquidity

ratio reflected the impact of the NDX and the

CTMS. 20

With regard to foreign currency liquid

assets, the system’s US dollar liquid assets

ratio increased by 2.4 percentage points to

41.1 per cent at end-2013. This outturn was

reflective of increased placements in foreign

currency at both local and overseas banks vis-

à-vis balances held in domestic currency. All

licensees, including building societies, which

continued to qualify for the lower preferential

liquid assets ratio, maintained ratios in excess

of the required minima throughout the year.

In addition, the system maintained ratios in

excess of the minimum requirements of 12.0

per cent and 9.0 per cent in relation to domestic

currency and foreign currency prescribed

liabilities, respectively. There were, however,

a few instances of breaches of the requirements

arising from individual DTIs’ lateness in

ensuring that their respective cash reserve

balances were met on the first day of the month

as required by law. These shortfalls incurred

penalty charges imposed in accordance with

the applicable statutes.

20 The Government’s establishment of a single treasury account under the CTMS served to periodically transfer Government deposits from DTI’s into a central treasury account held at the Bank of Jamaica.

3.1.4.3 Asset Quality

There was an improvement in asset quality for

DTIs at end-2013. The improvement in 2013 was

reflected in a fall in the ratio of non-performing

loans (NPLs) to total loans to 5.4 per cent at end-

2013, from 7.0 per cent at end December 2012,

well within the tolerable prudential benchmark

of 10.0 per cent. For the review year, non-

performing loans (NPLs) declined by 12.9 per

cent or $3.7 billion, following the contraction of

10.8 per cent or $3.5 billion for 2012 (see Chart

26). This decline was mainly influenced by

write-offs and sale of NPLs totalling $8.1 billion,

relative to a fall of $5.0 billion during 2012. The

contraction in the NPLs was primarily reflected

in the tourism and construction sectors.

At end-2013, the coverage of provisions to

NPLs (without adjustment for collateral) was

95.6 percent compared to 90.3 per cent at

end-2012.21 The ratio increased in spite of a

decline of 7.8 per cent or $2.0 billion in loan

loss provisions, in the context of a contraction

in NPLs. This was in contrast to an increase of

7.0 per cent or $1.7 billion in loan loss provision

for 2012. Similarly, regulatory capital plus

provisions increased to 531.1 per cent of the

value of NPLs at end-2013 compared with

414.3 per cent at end-2012.

21 Provisions for Loan Losses represent a combination of assessments under International Financial Reporting Standards and incremental amounts required in accordance with the Central Bank’s prudential guidelines.


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3.1.4.4 Capital

For 2013, licensees strengthened regulatory

capital through transfers from realised profits

to statutory reserve funds as well as via external

capital injections. Accordingly, the capital base

(net of accumulated losses) increased by 17.0

per cent or $15.9 billion for 2013 compared

to 4.2 per cent or $3.8 billion for 2012, with

all sub-sectors recording growth in capital.

Commercial banks recorded the most notable

growth of 21.1 per cent or $13.7 billion, relative

to 2.1 per cent or $1.4 billion for 2012, as four

of the seven banks bolstered their respective

capital bases. For the system as a whole, the

capital ratios remained adequate, with the

primary ratio (regulatory capital to total assets)

moving to 11.1 per cent relative to 10.5 per

cent at end-2012. Similarly, the risk-weighted

capital ratio (regulatory capital to risk-weighted

assets and foreign exchange exposures) rose to

15.1 per cent from 14.1 per cent at end-2012.

All licensees maintained primary and risk-

weighted capital adequacy ratios above the

minimum requirements of 6.0 per cent and 10.0

per cent, respectively.

3.1.4.5 Profitability

For the year ended December 2013, the system

reflected positive operating results based on

unaudited prudential data. Total pre-tax profits

amounted to $19.0 billion, a decline of $1.7

billion relative to end-2012. This outturn was

reflective of a pre-tax profit margin of 19.0 per

cent, down from 21.4 per cent for 2012, and a

return on average assets (ROAA) of 2.0 per cent

relative to 2.4 per cent for 2012.

Gross income increased by 3.2 per cent or $2.7

billion to $86.2 billion, as the net interest income

(NII) improved to $55.6 billion from $52.3 billion

at end-2102. The increase in the NII was due

to a higher level of interest income, principally

from loans and advances, which contributed

$5.2 billion. Contribution from net non-interest

Chart 26: System Annual Change in Loans and NPLs (3mths & over)

16.4

46.7

57.6

9.8

-3.5 -3.7

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Dec-11 Dec-12 Dec-13

Billio

ns ($

)

YearsChange in Loans Change in NPLs

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income for the year declined by $0.6 billion

largely due to reduction in dividend income at

one commercial bank which tempered income

from fees and charges of $2.6 billion and

foreign exchange gains of $1.4 billion. The

latter offset investment portfolio losses.

Non-interest expenses were higher by 12.7

per cent or $8.0 billion relative to 2012. Of this

increase, other operating costs and staff costs

accounted for $3.2 billion and $2.1 billion,

respectively, and represented growth. The

increase in non-interest expenses was largely

reflected at commercial banks.

3.1.5 Credit Unions

3.1.5.1 Oveview of the Credit Union Sector

The Bank of Jamaica continued to collect

and review information from credit unions

during 2013, pursuant to their designation as

“specified financial institutions” under Section

2 of the Bank of Jamaica Act in July 1999. In

the absence of Regulations which will establish

the framework for prudential oversight by the

Bank, oversight responsibility for these entities

remain vested in the Department of Co-

operatives and Friendly Societies (Registrar) as

statutory oversight agency. The Jamaica Co-

operative Credit Union League (League) also

undertakes a self-regulatory role for the sector.

During the year, the Bank and the League

reached agreement on the provisions to

be contained in the draft Bank of Jamaica

(Credit Unions) Regulations, in the context

of enhancements to the credit framework.

These enhancements relate to implementation

of the new credit reporting framework and

the impending implementation of a secured

transactions framework under the proposed

SIPPA which will include establishment of a

Central Registry for the registration of security

interests in non-realty assets. The League

also agreed to the Bank’s proposals relating

to the strengthening of the draft Regulations

including:

(a) The definitions of unsecured credits,

past due credits, non-performing credits

and non-accrual credits; provisioning

requirements for unsecured non-

performing credits; and

(b) Certain licensing requirements

pertaining to corporate governance

and risk management frameworks,

including transition arrangements.

With the League’s formal sign-off on these

issues, the process for finalization of the draft

Bank of Jamaica (Credit Unions) Regulations

may commence. Once these Regulations are

promulgated in Parliament, statutory oversight

authority for credit unions will be transferred to

the Bank of Jamaica.

3.1.5.2 Credit Union Sector Developments

Reports submitted to the Bank of Jamaica as at

end-2013 indicated an increase in membership

over the year by 3.3 per cent or 31 902 to 1 003

079. Concurrently, there was an increased level

of merger activity during 2013, as the sector


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continued to position itself to benefit from

the consolidation of capital bases, economies

of scale and a streamlining of operations

in anticipation of the imminent passage of

the Regulations. The sector contracted to 38

constituent members at end-2013, from 43 at the

start of the year, consequent on the mergers as

permitted by Section 53 (1) of the Co-operative

Societies Act. 22 The mergers were:-

(i) First Regional Credit Union Limited

with Hospitality Industries (formerly

SuperClubs) Cooperative Credit Union

Limited and Round Hill Cooperative

Credit Union Limited (effective 01 June

2013);

(ii) JPS & Partners Cooperative Credit Union

Limited with Kirkvine Cooperative

Credit Union Limited and Ewarton

Works Cooperative Credit Union

Limited (effective 02 August 2013 and

01 September 2013, respectively); and

(iii) C&WJ Credit Union Limited with

Westmoreland Co-operative Credit

Union Limited (effective 02 September

2013).

Consequent on these mergers, the credit unions

were represented by nine “Parish” based (24.0

per cent of sector assets); 25 “Employee” based

(66.0 per cent), and four in the ‘Other’ category

(10.0 per cent).23 Of note, the 20 largest credit 22 Palisadoes Cooperative Credit Union Limited merged with Petroleum Industries Cooperative Credit Union Limited, effective 31 December 2013. In that regard, effective 2 January 2014, the sector comprised 37 credit unions.

23 The “Other’ credit unions being: COK Sodality CCUL, C&WJCCUL, Church of the First Born CCUL and First Heritage CCUL.

unions represented 89.0 per cent of the sector’s

assets of $76.5 billion as at 31 December 2013.

3.1.5.3 Credit Union Performance Highlights

Based on unaudited prudential returns

submitted to the Bank, the net profits for the

credit union sector grew by $0.3 billion (37.5 per

cent) to $1.1 billion for the financial year ended

31 December 2013. This represented a reversal

of the $0.3 billion contraction reported in 2012

and resulted in an increase in the sector’s net

profit margin to 11.0 per cent from 8.9 per cent

posted a year earlier. This strengthening was

primarily driven by the combined effects of a

$0.4 billion (5.8 per cent) increase in revenues

earned on the sector’s expanded loan portfolio,

coupled with higher income of $0.2 billion (18.1

per cent) from fees and service charges which

together outpaced the growth of $0.3 billion

(3.4 per cent) in aggregate expenses.

The sector reported aggregate assets of $76.5

billion at end-2013, reflecting annual growth

of $5.3 billion (7.4 per cent), compared to the

$4.5 billion (6.7 per cent)) for 2012. Most of

this growth was reflective of an increase of $4.5

billion (9.4 per cent) in the loan portfolio to

$52.4 billion at end-2013. Although the rate of

increase in the loan portfolio slowed from the

$5.6 billion (13.2 per cent) reported in 2012,

growth of $3.4 billion (8.4 per cent) in Consumer

Lending was similar to that recorded for the

prior year. In contrast, growth in mortgage

loans slowed to $0.8 billion (13.0 per cent) from

the expansion of $2.2 billion (55.8 per cent) for

2012.

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Funding for growth in assets was primarily

provided by an increase of $3.8 billion (6.9 per

cent) in members’ savings to $58.6 billion. In

addition, the sector’s capital base increased

by $0.4 billion (4.8 per cent) to $8.7 billion

and borrowings from the League grew by $0.3

billion (25.0 per cent) to $1.5 billion (see Table

38).

At end-2013, total assets held by the credit

union sector represented 7.3 per cent of the

$1 053.7 billion in assets held by all DTIs as at

end-2013 compared to 7.7 per cent at end-2012

(see Chart 27).

3.1.6 Credit Reporting

During 2013, the Bank continued the

implementation of the operational and

supervisory framework for the credit reporting

system, in order to facilitate the effective

discharge of its oversight mandate under the

Credit Reporting Act (CRA).

3.1.6.1 Licensed Credit Bureaus

The two entities which were granted licences

under the CRA by the Minister of Finance

during 2012, commenced the issue of credit

reports during the latter half of 2013. The

two licensed entities are Creditinfo Jamaica

Limited and CRIF NM Credit Assure Limited.

At year end, the licensees were continuing

efforts to conclude contracts with eligible

Table 38

INDICATORS Dec-2011 Dec-2012 Change Change Dec-2013 Change Change

(%) (%)

Number of Credit Unions (Actual) 44 43 (1) -2.3% 38 (5) -11.6%

Membership (Actual) 948 869 971 177 22,308 2.4% 1 003 201 32,024 3.3%

Total Assets ($BN) 66.7 71.2 4.5 6.7% 76.6 5.4 7.6%

Total Loans ($BN) 42.3 47.9 5.6 13.2% 52.4 4.5 9.4%

PDL (>3months) ($BN) 1.2 1.5 0.3 25.0% 1.7 0.2 13.3%

Capital ($BN) 7.7 8.3 0.6 7.8% 8.7 0.4 4.8%

Borrowings from JCCUL ($BN) 0.7 1.2 0.5 71.4% 1.5 0.3 25.0%

Total Savings Fund ($BN) 51.6 54.8 3.2 6.2% 58.6 3.8 6.9%

Share Savings ($BN) 23.8 25.4 1.6 6.7% 26.9 1.5 5.9%

PDL:Total Loans 2.8 3.0 3.2

Loans:/Savings Ratio 82.1 87.3 89.4Capital: Assets Ratio 11.5 11.7 11.4

COMPARATIVE KEY CREDIT UNION INDICATORSDecember 2011 - December 2013


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credit information providers (CIPs) as a means

of building the critical mass in terms of the

volume of credit information in their respective

credit reporting databases (see Table 39).

3.1.6.2 Unlicensed Credit Reporting Entities

The Credit Reporting Act restricts the use of the

words “credit bureau” or any other words which

could reasonably be construed as indicating

that a person carries on the business of a credit

bureau [Section 4(7)]; and the disclosure of

credit information about a consumer in return for

monetary payment or other reward or as part of

any business or undertaking whether for profit or

otherwise [Section 3(1)]. In this regard, during

2013, the Bank continued its investigations

aimed at ensuring full transparency and a level

playing field in the credit reporting market, in

relation to determining whether entities whose

existence may or may not have pre-dated the

advent of the CRA, were either using words in

their business names, or otherwise undertaking

activities that were in conflict with the Act.

Arising from investigations and the contacts

made by BOJ with companies, three entities

advised the Bank that they had discontinued

aspects of their respective operations that

would be in breach of the CRA. This in some

instances also involved the discontinuation of

listings as credit reporting agencies in physical

and online contact information directories.

Up to year-end, the Bank had conducted

confirmatory site visits at one entity with three

pending for 2014. While the Bank successfully

Chart 27: Profile of Assets Held by Deposit Taking Sector - December 2013

Credit UnionJ$76.5Bn.

7.3%

Merchant BankJ$25.4Bn.

2.4%

Commercial BankJ$740.7Bn.

70.3%Building SocietyJ$211.1Bn.

20.0%

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made contact with a number of entities to

clarify activities or request corrective actions

as relevant, there were instances of mail being

returned undelivered suggesting inactivity

of operations. This assessment was generally

corroborated by dated filings for these entities

with the Companies Office of Jamaica.

3.1.6.3 Public Education

The public education programme to sensitize

stakeholders and the general public of the

implications of the new Credit Reporting Act

was expanded during 2013. In addition to

pamphlet distribution, presentations at public

fora and media appearances, the Bank held a

seminar for consumer advocate groups as well

as credit information providers and advertised

in both the print and electronic media.

Table 39

Activity Area Total

Number of licensed credit bureaus 2

Number of eligible CIPs who have signed contracts with licensed credit bureaus* 45

Number of data subjects in databases of licensed credit bureaus 304,207

CREDIT REPORTING STATISTICSat 31 December 2013

* Includes agreements to enter into discuss ions with credi t bureaus as wel l as to actively share credi t information with credi t bureaus


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3.2. Supervision of Cambios and

Remittance Companies

During 2013, the Bank continued to discharge

its regulatory function in respect of Cambios

and Remittance Service Providers (RSPs).

In fulfilling this mandate, focus was placed

on monitoring the Anti-Money Laundering

(AML) policies and procedures of licensees in

the context of a dynamic financial landscape

where the adequacy of AML risk mitigating

measures is critical. In this regard, the Bank

continued to employ its two-pronged tool of on-

site inspection supported by rigorous in-house

monitoring of the operations of these entities,

to assess adherence to the Bank’s Operating

Directions and the AML regulations of the

Proceeds of Crime Act (POCA). Additionally,

licensees were required to comply with reporting

requirements to facilitate the achievement of

the Bank’s objective of providing timely and

accurate information to its stakeholders.

The supervisory process continued to include

on-going assessment of the probity and fitness

of Operators, in line with the Bank’s ‘Fit and

Proper’ criteria.1 This assessment informs and

guides the issuance and renewal of licences. In

this regard, 287 persons were assessed in 2013.

3.2.1 Cambios

During the review year, ten new cambio

licences were issued while five were voluntarily

surrendered. Five new companies entered the

cambio market while three ceased offering

cambio services. Consequently, the number

of companies which offered cambio services

increased to 73 from 71 at end-2012. The total

number of cambio locations at end-2013 was

168, compared to 163 at end-2012 (see Table

40).

1 Operators are directors and shareholders of Cambios and RSPs as well as their sub-agencies and the managers with responsibility for the operation of each service point. Shareholders as defined as persons holding 10.0 per cent or more of shares of the relevant company.

Table 40

2012 2013

New Locations Licensed 6 10

Locations Closed 4 5

Number of Locations 163 168

Number of Companies 71 73

STATUS OF CAMBIO LICENCESas at 31 December

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At the end of the review year, the parishes of

Kingston and St. Andrew continued to account

for the largest concentration of cambio locations,

followed by St. James, St. Catherine and St. Ann

(see Chart 28). Cambios commanded a market

share of 46.6 per cent of total market sales of

foreign currency in the review year, an increase

of 0.7 percentage point relative to 2012. 2

3.2.2 Remittance Service Providers (RSP)

The number of RSPs (Primary Agents) remained

at nine relative to end-2012. These Primary

Agents continued to offer inbound, outbound

and intra-island services.3 Inbound remittances

continued from four main countries namely, the

2 Foreign exchange sales by cambios, relative to total market sales reported during the period.

3 Companies licensed in Jamaica to offer remittance services as agents of these remittance companies domiciled overseas. They are authorised to offer the service in Jamaica through sub-agents.

USA, UK, Canada and the Cayman Islands.

The USA remained the major source for these

inflows in 2013.

For 2013, 102 new licences were issued

thereby authorising remittance operations at

an additional 69 locations through a network

of branches and sub-agents (see Table 41).

Concurrently, 128 licences representing 110

locations were relinquished. As a result, the

number of licensed locations declined to 444 at

end-2013 from 485 at end-2012. The Kingston

& St. Andrew region continued to have the

largest concentration of remittance locations at

end-2013, accounting for 27.0 per cent relative

to 23.7 per cent at the end of 2012 (see Chart

29).

Chart 28: Geographic Distribution of Cambio Outlets at end-December

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

%

Parish

2012 2013


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Table 41

Chart 29: Geographic Distribution of Remittance Outlets at end-December

0.00

5.00

10.00

15.00

20.00

25.00

30.00

%

Parish

2013 2012

2012 2013

New Locations Licensed 31 69

Locations Cancelled 59 110

Number of Locations 485 444

New Licences Issued 50 102

Licences Relinquished 70 128

Number of Licences 625 599

Number of Primary Agents 9 9

STATUS OF REMITTANCE LICENCESas at 31 December

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3.3. Financial System Stability

Assessment of DTIs

3.3.1. Overview

During 2013, DTIs remained largely resilient

to macro-prudential stress tests due to

continued strong capital positions.1,2 The

DTIs performed creditably in response to the

hypothetical shocks despite weak economic

activity, depreciation of the Jamaica Dollar

and lower earnings performance due to the


(NDX) during the first quarter of 2013. In

particular, the stress test results revealed that

the average post-shock capital adequacy ratios

(CARs) for the banking system largely remained

above the 10.0 per cent minimum benchmark,

in response to hypothetical market, credit and

liquidity shocks.

As it relates to credit risk, stress test results

showed that the system was resilient to

hypothetical shocks to non-performing loans

(NPLs). This performance reflected the impact

of continued improvements in loan quality,

particularly as it relates to the FIA Licensees

sub-sector. Specifically, the CARs of all DTIs

remained above the prudential 10.0 per cent

benchmark, subsequent to a hypothetical

increase of 30.0 per cent in NPLs. However,

1 DTIs include commercial banks, FIA Licensees and building societies.

2 The objective of stress testing by the BOJ is to determine the impact of extreme but plausible shocks to various risk factors such as credit quality, foreign exchange rates, domestic interest rates and liquidity on the capital adequacy ratios of the DTIs.

DTIs were adversely impacted by hypothetical

shocks to performing loans due to these

institutions’ continued strong concentration in

the personal loan category.

Regarding market-related stress tests, DTIs

remained generally resilient to these shocks

during the review period. Nonetheless, DTIs

showed increased susceptibility to interest rate

shocks, largely due to the impact of the NDX

transaction on these institutions’ investment

profile. Of note, FIA Licensees showed greater

susceptibility to hypothetical increases in

interest rates relative to the commercial banks

and building societies compared to the results

for 2012. With respect to foreign exchange

shocks, DTIs net open position declined

sharply during 2013, increasing the sector’s

susceptibility to depreciation in the exchange

rate. Nonetheless, the sector remained robust

to contemplated depreciation or appreciation

in the exchange rate.

Despite relatively tighter liquidity conditions

during 2013, DTIs also remained robust

to liquidity stress tests during the year. In

particular, the post-shock CARs of the DTIs

were above the minimum benchmark in

response to a hypothetical reduction of 40.0 per

cent in deposits.

The Bank’s macro-financial index (MaFI) for

DTIs, which comprises 18 key macroeconomic

indicators, worsened during 2013.3 This

3 The macroeconomic indicators are categorized as follows: 12-Month Measures - 12-month growth in CPI,


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performance reflected deterioration in the

12-month growth in the JSE Main Index and

volatility in the exchange rate over the review

period. On the other hand, the Bank’s micro-

prudential index (MiPI) for DTIs, comprising

21 key financial ratio indicators, showed

favourable results for the review period.4 Of

note, there were strong declines in the MiPI

across all DTI sub-sectors, largely due to

improvements in the balance sheet structure,

profitability and asset quality indicators.

3.3.2. Credit Risk Stress Tests

Despite weak economic conditions, there was

an improvement in the DTIs’ loan quality

during 2013. The improvement in the DTIs’

loan quality for 2013 was primarily reflected

in construction, tourism, distribution and

personal loan categories which together

accounted for approximately 71.2 per cent of

12-month growth in GDP, 12-month growth in stock market index,12-month growth in private sector credit; Fiscal Measures - central government deficit/GDP, credit to public sector/ GDP, National debt/GDP, external debt /GDP, volatility in inflation; Other Economic Prices - volatility in interest rates, volatility in exchange rates, real lending rate minus real deposit rate, U.S./Jamaica interest rate differential, real T-bill rate, real effective interest rate and BOJ Variables - BOJ credit to banking sector/GDP, M2/net international reserves, money multiplier.

4 The financial ratios are categorized as follows: Balance Sheet Structure - Capital/assets, loans/capital, deposits/loans, deposits/total assets, liquid assets/total assets, deposits & repos/assets, public sector loan/assets, financial inst. Loans/loans, investments/assets; Asset Quality - non-performing loans/assets, non-performing loans/total loans, reserve for loan losses/total assets, loan & sec. loss prov./assets; Profitability - implicit deposit rates, employee salaries/assets, non-interest income/assets, interest income/assets, net income/assets and Other Indicators - FX liabilities/FX assets, FX deposits/FX assets, 12-month growth in deposits.

total loans. In particular, the ratio of NPLs to total loans for DTIs decreased to 5.4 per cent at

end-2013, relative to 7.0 per cent at the close

of the prior year. Overall, the DTIs were also

generally resilient to the contemplated shocks

to NPLs. However, the building societies’ and

commercial banks’ CARs fell more sharply in

response to hypothetical shocks to performing

loans relative to that of the FIA Licensees.

Regarding shocks to NPLs, the commercial

banks were most vulnerable to the contemplated

100.0 per cent increase in NPLs during 2012

(see Chart 30). As a result of this shock, the CAR

for FIA licensees would fall by 1.1 percentage

points to 11.8 per cent at end-2012. Building

societies remained the most resilient to the

same level of shock. Of note, for the commercial

banks, a 10.0 per cent increase in NPLs would

result in the first bank breaching the 10.0

per cent CAR benchmark, while an increase

of 180.0 per cent was required for the first

building society and the FIA licensee to breach

this prudential minimum. Commercial banks

and building societies were most vulnerable

to a hypothetical 30.0 per cent deterioration in

performing loans. Subsequent to this shock,

the post-shock CARs for the commercial bank

and building societies sectors breached the

prudential minimum.

Sectoral shocks to performing loans showed

that at end-2013, the CARs of building societies

and commercial banks were most impacted

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by the shock to the personal loan categories.5

Following a hypothetical shock of 30.0 per cent

to this loan category, the CARs of the building

societies and commercial banks fell by 12.5 and

6.3 percentage points to 7.5 per cent and 7.7

per cent, respectively, at end-2013.

3.3.3. Foreign Exchange Risk Stress Test

Results

Against the background of tight Jamaica

Dollar liquidity conditions in 2013, DTIs’ net

open position declined sharply, relative to

2012, increasing the sector’s susceptibility to

depreciation in the exchange rate.6 In particular,

the average quarterly DTIs’ foreign currency

net open position fell sharply to the equivalent

of J$3.1 billion at end-2013 relative to the

equivalent of J$9.8 billion at emd-2012 (see

Chart 31). Despite the increased susceptibility

5 Mortgage loans are included in the personal loan category for building societies.

6 The US$:J$ exchange rate depreciated by approximately 14.0 per cent for 2013.

to depreciation, stress test results showed that

the banking system’s CAR was unchanged at

15.0 per cent in response to the hypothetical

depreciation or appreciation in the exchange

rate due to strong levels of capitalization.

3.3.4. Interest Rate Risk Stress Tests

DTIs’ susceptibility to interest rate shocks, as

measured by the dollar value of a basis point

(DVBP) to capital base, showed an increase

in 2013, reflecting the impact of the NDX

transaction on DTIs’ balance sheets (see Chart

32).7,8,9 Specifically, the average quarterly ratio

7 DVBP is the loss in net interest income generated from 100 bps shocks to the system’s foreign and domestic securities portfolio and reported as a percentage of the system’s capital base. Loss in net interest income is utilized as this is more reflective of realized losses.

8 The NDX had the effect of lowering coupon rates and extended the maturities on GOJ domestic bonds. Consequently, DTIs were impacted as a result of their negative maturity gap position, especially in the shorter tenors.

9 Shocks of 1 400 bps applied to domestic currency securities portfolio. Shocks of 150 bps applied to foreign currency securities portfolio.

0.0

5.0

10.0

15.0

20.0

25.0

DTIs Commercial Banks FIAs Building Societies

Actual

After 100.0% shock toNPLs

After 30.0% Reduction inPerforming PersonalLoans

Regulatory MinimumCap

ital a

dequ

acy

ratio

(%

)

Chart 30: Banking Sector: Impact on CAR of an Increase in NPLs and Reduction in PLs


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Chart 31: Banking Sector Quarterly Foreign Exchange Risk Stress Test Results

Chart 32: Banking System Quarterly Interest Rate Risk Stress Test Results

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Mar Jun Sep Dec Mar Jun Sep Dec

2012 2013

Net

Ope

n Po

sitio

n (J$

BN)

Capi

tal A

dequ

acy

Ratio

(%)

NOP (J$BN) (right axis) Regulatory minimum CAR (%) Post-shock CAR (50.0% Depreciation)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

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25.0


Bank

ing

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em's

Dolla

r Va

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of a

Per

cent

age

Poin

t Ch

ange

in B

ond

Yiel

ds t

o Ca

pita

l (%

)

Capt

ial A

dequ

acy

Ratio

(%)

Commercial Banks' Post-Shock CAR (%) FIAs' Post-Shock CAR (%) Building Societies' Post-Shock CAR (%)

System's Post-Shock CAR (%) (Right Axis) Regulatory Minimum Required CAR (%) DVPP (%) (Right Axis)

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increased to 12.4 per cent for 2013 from an

average ratio of 9.1 per cent for 2012. Despite

this increase, the banking system’s buffer

capital was sufficient to absorb the impact of the

contemplated shocks. Specifically, in response

to respective increases of 1400 bps/400 bps and

150 bps/20 bps in interest rates on domestic/

foreign currency rate-sensitive assets and

liabilities, respectively, the CAR for DTIs was

unchanged at 15.1 per cent.10,11 This result was

similar to that obtained at the end of the previous

10 Interest rate shocks of increases ranging from 1 100 bps to 1 400 bps and 275 bps to 350 bps are applied to domestic and foreign investment holdings, respectively, for fair value assessment. Similar interest rate increases are applied to domestic and foreign investments for the net interest income impact. Increases of 100 bps to 400 bps and 15 bps to 70 bps are applied to the domestic and foreign non-investment component, respectively.

11 Re-pricing net gap positions are computed for each re-pricing/maturity bucket as the assets minus liabilities. The change in the market value of net re-pricing assets is evaluated by applying the interest rate shock and duration factor to each re-pricing gap position. The impact on capital adequacy is then evaluated.

year. Additionally, at end-2013, it would take

shocks of as much as 4.5 times the magnitudes

used in the stress tests for the system’s CAR to

fall below the regulatory benchmark.

3.3.5. Liquidity (Funding) Risk Stress Tests

At end-2013, the banking system remained

resilient to a hypothetical sudden withdrawal of

deposits. Following a contemplated reduction

of 40.0 per cent in deposits, the CAR for the

banking system was unchanged. 12 This result

was similar to that obtained at end-2012

(see Chart 33). The liquid assets to average

prescribed liabilities ratio averaged 26.1 per

cent for 2013 relative to an average of 27.7 per

cent in the previous year. This decline was in

12 Hypothetical reductions are applied directly to the deposit base of the bank. Assets are assumed to be liquidated, in order of liquidity, so as to satisfy the demand. Haircuts are applied to non-liquid assets to satisfy further declines in deposits. The resulting impact on capital adequacy is then evaluated.

Chart 33: Banking System Quarterly Funding Risk Stress Test Results

0.00

5.00

10.00

15.00

20.00

25.00

30.00

capi

tal a

dequ

acy r

atio

(%)

Regulatory Minimum Required CAR

Building Societies -Post-shock

System-Post Shock

Commercial Banks - Post-shockFIAs- Post-Shock


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the context of a tightening of liquidity in the

banking system. In addition, the quarterly

average liquid assets to deposits ratio for FIA

Licensees declined by 3.3 percentage points to

31.7 per cent for 2013. However, for the review

period, the quarterly average liquid assets

to deposits ratio of commercial banks and

building societies increased by 8.4 percentage

points and 0.9 percentage point, respectively,

to 36.6 per cent and 23.8 per cent.

3.3.6. Aggregate Stress Test Results

The aggregate stress tests assessed the

simultaneous impact of increases in interest

rates, currency depreciation, credit quality

deterioration as well as deposit outflows on

banking sector CAR. The aggregate stress test

assumptions were:

• Increases of 1 100 bps and 100 bps in

interest rates on domestic currency

investment assets & liabilities and other

assets & liabilities, respectively;

• Increases of 100 bps and 10 bps in

interest rates on foreign currency

investment assets and liabilities and

other assets & liabilities, respectively;

• 10.0 per cent depreciation in the JMD/

USD exchange rate;

• 100.0 per cent of past due performing

loans (1 month to under 3 months)

becoming non-performing; and

• 10.0 per cent reduction in deposits.

In response to the abovementioned shocks, the

CARs of the DTIs declined by an average of 4.1

percentage points per quarter for 2013 relative

to the average decline of 3.6 percentage points

for 2012 (see Chart 34). Of note, however,

the CAR of DTIs at end-2013 was above the

prudential minimum benchmark mainly due

to significant improvements in the capital

positions of two institutions during the year

(see Table 42).

Chart 34: Banking Sector: Impact on CAR after the Aggregate Stress Test Scenarios

0.0

5.0

10.0

15.0

20.0

25.0

Mar-13 Jun-13 Sep-13 Dec-13

Baseline After shocks Prudential Minimum

Capita

l adeq

uacy r

atio (%

)

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3.3.7. Early Warning System (EWS) Results13

The Bank’s macro-financial index (MaFI)

increased by 8 points to 17.0 points at end-

2013, relative to end-2012, but remained well

below the 1996-1998 financial crisis threshold

13 The BOJ Early Warning System (EWS) for financial stability monitors macro- and micro-economic indicators of the banking sector via a non-parametric approach to signal banking sector vulnerability. The signal is based on EWS scores for each indicator, which is computed based on the number of standard deviations of each indicator from its ‘tranquil period’ mean value. The tranquil period refers to an eight quarter period of relative stability that precedes the beginning of a signalling window. The scores range from 0 to 5 with a score of 5 representing the most severe signal. Banking sector vulnerability at a point in time is determined by the trend in the aggregate EWS score (or index) over the previous eight quarters (signalling window).

value of 44.0 points (see Chart 35). This outturn

largely reflected deterioration in the 12-month

growth in the stock market and volatility in

the exchange rate indicators. The signal from

the stock market indicator increased to 5.0

points at end-2013 from to 0.0 point at end-

2012, reflecting low investor appetite for equity

investments throughout 2013. Additionally,

the continued depreciation of the exchange

rate resulted in the indicator for the volatility in

exchange rate increasing to 5.0 points at end-

2013 from no signal at end-2012.

Table 42


Original CAR (%) 15.4 14.7 14.5 14.1 14 14.2 15.1 15.6Post-shock CAR (%) 12.8 11.2 10.5 9.6 9.5 10.1 11.2 11.9Change in CAR (pp.) -2.6 -3.5 -4 -4.5 -4.5 -4.2 -3.9 -3.7

DTIs QUARTERLY AGGREGATE STRESS TEST RESULTS

Chart 35: Macro-Financial Index & Sub-Components: 2012 – 2013

5.02.0 2.0

7.0

2.0

2.0

2.0

1.0

1.0

5.0

5.0

5.0

5.0

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5.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

28.0

32.0

36.0

40.0

44.0

48.0

Dec-12 Mar-13 Jun-13 Sep-13 Dec-13

Index Points

BOJ variables

Volatilityindicators &other economicprices

Fiscal measures

12-monthmeasures

Crisis Threshold


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On the other hand, the micro-prudential

indices (MiPIs) for the commercial banks, FIA

Licensees and building societies declined to

11.0 points, 9.0 points and 3.0 points from 29.0

points, 32.0 points and 44.0 points, respectively,

at end-2012. The decrease in the indices for the

three sectors was largely due to improvements

in balance sheet structure, profitability and

asset quality indicators.

The outturn of the MiPI for commercial banks

for 2013 primarily reflected improvements in

weighted ratios of non-performing loans to

assets, non-performing loans to total loans, net

income to assets and interest income to assets

(see Chart 36).14 However, the impact of the

performances of these indicators was partially

offset by deterioration in the deposits to total

loans indicator.

14 Indicators included in the micro-prudential indices are weighted by asset size.

With respect to the building societies, the

MiPI mainly reflected improvement in the

performance of balance sheet indicators

(see Chart 37). In particular, there were

improvements in the weighted ratios of loans to

capital, deposits as a share of assets, deposits

and repos to total assets, investments to assets

and liquid assets to total assets for the review

period. For the FIA licensees, the improvement

reflected lower signals for all four broad

categories of indicators (see Chart 38).

Chart 36: Micro-Prudential Index & Sub-Component for Commercial Banks: 2012 - 2013

8.0 10.0 10.0 10.0 10.0

12.0 6.0 2.0 2.0

9.05.0

5.0 2.0 1.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0


Index Points

Other indicators

Profitability

Asset quality

Balance sheet structure

Crisis Threshold

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Chart 37: Micro-Prudential Index & Sub-Component for Building Societies: 2012 - 2013

Chart 38: Micro-Prudential Index & Sub-Components for FIA Licensees: 2012 – 2013

25.0 23.0 21.0

7.0 6.01.0

4.0 9.03.0

3.0 3.0

3.02.0

0.0

10.0

20.0

30.0

40.0

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60.0


Index Points

Other indicators

Profitability

Asset quality


Crisis Threshold

11.0 9.04.0 5.0 2.0

10.0

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7.0

2.0 2.01.0

8.0

4.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0


Index PointsOther indicators

Profitability

Asset quality


Crisis Threshold


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3.4. Financial Legislation

3.4.1. Financial Legislation Passed in 2013

There were no legislative amendments to the

financial legislation in 2013.

3.4.2. Pending Amendments to Financial

Legislation

3.4.2.1. The Bank of Jamaica Act

The third draft of the Bill (entitled “An Act to

Amend the Bank of Jamaica Act”) has been

circulated to stakeholders for feedback.

In December 2010, Cabinet approved the

decision for the institutional responsibility

for the stability of Jamaica’s financial system

to be assigned to the Bank of Jamaica. This

decision is consistent with the international

response to the 2007/2008 financial crisis and

the route taken by most jurisdictions to locate

this function within the respective central

banks. This reform also comprises the set

of legislative reforms that underpinned the

Stand-By Arrangement with the IMF in 2010.

The amendments to the Act will:

1. Outline the mandate of the Bank of

Jamaica in relation to this role of

maintaining financial system stability;

2. Mandate the establishment of a

Financial System Stability Committee

to coordinate the activities pursuant

to the objective of financial system

stability;

3. Expand the regulatory oversight of the

Bank of Jamaica to financial institutions

whose operations are deemed to be of

systemic importance;

4. Grant the necessary powers to the Bank

of Jamaica to obtain information from

these financial institutions that will

allow for the assessment of risks to the

financial system (including the powers

of inspection; powers to demand

information);

5. Give the Bank of Jamaica the necessary

powers to direct and impose measures

to mitigate and control these risks

(including the extension of liquidity;

and powers to issue Prescriptive Rules,

Standards and Codes pertinent to this

oversight of the stability of the financial

system);

6. Mandate the establishment of a Central

Financial System database; and

7. Mandate the publication of a financial

stability report within three months

after the end of each financial year.

3.4.2.2. The Cooperative Societies

(Amendment) Bill

This amendment to the Cooperative Societies

Act will, among other things, bring credit union

cooperative societies under the regulatory ambit

of the Minister of Finance and Planning and the

Bank of Jamaica. Accordingly, this Bill includes

provisions that will restrict the deposit-taking

activities of cooperative societies, to those

cooperative societies, which operate as credit

unions. Other substantive enhancements to the

Cooperative Societies Act are contemplated

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by the Ministry of Industry Investment and

Commerce (MIIC), which is the Ministry with

portfolio responsibility for cooperative societies.

It is anticipated that this Bill will be presented

to Parliament jointly with the Bank of Jamaica

(Credit Union) draft Regulations which contain

the substantive prudential requirements to

which credit unions will be subject once the

aforesaid regulatory regime comes into effect.

3.4.3. Omnibus Banking Bill

The service of a drafting consultant was

contracted for the drafting of the Bill which

was completed and delivered to the Chief

Parliamentary Counsel. The official draft Bill is

now being developed.

In August 2010, Cabinet approved the

recommendations proposing the development

of omnibus legislation which will see the

consolidation of the legislation governing the

licensed deposit-taking sector into one omnibus

statute. The Bank of Jamaica is currently

reviewing legislation governing the operations

of licensed deposit-taking entities (specifically

the Banking Act, Financial Institutions Act,

and the BOJ (Building Societies) Regulations,

with a view to consolidating these pieces of

legislation into one consolidated statute (the

omnibus statute). The licensing and deposit-

taking provisions of the Building Societies

Act will also be transferred from the Building

Societies Act to the Omnibus statute. This

consolidation of legislative obligations into

one statute should remove any existing

inconsistencies in the regulatory regime

contained in the various statutes and ensure a

more synchronized progression of updates to

the laws governing the deposit-taking sector.

This initiative is also intended to implement

enhancements regarding consolidated and

conglomerate supervision that will bring the

regulation of the banking business in line with

the earlier international requirements (such

as Basel II) as well as with the more recently

issued Revised Basel Core Principles (i.e. Basel

III).1

Other enhancements that will be made to the

regulatory regime will also focus on current

issues such as outsourcing of certain functions

by licensees, electronic reporting to the

Supervisor, the offer of electronic financial

services, and enhancing powers available to the

Supervisor of Banks to achieve the objective of

supervisory autonomy, and to establish powers

as regards the investigation and prosecution

of illegal deposit taking activities, and the

implementation of an enforceable code of

conduct for licensees.

In 2008, the Bank submitted a policy working

paper to the Ministry of Finance on the matter.

The Bank subsequently published the Industry

Consultation Paper on the proposed Omnibus

Banking Bill to its website on 31 December 2012

and also formally invited relevant stakeholders

to review the paper and provide feedback to

1 The Basel Core Principles are the global standards for prudential regulation and supervision of banking systems.


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the Bank by 04 March 2013. The feedback from

the relevant stakeholders was considered and

subsequently addressed. The Consultation

Paper also informed the subsequent submission

to Cabinet to commence the legislative process.

A determination will also be made on whether

the Building Societies Act should be repealed

or retained with other amendments to effect

updates to the non-deposit-taking obligations

of building societies.

3.4.4. Pending Financial Regulations

Clarifying Note: With the exception of

the BOJ (Credit Union) Regulations, if the

proposed Omnibus Banking Bill is finalized

before the pending financial regulations

which are discussed below, then the process of

promulgating these regulations will be replaced

by the promulgation of these regulations under

the Omnibus statute. The BOJ (Credit Unions)

Regulations however, remains a separate

legislative initiative that will be finalized

separately from the Omnibus Banking Bill.

3.4.4.1. The Banking (Form of Application

Regulations and The Financial

Institutions (Form of Application)

Regulations

These regulations will comprise the prescribed

application form under the respective Acts.

The earlier format of licence fees regulations

under the Banking Act and the Financial

Institutions Act that dealt with both licences

fees and the prescribed form of application

was not retained. It was felt that the matter

of the prescribed application form should be

addressed via separate regulations so that

the periodic upgrading of this form would not

disrupt the licence fees aspect of the regulatory

regime. These regulations will also include

enhancements to the application form to capture

certain basic particulars from applicants that

were not captured under the old forms as well

as enhancements to bring them in line with the

revised Core Principles.

The revised form will also require the principals

signing on behalf of the applicant company to

certify that the information given in the form

is accurate to the best of their knowledge

and belief. Similar reforms to the application

form under the Building Societies Act will be

subsequently effected (see Clarifying Note).

3.4.4.2. The Bulding Societies (Licence Fees)

Regulations

3.4.4.3. These regulations will be revised

to bring the fees payable in line with the

applicable fees under the 2003 Licence Fees

Regulations under the Banking Act and the

Financial Institutions Act (see Supervision

of Deposit-Taking Financial Institutions and

Clarifying Note).

3.4.4.4. The Banking (Qualification of

Auditors) Regulations

These regulations will create a framework for

ensuring that auditors, who are proposed as the

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statutory auditors of financial institutions, are

independent of the financial institutions being

audited (see Supervision of Deposit-Taking

Financial Institutions and Clarifying Note).

3.4.4.5. The Banking (Credit Classification

and Provisioning) Regulations

These regulations will formally impose the

measures that banks are required to take in

assessing credit, taking security and making

provisions for the possibility of default (see

Supervision of Deposit-Taking Financial

Institutions and Clarifying Note).

3.4.4.6. The Bank of Jamaica Credit Union

Regulations

These regulations will bring the operations of

credit unions fully under the Bank of Jamaica’s

prudential supervisory regime. These

regulations will therefore among other things,

cover licensing, capital, reserves, prohibited

business, remedial and intervention processes

and the role of specially authorized credit union

(see Supervision of Deposit-Taking Financial

Institutions and Clarifying Note).

3.4.5. Non-Financial Legislation Passed in

2013

In relation to the AML/CFT framework and the

financial system, the following pieces of non-

financial legislation were passed in 2013.

3.4.5.1. The Proceeds of Crime Act (POCA)

The POCA was amended in October 2013. The

matters included in these amendments were

designed to:-

1. address deficiencies identified in relation

to reporting obligations of suspicious

transactions;

2. outline the powers that competent

authorities designated under the POCA

will have in relation to their role of

monitoring compliance of financial

institutions and designated non-

financial businesses and professions

(DNFBPs) with the applicable AML/

CFT requirements under the POCA;

and

3. incorporate a cash transaction limit (i.e.

$1 million) above which transactions in

physical currency cannot be conducted

unless with a person in the category of a

‘permitted person’.

The (Money Laundering Prevention)

Regulations under the POCA was also amended

to bolster Jamaica’s anti-money laundering

framework to include the following matters:

a) Customer due diligence requirements;

b) Emerging technology and non-face-

to-face business;

c) Customers conducting business

through third parties and introducers;

and

d) Record keeping obligations.


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Following the passage of the amendments

to the POCA, the following designation

Orders were prepared in contemplation of the

commencement of the oversight of DNFBPs:

1. The Proceeds of Crime (Designated

Non-Financial Institution) (Real

Estate Dealers) Order, 2013;


Non-Financial Institution) (Gaming

Machine Operators) Order, 2013;


Non-Financial Institution) (Attorneys-

at-law) Order, 2013;


Non-Financial Institution) (Public

Accountants) Order, 2013; and


Non-Financial Institution) (Casino

Operators) Order, 2013;

The foregoing Proceeds of Crime Designation

Orders 2013 will take effect in April 2014 and

in the case of Attorneys, the requisite Order

takes effect in June 2014.

3.4.5.2. The Terrorism Prevention

(Amendment) Bill

Amendments to the Terrorism Prevention Act

to strengthen the confiscation mechanisms

under that Act have been ratified and gazetted.

This amendment also represents Jamaica’s

ratification of The International Convention for

the Suppression of Acts of Nuclear Terrorism

of September 4, 2005; and to also allow for

Jamaica’s accession to the 2005 amendment

to the Convention on the Physical Protection

of Nuclear Material, and the October 14, 2005

amendment to the Protocol to the Convention

for the Suppression of Unlawful Acts Against

the Safety of Maritime Navigation, and to the

October 14, 2005 Protocol to the Convention for

the Suppression of Unlawful Acts Against the

Safety of Fixed Platforms.

The amendments to the related Terrorism

(Reporting Entities) Regulations under the

TPA will now provide a framework to address

Jamaica’s counter terrorism financing

framework which include the following

matters:–

a) Customer due diligence requirements;

b) Emerging technology and non-face-to-

face business;

c) Customers conducting business through

third parties and introducers; and

d) Record keeping obligations.

The amendments in this regard, mirror the

amendments effected to the Money Laundering

Prevention Regulations under the POCA.

3.4.5.3. The United Nations Security Council

Resolution (Implementation) Act, 2013

The Act reflects Jamaica’s compliance with

FATF Recommendation 7 (Targeted financial

sanctions related to proliferation) of the revised

FATF Forty (40) Recommendations issued in

2012.

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3.4.5.4. The Financial Investigations

Amendment (FIDA) Bill

Amendments to the FIDA were passed in

July 2013, following Cabinet’s approval

in December 2012. The amendments,

among other things, clearly incorporate

provisions that expressly establish the

FID’s ability to function with operational

independence and autonomy and the FID’s

ability to cooperate with its international

counterparts.2 These amendments are

critical to the successful completion of

the Financial Investigations Division’s

membership application to Egmont.3

2 Under the new FATF 40 Recommendations – the interpretative note to r 29 (formerly r26) reflects that the FIU must among other things have operational independence, operate free from undue influence or interference and should apply for membership in the Egmont Group. (Refer also to footnote 3 below)

3 “The Egmont Group is an informal group of financial intelligence units (FIUs) established in 1995. The group was so named for the location of the first meeting at the Egmont-Arenberg Palace in Brussels. The goal of this group is to provide a forum for FIUs to improve support to their respective national anti-money laundering programmes. This support includes expanding and systemizing the exchange of financial intelligence information, improving expertise and capabilities of personnel of such organizations, and fostering better communication among FIUs through application of technology.” Source: Information Paper on FIUs and the Egmont Group – (See the FATF web site at WWW.fatf-gafi-org or see www1.oecd.org/fatf/ctry-orgpages/org-egmont_.htm)

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4. Financial Market Operations

4.1. Open-Market Operations4.1.1. Bank of Jamaica Liquidity Management

Operations

During 2013, liquidity management operations

continued to include a range of financial

market instruments, which were implemented

concurrent with the daily offer of 30-day

Certificates of Deposit (CDs) and overnight

deposits. The interest rate on 30-day CDs

remained the benchmark for signalling the

Central Bank’s monetary policy stance and

was adjusted downwards by 50 bps to 5.75

per cent in the March 2013 quarter, where it

remained for the rest of the year. The interest

rate on overnight deposits remained at 0.25 per

cent. The broader range of financial market

instruments used in liquidity management

operations were aimed at:

(i) Lengthening the maturity profile for

the open-market liabilities; and

(ii) Providing Jamaica Dollar liquidity in

the context of the intermittent cycles of

liquidity tightening.

In that regard, commencing in the June quarter,

the Bank introduced a suite of CDs, which had

varied interest rates, tenors and currency of

denomination. Additionally, in order to provide

Jamaica Dollar liquidity to DTIs, the Bank

introduced special repurchase facilities in the

September quarter.

The Bank utilized its usual 30-day CD as the

primary instrument to manage Jamaica Dollar

liquidity during the March quarter. In this

regard, net placements on these instruments

amounted to $383.6 million for the quarter and

were supported by net placements of $4 779.0

million on overnight deposits. The impact of

these placements was partially offset by the

liquidity of $1 061.1 million injected via the

net purchase of foreign currency as well as

the purchase of $6 062.9 million in GOJ bonds

on the secondary market. Accordingly, the

reinvestment rate on 30-day CDs during this

quarter increased to 100.7 per cent from 87.6

per cent for the December 2012 quarter (see

Table 43). However, this was lower than the

108.2 per cent reinvestment rate on 30-day CDs

recorded for the March 2012 quarter.

Following the approval of the EFF supported

economic programme on 01 May, there was

reduced uncertainly in the domestic financial

markets. A key objective of the programme

is the rebuilding of foreign reserves over the

near-term. This was achieved through the

purchase of foreign currency from the financial

system. In order to achieve the targeted

accumulation of reserves, the Bank continued

to utilize special CDs bearing variable interest

rates benchmarked to GOJ weighted average

Treasury Bill yields as well as US dollar indexed

Notes, in its liquidity management. These offers

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facilitated the elongation of the maturity profile

by reducing the frequency and quantum of 30-

day maturities within the financial system.

In 2013, the Bank issued 35 variable rate CDs

and four US dollar Indexed Notes, with nominal

subscriptions amounting to $45 690.7 million

(see Table 45). These placements augmented

the issuance of 30-day CDs, with the latter net

absorbing $5 268.2 million during the June to

December quarters (see Table 44).

By the end of the September quarter, there was

a marked improvement in financial market

conditions and confidence in the near-term

prospects for the economy was gradually

returning. Further, the implementation of the

NDX eliminated the need for the GOJ to access

financing using domestic debt instruments.

Against this background, the number of offers of

special CDs increased but there were declines

in the average tenor and nominal subscriptions

(see Table 45). There was a simultaneous

Table 44

Table 43

Year QuarterTake-up (J$Mn)

Take-up Ratio (%)

Maturity (J$mn)

Maturity Ratio (%)

Net Issue(+)/net

Maturity(-) (J$mn)

Reinvest-ment Rate

(%)

March 285 992.0 34.7% 264 260.3 30.5% 21 731.8 108.2%

June 223 523.0 27.1% 251 812.4 29.1% -28 289.3 88.8%

September 183 053.4 22.2% 199 247.8 23.0% -16 194.4 91.9%

December 131 883.4 16.0% 150 504.6 17.4% -18 621.2 87.6%

Total 824 451.9 865 825.1 -41 373.2 95.2%

March 113 585.3 32.9% 112 740.8 31.0% 844.5 100.7%

June 91 164.0 26.4% 99 840.9 27.5% -8 676.8 91.3%

September 78 230.8 22.7% 82 331.6 22.7% -4 100.8 95.0%

December 61 913.1 18.0% 68 231.4 18.8% -6 318.3 90.7%

Total 344 893.3 363 144.7 -18 251.4 95.0%

2013

2012

INVESTMENT PROFILE OF BOJ'S 30-DAY CD(2012-2013)

March June September December Total

Net issues (+)/net mat. (-) on Certificates of Deposit 4 686.1 5 371.4 -3 779.9 3 676.7 9 954.4

Net Repurchase Issue(-) / net Repurchase Maturity (+) 1 007.6 2.5 -3 496.1 -7 935.4 -10 421.5

Net Purchase(-)/net sale (+) of GOJ BMI notes -6 062.9 0.0 0.0 0.0 -6 062.9

Net OMO issues (+)/net OMO maturity - 369.2 5 373.9 -7 276.0 -4 258.7 -6 530.0

Net Sale(+) / net Purchase(-) of Foreign Exchange -1 061.1 -23 153.5 -9 202.2 -15 852.4 -49 269.3

Net increase (+)/net Decrease (-) in Domestic Cash Reserve 632.2 - 102.2 335.6 897.1 1 762.7

Net Absorption (+)/Injection (-) - 798.1 -17 881.8 -16 142.6 -19 214.1 -54 036.5

BANK OF JAMAICA LIQUIDITY MANAGEMENT OPERATIONS 2013

Data for CDs include principal and net interest payments made during the year.

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lengthening of the average issue tenor to 365-

days for the December quarter relative to 349-

days in the June quarter. Additionally, for this

quarter, subscriptions on special CDs increased

by $18 264.5 million. For the December quarter,

there was a lengthening in the average tenor

relative to the June and September quarters.

Furthermore, by end-December, the special

CDs accounted for approximately 64.0 per cent

of the OMO liabilities, relative to approximately

7.0 per cent at the start of the year. Conversely,

the 30-day CDs accounted for approximately

34.0 per cent of the outstanding open market

liabilities (see Chart 39). In addition, there

was a reduction in the average daily turnover

in overnight deposits to $3 634.4 million by the

December quarter from $4 411.5 million for the

June quarter (see Chart 40).

Changes in GOJ’s and BOJ’s operations in the

context of the economic programme resulted

in relatively tight Jamaica Dollar liquidity con-

ditions by mid-year. In this regard, the Bank

provided support to DTIs to alleviate intermit-

tent cycles of liquidity tightening. The provi-

sion of Jamaica Dollar liquidity by the Cen-

tral Bank was through repurchase agreements

with deposit-taking financial institutions. This

was done through the Bi-monthly Repurchase

Operation (BMRO) which commenced in the

September quarter and a Standing Liquidity

Facility (SLF) which were formalized in the De-

cember quarter (see Box 2).1 The BMRO pro-

vided liquidity for 14 days at an interest rate of

0.25 percentage point above the Bank’s 30-day

OMO interest rate while the liquidity provided

under the SLF was for overnight at the Bank’s

30-day OMO interest rate plus a 1.5 percent-

age points spread. Accordingly, during 2013,

the interest rates were 6.00 per cent and 7.25

per cent for the BMRO and SLF, respectively.

For 2013, liquidity amounting to $10 421.5

million was injected into the financial system

through repurchase transactions conducted

under the BMRO and the SLF (see Table 44).

Most of this liquidity impetus occurred in the

December quarter, amounting to $7 935.4

million and supported the usually strong

1 The formalization of the SLF involved the Bank establishing pre-approved limits for each DTI which could be automatically accessed once the required collateral conditions were satisfied. Prior to this there were no pre-approved limits and all repurchase transactions conducted by the Bank with DTIs required a special approval by the Governor of the Bank.

Table 45

Quarter Mar-13 Jun-13 Sep-13 Dec-13

Number of Instruments Offered n/a 11 16 12

o/w - Variable Interest Rate n/a 9 16 10

o/w - US Indexed Note n/a 2 n/a 2

Average Tenor n/a 349 days 327 days 365 days

Nominal Subscription (J$mn) n/a 21 718.3 5 707.9 18 264.5

ISSUE OF BOJ SPECIAL CERTIFICATES OF DEPOSITfor JMD Liquidity Management


Bank of Jamaica

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Chart 40: Average Daily Turn-over of Overnight Deposit

Chart 39: Distribution of JMD OMO Instruments - 2013

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

Mar/12 Jun/12 Sep/12 Dec/12 Mar/13 Jun/13 Sep/13 Dec/13

J$ M

illio

ns

Q uarter-ended

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Special Deposits 30-day COD Special Issues

- 113 -

Annual Report 2013


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demand for currency in the absence of the

traditionally strong net maturities on 30-day

OMO instruments. For the December 2013

quarter, net currency issue amounted to $11

921.7 million while the net maturities on 30-

day CDs totalled $6 318.3 million.

4.1.2. Primary Dealer Performance &

Administration

During 2013, the Bank continued to issue

CDs through the JamClear Central Securities

Depository JamClear® CSD to Primary Dealers

(PDs) and commercial banks. PDs continued

to dominate the subscriptions to CDs in 2013,

accounting for 81.1 per cent of the issues,

relative to 65.3 per cent for 2012 (see Chart 41).

Consequently, the PDs’ share of the outstanding

stock of CDs also increased and averaged 81.3

per cent for 2013 relative to 67.3 per cent for

2012.

In the absence of GOJ primary issues, excepting

the roll-over issues of GOJ Treasury Bills during

2013, and coupled with the increase in the suite

of OMO instruments, there was a net issue of $10

881.7 million in CDs accommodated through

PDs. The net issue for 2013 was observed in

three quarters of the year. In contrast, for 2012,

there was a net redemption of $14 269.4 million

observed in three quarters of that year (see

Chart 42).

The number of designated PDs decreased to 10

as at end-December 2013 from 11 as at end-

December 2012. This decline resulted from

the voluntary withdrawal of one designee

which cited challenges in continuing to

satisfy the performance requirements. A total

of eight persons attached to primary dealer

designated entities were assessed under the

Bank’s ‘Enhanced Fit & Proper’ Criteria. These

Chart 41: Primary Dealer Share of CDs as at end-Quarter

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2013 2012March Qtr June Qtr September Qtr December Qtr


Bank of Jamaica

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Chart 42: Primary Dealers Net Performance in OMOs

assessments were conducted in accordance

with the policy for designating new entities as

well as in relation to the requirements for the

annual renewal of the PD designation.

-$15,000.00

-$10,000.00

-$5,000.00

$0.00

$5,000.00

$10,000.00

$15,000.00

2013 2012J$M

N

March Qtr June Qtr September Qtr December Qtr

- 115 -

Annual Report 2013


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4.2. International Reserves

The gross foreign asset (GFA) of the Bank of

Jamaica (BOJ) declined by US$163.2 million

to US$1 817.6 million at end-December 2013

(see Table 46). This decline largely reflected

net payments on behalf of the Government,

the impact of which was partly offset by net

purchases of foreign currency by the BOJ.

For the March and September quarters of 2013,

the GFA declined, but increased for the June

and December quarters. The most significant

decline occurred in the March quarter,

consequent on net payments of US$216.2

million on behalf of the GOJ. In contrast, there

was an increase of US$162.7 million for the

June quarter, primarily reflecting net trading

room purchases of US$218.1 million (see

Table 47). Additionally, SDR136.75 million

(US$207.2 million) was received in the June

quarter, representing the first disbursement

from the IMF under the four-year EFF which

was approved on 01 May 2013.1

The net international reserves (NIR) declined

by US$77.8 million to US$1 047.8 million

for the review year. This outturn compares

favourably with a targeted reduction of

US$220.5 million under the EFF. The decline

in the reserves mainly reflected a contraction

in the GFA, the impact of which was offset by

a reduction of US$85.5 million in the foreign

liabilities. The reduction in foreign liabilities

was influenced by net repurchases made to the

IMF during 2013.2 In that regard, the Bank’s

foreign liabilities declined to US$769.7 million

at end-December 2013 from US$855.2 million

at end-December 2012 (see Table 47).

1 IMF receipt of SDR136.75mn comprised SDR78.75mn for BOP support and SDR58.0mn for Budgetary support.

2 Repurchases represent re-payment of loans to the IMF.

Table 46

Opening Gross Foreign Assets (GFA) 1 980.8 Inflows 2 516.4 Outflows -2 665.5 Adjustment to GFA /1 - 14.1 Closing Gross Foreign Assets 1 817.6

US$MN

/1 - Unrealized gains/losses on foreign currencies and other investments.

BANK OF JAMAICA GROSS FOREIGN ASSETS As at 31 December 2013


Bank of Jamaica

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Table 47

4.2.1. Foreign Exchange Inflows and

Outflows

4.2.1.1. Inflows

Foreign exchange inflows to the BOJ increased

by US$491.4 million to US$2 516.4 million for

2013 (see Table 48). The primary sources of

inflows were market purchases by the BOJ and

GOJ foreign currency receipts which included

loan disbursements from multilateral agencies

under the 48-month EFF. Inflows from the IMF

for the year amounted to SDR176.7 million

(US$268.6 million) and were apportioned as

US$87.9 million and US$180.7 million for

budgetary and balance of payments support,

respectively.

Total market purchases for 2013 amounted to

US$1 717.1 million compared to US$1 419.8

million for 2012. The purchases in 2013

accounted for approximately 68.0 per cent of

total inflows. Of these purchases, US$1 161.4

million (67.6 per cent) was bought under the

Surrender Arrangements while US$555.7

million (32.4 per cent) was negotiated through

the trading room.

Foreign currency receipts on behalf of the

GOJ amounted to US$534.3 million for the

year, an increase of US$91.6 million relative

to 2012. The main source of these receipts was

multilateral loan inflows totalling US$344.5

million which were disbursed in accordance

with the conditions agreed under the EFF.

The disbursements also included grant

flows amounting to US$66.9 million, which

comprised US$58.4 million from the European

Commission and US$8.5 million from the World

Bank. Additionally, the GOJ received US$75.0

million in payments for the forward sale of

alumina by Clarendon Alumina Partners (CAP)

in June 2013.

2012

Dec. Mar. Jun. Sep. Dec.

Annual Change

(US$)

NIR 1 125.6 884.2 1 003.2 910.1 1 047.8 -77.8

Gross Foreign Assets 1 980.8 1 718.4 1 881.1 1 713.5 1 817.6 -163.2

Foreign Liabilities 855.2 834.1 877.9 803.4 769.7 -85.5

2013

BOJ NET INTERNATIONAL RESERVES(End of Period)

US$MN

- 117 -

Annual Report 2013


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Table 48

2012 2013Change

($) Bauxite Receipts* 19.4 15.9 - 3.5

Market Purchases 1 419.8 1 717.1 297.3

Surrenders to BOJ 1 203.0 1 161.4 - 41.7

Authorised Dealers 774.1 733.8 - 40.2

Cambios 429.0 427.5 - 1.4

Other Purchases** 216.7 555.7 339.0

GOJ Receipts 442.7 534.3 91.6

Domestic USD Bond 354.0 0.0 - 354.0

Domestic USD Loans 0.0 40.0 40.0

GOJ Multilateral Agency Flows 3.2 344.5 341.3

IDB 0.0 60.0 60.0

IBRD 0.0 129.7 129.7

IMF /1 0.0 87.9 87.9

Grants 3.2 66.9 63.7

Divestment 0.0 75.0 75.0

Other GOJ 85.5 74.8 - 10.7

IMF 0.0 181.1 181.1

Loan Disbursement/Misc. Funds 0.0 181.1 181.1

Investment Income 15.6 11.7 - 3.9

Financial Institutions - Deposits 95.0 0.0 - 95.0

BOJ Certificates of Deposit 0.0 10.0 10.0

Other Receipts *** 32.4 46.3 13.8

Total Cash Inflows 2 025.0 2 516.4 491.4

INFLOWS OF FOREIGN EXCHANGEUS$MN

* Bauxite receipts have been revised to comprise Royalty, Levy and Taxes. Local Costs have been excluded.** Consists of all trading room purchases, including market intervention and Bauxite Local Costs.

***Other receipts include net prudential reserve inflows. - /1 IMF loan for Budgetary support.

For 2013, the Bank received US$15.9

million from the bauxite sector, representing

production levy and royalties. This reflected a

decline compared to US$19.4 million received

in 2012. The reduction primarily reflected the

production levy being lower by US$3.2 million.

The Central Bank augmented its monetary

operations during 2013 with the offer of USD

certificates of deposit in the domestic market.

In this regard, foreign currency inflows from

this source amounted to US$10.0 million.

4.1.1.2. Outflows

Foreign currency outflows totalled US$2 665.5

million during 2013, lower by US$171.6 million

relative to 2012 (see Table 49). The decline in

outflows largely reflected lower sales of US

dollars via the intervention window as well

as a reduction in GOJ foreign currency debt

payments. In contrast, foreign currency sold

under the Centralised Facility for Foreign

Exchange for Public Sector Entities (PSE)

increased for 2013.


Bank of Jamaica

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Bank of Jamaica payments for 2013 declined by

US$297.9 million to US$1 258.4 million. This

reduction mainly reflected a fall of US$506.6

million in intervention sales when compared

with 2012. However, foreign currency sold

under the PSE Facility increased by US$208.7

million to US$1 110.2 million. GOJ foreign

currency payments declined to US$1 060.1

million for 2013 from US$1 232.2 million for

2012, largely reflecting lower amortization.

Net repayment of financial institutions’ deposits

totalled US$22.9 million for 2013. Of note,

financial institutions’ deposits totalled US$95.0

million in 2012 when the Bank resumed

accepting USD placements.

The Bank commenced making repayments of

loans to the IMF in 2013. These payments

represent the quarterly repayments for loans

disbursed under the 36-month Standby

Arrangement which was approved in the

March 2010 quarter. For 2013, total repurchases

were SDR175.3 million (US$266.4 million).

However, there were gross disbursements of

SDR176.7 million (US$268.6 million) for the

year (see Tables 49 & 50).

Change

2012 2013 (US$)

GOJ Payments 1 232.2 1 060.1 -172.2

Debt 1 119.4 896.5 -222.9

Principal 605.1 409.4 -195.7

Interest 514.3 487.1 -27.2

Other GOJ Payments 112.8 163.5 50.7

Market Sales 1 556.2 1 258.4 -297.9

Intervention 654.8 148.2 -506.6

Public Sector Facility 901.4 1110.2 208.7

IMF 10.2 277.3 267.2

Principal 0.0 266.4 266.4

Interest 10.2 10.9 0.8Financial Institutions - Repayment of Deposits 0.0 22.9 22.9

Other Payments* 38.5 46.9 8.4

Total Cash Outflows 2 837.1 2 665.5 - 171.6

OUTFLOWS OF FOREIGN EXCHANGEUS$MN

*- Includes net prudential reserve outflows and Central Bank payments for notes and coins.

- 119 -

Annual Report 2013


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Table 50

Date SDR USD Equiv. SDR Amt USD Equiv.

June Qtr 136.8 207.2 51.8 78.0

September Qtr 0.0 0.0 59.8 90.6

December Qtr 39.9 61.4 63.7 97.7

TOTAL 176.7 268.6 175.3 266.4

SDR DISBURSEMENTS & REPURCHASES/REPAYMENTSCalendar Year 2013

(MN)DISBURSEMENTS REPURCHASES


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4.3. Reserve ManagementThe Gross Foreign Assets held by the Bank of

Jamaica as at 31 December 2013 was US$1

817.6 million compared to US$1 980.8 million

as at 31 December 2012. Throughout the year,

the portfolio was managed in accordance with

the Bank’s Foreign Investment Policy which

informed the operating guidelines employed,

the strategies devised and the risk management

arrangements that were observed.

There were no changes to the objectives of the

Reserve Management function defined by the

Board of Directors to:

• Support and maintain confidence in

monetary policy;

• Provide the capacity to support the orderly

functioning of the foreign exchange market;

• Absorb shocks brought on by crisis in the

domestic and international economies; and

• Enhance the confidence of the international

capital markets by demonstrating that

Jamaica can meet its external obligations.

In order to realize these objectives, the reserves

continued to be managed with a bias towards

capital preservation and liquidity maintenance,

with income maximization as a secondary

objective.

4.3.1. Portfolio Distribution

During 2013, no new class of assets was

added to the portfolio. Accordingly, the asset

composition throughout the year was similar

to that for the previous year. The portfolio

continued to be dominated by placements in

money market instruments, as opportunities for

investing in the bond market remained limited

(see Table 51). Bond acquisitions were confined

to placements in AAA/AA+ rated securities

of governments, agencies of governments

and supranational entities and money market

investments with P-2/A-1 and Aa1/AA+ rated

financial institutions.

Throughout the review year, money market

instruments remained the main asset class in

order to mitigate reinvestment risk. Of note,

however, there was a reduction of US$171.7

Table 51

ASSET CLASSES

US$MN % US$MN %

Money Market Investments/ Balances 1 174.1 59.3 1 002.4 55.1

Bond Holdings 374.7 18.9 378.4 20.8

External Fund 141.1 7.1 141.5 7.8

Total Funds Invested 1 689.9 85.3 1 522.3 83.8

Allocation of Special Drawing Rights 290.9 14.7 295.3 16.2

TOTAL 1 980.8 100.0 1 817.6 100.0

20132012

DISTRIBUTION OF FOREIGN ASSETSas at 31 December

- 121 -

Annual Report 2013


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million in money market holdings, resulting

from a decline in the Gross Foreign Assets.

In order to mitigate the risk of exchange rate

losses, the portfolio retained its bias toward US

dollar denominated investments with 70.1 per

cent of the portfolio, excluding the Allocation

of Special Drawing Rights, held in US Dollar

denominated securities at the end of the year.

4.3.2. Investment Climate

The investment climate in 2013 was largely

similar to that of 2012, being characterized by

low interest rates and high credit risk. However,

growth in the global economy moderated,

reflecting a slowdown in emerging markets

economies as there was stronger expansion

in developed nations. A number of factors

and events influenced the financial markets in

2013; these were:

• Communication by the Federal

Reserve (Fed) that it would

commence tapering quantitative

easing (QE3) in the near-term.

However, while the Fed’s actions

kept short-term interest rates low,

its general tone and guidance

made investors nervous, causing

longer-term rates to rise faster than

anticipated and bond portfolios to

suffer. In this regard, even though

equity markets in the US rallied

strongly in the context of improved

corporate earnings and continued

economic growth, fixed income

investments generally outperformed

equities, as the markets adjusted

interest rates higher in anticipation

of the tapering of QE3;

• The International Monetary Fund’s

forecast that world output would

grow by 3.6 per cent for 2014,

compared with the estimate of 2.9

per cent for 2013;

• The European Central Bank’s

cutting of its main interest rate to

a record low of 0.25 per cent in

November 2013; and

• The uptick in economic activity in

the U.S. economy as the drag from

changes in government spending

and taxation faded. The two-year

budget deal reached by Congress at

year’s end defused some economic

uncertainty as well.

4.3.3. Investment Strategy

Despite continued growth in the global

economy, there was little improvement in the

credit risk rating of institutions throughout the

review year. As a consequence, there continued

to be a limited number of counterparties that

met the minimum credit ratings of P-1/A-1 short-

term credit and Aa1/AA+ long-term ratings of

Moody’s and S&P, respectively, as specified by

the Investment Policy Statement (IPS).

Against this background, the Bank maintained

a defensive investment strategy throughout

the year, by purchasing U.S. Agency Bonds

with step coupons. As rates increased, the


Bank of Jamaica

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focus was shifted to bonds with shorter

duration so as to minimize the market risk of

the portfolio. The relatively low interest rates

and heightened uncertainty in the markets

significantly influenced the decision to

retain an overweight position in short-term

investments, with increased placements at

the Bank for International Settlements and

the Federal Reserve Bank of New York. The

earning capacity of the portfolio was also

adversely affected by liquidity requirements

in the second half of the year, due mainly to

market sales and impending debt payments.

The reduction in the Gross Foreign Assets

restricted the investment opportunity in the

capital market as well as reduced tenors in the

money market investments.

Portfolio Performance

Average income earning assets for the year

was US$1 732 million, which was US$109

million or 6.7 per cent above budget but 26.0

per cent lower than that for 2012 (see Table

52). Portfolio income of US$11.9 million was

US$4.3 million or 26.5 per cent lower than the

outturn for 2012. The average yield on the

portfolio was 0.69 per cent per annum for 2013,

the same when compared to 2012. The outturn

for 2013 reflected the fact that both the average

income earning assets and total income fell by

26.0 per cent.

Table 52

Earnings % of Earnings % of

ASSETS US$MN Earnings US$MN Earnings

Money Market Investments 3.4 21.0 2.8 23.5

Bond Holdings 11.0 67.9 7.7 64.7

External Funds 1.8 11.1 1.4 11.8

Total 16.2 100.0 11.9 100.0

Average Income Earning Assets 2 339.0 1 732.0

Rate of Return (%) 0.69 0.69

FOREIGN INVESTMENT INCOMEFor Years Ended 31 December

2012 2013

- 123 -

5. Payment System Oversight

volume and value, respectively. The greatest

level of growth was recorded for direct debit

and credit transactions, with volumes and

values increasing by 32.0 per cent and 27.0

per cent, respectively. Debit and credit card

payments processed by commercial banks

recorded increases, with volumes and values

rising by approximately 10.0 per cent and 20.0

per cent, respectively, for each card type.

The BOJ also continued to be an active

participant in the development of regional

payment system activities under the guidance

of the Center for Latin American Monetary

Studies (CEMLA). In this regard, the Bank made

significant contributions to a regional project

on Payment Systems Statistics Methodologies.

In addition, the Bank, in conjunction with

the Bank for International Settlements and

CEMLA, hosted the second regional retail

payments workshop for Latin America and the

Caribbean in November 2013.

5.2. Retail Payment Systems

Developments

5.2.1. Guidelines for Electronic Retail

Payment Services

Through the implementation of the Guidelines,

the Bank established a consistent and

comprehensive framework within which

5.1. Overview

The Bank accomplished a major milestone

in the National Payment System reform

agenda in 2013, with the implementation

of a comprehensive framework to guide its

development, including electronic retail

payment service solutions. The framework,

which is set out in the Guidelines for Electronic

Retail Payment Services (Guidelines), was

published on 01 February 2013.

Other significant accomplishments over the

review period included the Bank’s strategic

objective of reducing the settlement risk

associated with the operation of the Automated

Clearing House (ACH) through further

reduction in the ACH threshold. In addition,

the Bank facilitated Government of Jamaica’s

(GOJ) objective of a gradual transition from the

use of cash and cheque payments to electronic

payments. The Bank also provided technical

and operational support to the GOJ in the


(NDX).

In discharging its oversight function, the

Bank continuously monitored payment system

activities, identifying trends and emerging

usage of payment instruments. During the

reporting period, electronic payment activities

increased by 8.0 per cent and 7.0 per cent in

- 124 -Payment Systems Oversight

Bank of Jamaica

Paym

ent S

yste

m

Management System (CTMS), with the

creation of a Treasury Single Account (TSA)

in the Bank to allow for the settling of large-

value and time critical payments electronically,

through JamClear RTGS rather than by the

issuing of cheques. The automation of GOJ

payments which commenced in September

2012, was accelerated in January 2013, with

the use of various electronic systems to effect

low value retail transactions such as salaries

and payments to suppliers. The clearance

and settlement of these items were effected

in the ACH for net settlement in JamClear-

RTGS. For the year, 78 416 payments valued

at $7.75 billion were processed through the

ACH as direct credits for the GOJ’s low-value

retail transactions. The effecting of electronic

payments proved to be a cost effective solution

that significantly enhanced the efficiency of the

GOJ payments process.

5.2.3. Automated Clearing House (ACH)

Value Threshold

In 2008, an agreement was reached with

stakeholders, for the ACH Value Threshold to

be lowered on a phased basis, from $5 million to

$1 million. This phased approach was adopted

to allow commercial banks the required time

to make the necessary system and procedural

changes.

Based on review and discussions with

commercial banks and the National Payments

Council, the ACH Value Threshold was reduced

from $5 million to $3 million and further to $2

both banks and non-banks work to provide

consumers with safe and efficient electronic

retail payment services in a competitive

environment. The Guidelines provide for two

payment service delivery options namely:-

• Customer account based payment

services, specifically for deposit-taking

entities regulated by the Bank of

Jamaica; and

• Custodian account based payment

services, for those entities authorized by

the Bank to offer pre-funded electronic

retail payment services.

As of April 2013, service providers intending

to offer electronic retail payment services

were required to apply to the Bank for

authorization prior to the commencement

of operations. For retail payment service

providers that commenced operations prior to

the establishment of the Guidelines, they were

required to apply for authorization to continue

the business, with a deadline of end-2013 for

compliance.

As at end-2013, 13 entities either applied for

authorization or submitted letters of enquiry.

Conditional authorization to conduct pilots

prior to full rollout was given to two entities.

Evaluation of other applications continued

apace towards the end of the year.

5.2.2. Government Payments

In 2013, the GOJ significantly advanced

the implementation of the Central Treasury

- 125 -

Annual Report 2013

Payment Systems Oversight

Paym

ent S

yste

m

million, with effect from 01 July 2013. The new

threshold will remain in effect until June 2014.

The phased implementation of the ACH value

threshold resulted in increased efficiency in the

payment system while significantly reducing

exposure to settlement risk. In this regard, the

percentage of large-value transactions greater

than or equal to $1 million processed through

the ACH was 49.7 per cent as at 31 December

2013 compared to 81.0 per cent for 2008.

5.3. Payment Systems Activities

5.3.1. JamClear Systems1

5.3.1.1 JamClear-RTGS

Transaction volumes passing through

JamClear-RTGS for 2013 increased by 16.2

per cent to 256 148, while values grew by 6.6

per cent to $14.2 trillion over the prior year

1 Please see Section 6.2 for report on JamClear®-CSD.

(see Chart 43). For the review year, USD

values declined by 19.4 per cent to US$1 965.0

million, relative to 2012. The total volume of

GOJ payments through JamClear-RTGS for the

period was 4 768 transactions valued at $479.4

billion. It is expected that the level of payment

activity for GOJ in JamClear-RTGS will

continue to increase with the intensification of

the automation of these payments.

5.3.2. Retail Payment Systems and

Instruments

There was increased usage of electronic payment

solutions during 2013, which was reflected in

volumes and values as well as the continued

decline in cheque payments processed through

the ACH and the proprietary systems of the

commercial banks. This development was

partially attributable to the tightening of the

ACH threshold restrictions and the work of the

Chart 43: JamClear-RTGS Volumes and J$ Values 2009 - 2013

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

-

50,000

100,000

150,000

200,000

250,000

300,000

2009 2010 2011 2012 2013

J$ V

alue

s (Bi

llion

s)

Volu

mes

Volume Value J$(Bn)


Bank of Jamaica

Paym

ent S

yste

m

CTMS Committee to process low-value GOJ

payments for salaries and suppliers through

the ACH as direct credits.

5.3.3. Cheque Clearing Activities

5.3.3.1 Domestic Cheques

For 2013, 7.5 million cheque payments valued

at $1.05 trillion were processed through the

ACH. This represented a decline of 4.0 per

cent in volumes and 7.1 per cent in value when

compared to 2012. The average value of each

cheque payment declined by 3.2 per cent to

approximately $139 718.

The total volume of cheques processed by the

commercial banks proprietary system was

11.2 million valued at $1.38 trillion, reflecting

declines of 1.8 per cent and 6.8 per cent

in volumes and values, respectively, when

compared to 2012. The average value of

proprietary cheques processed by commercial

banks declined by 5.1 per cent to $123 262

compared to 2012.

5.3.3.2 Selected Foreign Currency Cheques

The value of total foreign currency items

cleared manually through the BOJ Clearing

House reflected an increase in value of 1.0

per cent when compared to 2012 (see Table

53). Cheques cleared were denominated in

USD, GBP, CAD and Euro. Of the total foreign

currency cheques cleared in 2013, USD

cheques accounted for 98.0 per cent (US$1

929 million).

5.3.4. Electronic Payment Activities

Electronic retail payments are cleared and

settled through the ACH, Multilink and the

proprietary systems of commercial banks. For

2013, the primary instrument used to effect

Table 53

Currency Units 2010 2011 2012 2013

USD 2 707.0 2 188.0 1 889.0 1 929.0

CDN 25.7 15.1 12.7 11.3

GBP 53.2 43.8 34.3 28.4

Euro 3.8 4.0 9.6 4.7

Total in USD Millions 2 789.7 2 250.9 1 945.6 1 973.4All values processd are converted to USD Millions

FOREIGN CURRENCY ITEMS CLEARED(Value)

- 127 -

Annual Report 2013


Paym

ent S

yste

m

electronic payments was debit cards which

accounted for 80.0 per cent and 4.0 per cent by

volumes and values, respectively.

5.3.4.1 ACH – Direct Credits and Debits

Direct debits and credit card transactions

processed in the ACH in 2013 totalled 1 867

356, an increase of 32.2 per cent relative to

2012. The total value was $115.4 billion, an

increase of 26.5 per cent.

5.3.4.2 Multilink

The Multilink network processed 15.4 million

debit card transactions valued at $84.8 billion

in 2013. This reflected a reduction of 4.5 per

cent in volumes and a slight increase in values

relative to 2012. ABM transactions totalled 9.9

million with a value of $57.1 billion, reflecting

a decline of 2.4 per cent in volumes and an

increase of 1.8 per cent in value relative to 2012.

Point-of-Sale (POS) transactions declined in

volumes and values by 8.0 per cent and 2.1 per

cent respectively, to 5.5 million transactions

valued at $27.7 billion relative to 2012 (see

Charts 44 & 45).

5.3.5. Proprietary Systems – Commercial

Banks

5.3.5.1 Debit Cards

There were 79.7 million ABM and POS

transactions valued at $664.2 billion settled

through the proprietary systems of the

commercial banks in 2013. ABM transactions

totalled 51.5 million valued at $460.5 billion,

growth of 11.7 per cent and 18.9 per cent,

respectively, relative to 2012. The total volume

of POS transactions processed through the

commercial banks proprietary systems was

28.2 million valued at $203.7 billion, reflecting

increases of 9.6 per cent and 17.6 per cent,

respectively, relative to the previous year.

5.3.5.2 Credit Cards

Commercial banks reported growth of 13.6 per

cent and 19.0 per cent in volumes and values,

respectively, for credit card transactions for

2013. These growth rates translated into total

transactions of 16.4 million for a value of $161.3

billion.

5.3.6. Bill Payment Activities

The three independent bill payment providers

Paymaster, Bill Express and Quik&EZ Bill Pay

reported 10.6 million payment transactions

with a value of $84.3 billion in 2013. Cash was

the dominant payment method, accounting for

83.0 per cent of the total volume of transactions.

Cash and cheques accounted for 50.0 per cent

and 39.0 per cent, respectively, of the total value

of bill payments, while credit and debit cards

accounted for the remaining 11.0 per cent.

5.3.7. Instruments & Channels

Debit and credit cards continued to be the

dominant electronic payment instruments.

At end-2013, total debit cards in circulation

amounted to 2.3 million, reflecting an increase

of 11.0 per cent relative to 2012. Total credit

cards in circulation was 215 084, an increase of

3.0 per cent when compared to 2012.


Bank of Jamaica

Paym

ent S

yste

m

Chart 44: Multilink ABM vs POS Transaction by Volume: 2009 - 2013

Chart 45: Multilink ABM vs POS Transaction by JMD Value: 2009 - 2013

0

2

4

6

8

10

12

2009 2010 2011 2012 2013

Volume (Millions)

POS Volume ABM Volume

0

10

20

30

40

50

60

70

2009 2010 2011 2012 2013

J$ (Billions)

POS Value ABM Value

- 129 -

Annual Report 2013


Paym

ent S

yste

m

ABM and POS machines are the primary

channels for the execution of electronic retail

payments. At end-2013, total ABMs installed

increased by 21 terminals to 445. POS terminals

increased to 19 666 from 16 565 in 2012.

5.3.8. Regional Activities

5.3.8.1 Review of Payment Systems Statistics

Methodologies

Working groups were established by CEMLA

to promote the exchange of standardized

statistical information of all central banks

within Latin America and the Caribbean.

Bank of Jamaica was grouped with the Central

Bank of Trinidad and Tobago to develop

the Caribbean perspective for a common

methodology for retail payment systems. This

project was completed and is being assessed by

CEMLA and the Working Group on Payment

Systems for Latin America and the Caribbean

(WGPSLAC).

- 131 -

6. Banking & Depository Services

banks as well as acting as a participant, by

negotiating cheques drawn on the commercial

banks, sending and receiving electronic files

with data captured from the cheques, as well

as direct debits and credits. Consistent with

its risk mitigation strategy, the Bank committed

to having large-value transactions settled in

the RTGS. In this regard, the Bank lowered the

ACH value threshold from $3.0 million to $2.0

million effective 01 July 2013. This allowed

for the migration of cheque transactions with

values equal to or greater than $2.0 million

from the ACH to the RTGS for settlement.

The Government implemented a Central

Treasury Management System (CTMS) in

January 2013, and in this regard, the Bank

granted the Accountant General’s Department

access to the ACH, to commence the origination

of retail payments. There were efficiency gains

to the system from this action, as the Government

is the single most significant initiator of retail

transactions. Having direct access to the ACH

enabled the Government to create its own files

in the system, thereby taking full responsibility

for verifying the accuracy and timeliness of

payments.

6.1. Banking Services

The Bank continued to provide a range of

banking services to its customers during 2013.1

In this regard, the Bank operated the JamClear

Real Time Gross Settlement (RTGS) system

and provided administrative support to the

Automated Clearing House (ACH) system,

owned and operated by the commercial banks.

Both systems are Systemically Important

Payment Systems (SIPS) in Jamaica.

The JamClear RTGS is specifically designed

to clear large-value, time-critical payments

by financial market participants on accounts

held at the BOJ in real time throughout the

business day. Payments settled in the RTGS are

final and irrevocable. The JamClear RTGS and

the JamClear Central Securities Depository

(CSD) systems are fully integrated, facilitating

settlement on a delivery versus payment (DvP)

basis of all Government of Jamaica and Bank

of Jamaica securities traded in the domestic

market.

During the year, the Bank continued to provide

oversight to ensure the efficient operation of

the ACH and to effect the settlement of clearing

balances on the accounts of the commercial

1 The Bank’s customers include the Government, licensed financial institutions, primary dealers, selected brokers of the Jamaica Central Securities Depository (JCSD) and regional central banks.

- 132 -Banking & Depository Services

Bank of Jamaica

Bank

ing

Serv

vice

s

6.2. Electronic Securities Depository

(JamClear®-CSD)

The Bank continued to function as operator

of JamClear-Central Securities Depository

(JamClear®-CSD) and registrar for BOJ

and GOJ domestically issued fixed income

securities, excluding Treasury Bills. As

Operator, the Bank maintained the system

on a daily basis to ensure the accuracy of the

register.

As Registrar, the Bank continued to deliver all

related services including (i) the registration

of new debt issues; (ii) dematerialization

and immobilization of securities; (iii) on-

going maintenance of ownership records; (iv)

distribution of maturity proceeds and interest

payments; (v) generation of withholding

tax certificates; and (vi) provision of audit

confirmations. The total value of securities

held in JamClear®-CSD as at end-2013 was

$839.2 billion and US$1.3 billion compared to

$848.4 billion and US$1.1 billion at end-2012.

A major achievement in 2013 was the execution

of the National Debt Exchange (NDX) on 22

February 2013 on behalf of the Government

of Jamaica which resulted in the exchange

of unencumbered securities in JamClear®-

CSD for new securities. The exercise was

conducted during 23 - 24 February, 2013 and

the new securities were available to investors

in their JamClear®-CSD accounts at the start

of the business day on 25 February 2013. The

remaining securities were treated as exceptions

and once unencumbered, were processed

manually.

At end-2013, the JamClear®-CSD had forty

participants as a result of the de-registration

of two members. The participants in the

depository comprised nine commercial and

merchant banks, ten primary dealers and

twenty-one secondary dealers, with the GOJ

and the BOJ as the only issuers of securities.

JamClear®-CSD provided a wide variety

of depository services including Pledges,

Entitlement Proceeds and Repurchase

Agreements (see Table 54). Pledges had the

highest utilization over the review period,

accounting for 32.9 per cent of the total volumes

traded. Entitlement Proceeds and Repurchase

Agreements accounted for 29.5 per cent and

16.9 per cent, respectively. The reduction in

volumes was due to declines in all transactions

except Repurchase Agreements and Initial

Placements. Of note, the increased activity as

it related to Initial Placements was due mainly

to the NDX. During the year, the Bank ensured

that Entitlement Proceeds were paid at the start

of the business day in JamClear®-CSD. As at

end-2013, there were 27 513 beneficial owner

accounts in JamClear®-CSD, an increase of 1

468 compared to end-2012.

For 2013, a total of 181 766 transactions was

processed in JamClear®-CSD for both BOJ

and GOJ instruments with nominal values of

$15.1 trillion and US$14.0 billion (see Charts

- 133 -

Annual Report 2013

Banking & Depository Services

Bank

ing

Serv

ices

Table 54

Volume 2012

% of Vol.

Volume 2013

% of Vol.

Transaction TypeBill Payment 489.0 0.3 482.0 0.3Delivery Versus Payment 432.0 0.2 113.0 0.1Entitlement Proceeds 54 631.0 28.6 53 679.0 29.5Free of Payment 12 945.0 6.8 11 859.0 6.5Initial placement/ Reopening 12 119.0 6.3 14 701.0 8.1Pledges 71 767.0 37.6 59 800.0 32.9Repurchase Agreement 25 395.0 13.3 30 628.0 16.9Taxation 13 299.0 7.0 10 504.0 5.8

191 077.0 100.0 181 766.0 100.0

JAMCLEAR-CSD TRANSACTIONS TYPESby Volume 2012 -2013

46 & 47). In comparison to 2012, transaction

volumes fell by 4.9 per cent, with Jamaica

Dollar and US dollar nominal values declining

by 31.1 per cent and 56.9 per cent, respectively.

The reduction in volumes was due to declines

in all transactions except for Repurchase

Agreements and Free of Payment. The decline

in transaction values occurred in the context of

the implementation of the NDX and the non-

Chart 46: JamClear - CSD Annual JMD Values

01 0002 0003 0004 0005 0006 0007 000

Billi

ons

2012 2013

issuance of new bonds by the GOJ. JamClear®-

CSD processed, on average, 706 trades per day,

compared to 765 trades for 2012.

Total outstanding nominal values for both GOJ

and BOJ Jamaica Dollar securities declined by

1.0 per cent relative to 2012. In contrast, US

dollar nominal values increased by 20.0 per

cent (see Charts 48 & 49).

- 134 -Banking & Depository Services

Bank of Jamaica

Bank

ing

Serv

vice

s

Chart 48 CSD JMD Nominal Values 2012 and 2013

Chart 49 JamClear-CSD USD Nominal Values 2012 and 2013

0.80

0.90

1.00

1.10

1.20

1.30

1.40

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Billi

ons

2012 2013

830

840

850

860

870

880


Billi

ons

2012 2013

Chart 47: JamClear - CSD USD Values

02468

101214

Bill

ions

2012 2013

- 135 -

Annual Report 2013

Banking & Depository Services

Bank

ing

Serv

ices

Chart 50: Comparison of Daily Average Liquidity Utilized – 2012 & 2013

0

2

4

6

8

10

12

14

16

18

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013


Billi

ons

Bank Dealer

6.3. Intraday Liquidity

The Bank’s Intraday Liquidity facility was

accessed by 16 participants 3 005 times during

the review year, reflecting an increased usage

of 11.0 per cent, relative to 2012. The average

value of Intraday Liquidity provided also

increased over the period, with the highest

utilization in December 2013 (see Chart

50). The peak in December was attributed to

scheduled time critical payments on behalf of

commercial bank end-users.

- 137 -

7. Currency Operations

7.1. Currency in CirculationThe total value of banknotes in circulation

increased by 7.9 per cent to $67.1 billion at

end-2013, relative to end-2012 (see Chart 51).

The $1000 note and the $500 note accounted

for 72.3 per cent and 13.0 per cent, respectively,

of the total value of notes in active circulation at

end-2013. These compared with 72.0 per cent

and 12.6 per cent, respectively, for the previous

year. The $5000 note represented 8.8 per cent

of the total value of notes in active circulation

at end-2013 relative to 9.3 per cent for the

previous year. Of the total value of banknotes in

circulation at end-2013, 0.3 per cent consisted

of unredeemed withdrawn notes (inactive), that

is, $20, $10, $5, $2, $1 and $0.50.1

At end-2013, the value of coins in circulation

was $3.7 billion, representing an increase of 8.5

1 Withdrawn notes are a liability of the BOJ and therefore are included in the calculation of currency in circulation.

per cent relative to the previous year (see Chart

52). The $20 continued to account for the

largest share (40.9 per cent) of the total value

of coins in active circulation, marginally higher

than the 40.8 per cent for 2012 (see Table 55).

7.2. Currency IssueThe total value of banknotes issued for 2013

amounted to $249.0 billion (see Table 56). This

represented an increase of 2.3 per cent when

compared to the previous year. A monthly

average of $20.8 billion was issued during

the review year relative to a monthly average

of $20.3 billion for 2012. Of note, the $1000

denomination continued to account for the

largest proportion of notes issued during

the year, increasing by 0.8 percentage point

compared to 2012. The $5000 denomination

represented 2.9 per cent relative to 2.5 per cent

for the previous year. The Bank continued to

Chart 51: Total Value of Banknotes in Circulation Chart 52: Total Value of Decimal Coins in Circulation

$49.9$54.6

$60.3$62.2

$67.1

$0

$10

$20

$30

$40

$50

$60

$70

2009 2010 2011 2012 2013

BIL

LIO

NS

$2.6$2.8

$3.1

$3.4$3.7

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

2009 2010 2011 2012 2013

BIL

LIO

NS

- 138 -Currency Operations

Bank of Jamaica

Cur

renc

y For the review year, the total value of coins

issued amounted to $554.2 million, which was

11.5 per cent above the total value issued for

2012. The $20 coin accounted for 50.5 per

cent of the total value of coins issued for 2013

relative to 50.0 per cent for 2012. In terms of the

number of pieces of coins issued, the $1 coin

witness a sharper decline in the issuance of new

notes as the more durable notes, introduced in

July 2012 continued to permeate the circulation

stock. In this regard, there was a decline of 44.8

per cent in the number of new notes issued for

2013 following a reduction of 10.6 per cent for

2012.

Table 55

Table 56

DenominationValue

(J$Mn) % ShareValue

(J$Mn) % Share% Change

in Value

$20 1 364.0 40.8 1 484.3 40.9 8.8

$10 756.7 22.6 831.9 22.9 9.9

$5 513.0 15.3 557.9 15.4 8.8

$1 612.9 18.3 658.3 18.1 7.4

$0.25 65.6 2.0 66.8 1.8 1.8

$0.10 30.4 0.9 31.0 0.9 1.9

$0.01 0.8 0.0 0.8 0.0 0.0

Total 3 343.4 100.0 3 631.0 100.0 8.6

COMPARISON OF DECIMAL COINS IN ACTIVE CIRCULATIONYear ended 31 December

2012 2013

DenominationValue

(J$Bn) % ShareValue

(J$Bn) % Share% Change

in Value

$5,000 6.0 2.5 7.1 2.9 18.4

$1,000 182.5 75.0 188.9 75.8 3.5

$500 43.7 18.0 42.5 17.1 - 2.7

$100 9.5 3.9 8.9 3.6 - 6.6

$50 1.7 0.7 1.6 0.7 - 2.4

Total 243.5 100.0 249.0 100.0 2.3

COMPARISON OF DECIMAL NOTES ISSUEDYear ended 31 December

2012 2013

- 139 -

Annual Report 2013

Currency Operations

Cur

renc

y

For 2013, the redemption/issue ratio increased

to 0.48 from 0.43 for 2012 (see Table 58). The

$20 denomination accounted for 59.8 per cent

of the total value of coins redeemed for 2013,

relative to 59.3 per cent for 2012. The $10 and

$5 coins represented 27.9 per cent and 10.1 per

cent, respectively, of the total value of coins

redeemed for 2013, compared to 27.3 per cent

and 10.6 per cent for 2012.

7.4. Quality of Banknotes For the review year, 390.8 million notes valued

at $244.3 billion were processed via the Bank’s

Banknote Processing System (BPS) Machines,

compared to 341.3 million pieces valued at

$236.9 billion for the previous year. Of the total

number of notes processed, 73.9 per cent was

classified as re-issuable notes relative to 64.7

per cent for 2012. The BPS machines deemed

25.3 per cent of the notes processed as unfit to

re-enter circulation and automatically shredded

represented 47.6 per cent of the total number

of pieces issued for 2013 compared to 49.2 per

cent for 2012.

7.3. Currency Redemption

Banknotes redeemed during 2013 were valued

at $244.1 billion, 1.0 per cent above the figure

for the previous year. The redemption/issue

ratio for these notes declined marginally to

0.98 for 2013, relative to 2012 (see Table 57). A

monthly average of $20.3 billion was redeemed

during the review period relative to a monthly

average of $20.1 billion for 2012. The $1000

and $500 banknotes accounted for 75.9 per cent

and 17.1 per cent, respectively, of the value of

banknotes redeemed for 2013 relative to 74.8

per cent and 18.2 per cent for 2012.

Coins redeemed in 2013 were valued at $266.7

million, representing an increase of 23.8 per

cent relative to the figure for the previous year.

Table 57

DenominationValue

(J$Bn) % ShareValue

(J$Bn) % Share% Change

in Value

$5,000 5.9 2.4 7.0 2.9 17.9

$1,000 180.6 74.7 185.2 75.9 2.5

$500 44.0 18.2 41.6 17.0 - 5.5

$100 9.6 4.0 8.8 3.6 - 8.6

$50 1.6 0.7 1.6 0.6 - 0.7

$20 0.0 0.0 0.0 0.0 - 0.8

$10 0.0 0.0 0.0 0.0 - 54.3

$5 0.0 0.0 0.0 0.0 37.0

$2 0.0 0.0 0.0 0.0 27.0

$1 0.0 0.0 0.0 0.0 - 75.0

Total 241.8 100.0 244.1 100.0 1.0

COMPARISON OF DECIMAL NOTES REDEEMEDYear ended 31 December

2012 2013

- 140 -Currency Operations

Bank of Jamaica

Cur

renc

y

these notes. This compared to 34.4 per cent for

2012. The remaining notes were rejected by

the note sorting machines and subsequently

shredded off-line. A total of 9.6 million pieces

of notes were destroyed by offline shredding

bringing the total number of notes processed to

400.3 million pieces.

Table 58

7.5. Counterfeit DetectionThe total number of counterfeit notes detected

in 2013 declined by 1.9 per cent to 3 481

pieces. These notes were valued at $3.5

million, an increase of 40.0 per cent relative

to the previous year. The counterfeit notes

detected in 2013 were 0.004 per cent of the

total value of banknotes in circulation or 22.7

counterfeit notes per one million genuine notes

in circulation. This compares to 24.4 pieces

per million at the end-2012. The Central Bank

identified 38.2 per cent of the total number of

counterfeit notes detected in 2013 relative to

44.1 per cent for 2012.

DenominationValue

(J$Mn)%

ShareValue

(J$Mn)%

Share% Change

in Value$20 127.7 59.3 159.5 59.8 24.9

$10 58.8 27.3 74.4 27.9 26.6

$5 22.9 10.6 26.9 10.1 17.6

$1 5.8 2.7 5.5 2.1 - 5.0

$0.50 0.0 0.0 0.0 0.0 - 64.7

$0.25 0.2 0.1 0.3 0.1 38.1

$0.20 0.0 0.0 0.0 0.0 - 55.6

$0.10 0.1 0.1 0.1 0.0 - 5.7

$0.05 0.0 0.0 0.0 0.0 - 25.0

$0.01 0.0 0.0 0.0 0.0 - 90.9

Total 215.5 100.0 266.7 100.0 23.8

COMPARISON OF DECIMAL COINS REDEEMEDYear ended 31 December

2012 2013

- 141 -

8. Administration

8.1 Administration

8.1.1 Overview

In achieving its overall strategic objectives,

the Bank relies on the support of its internal

administrative services to attract and retain

the best staff, facilitate a safe and efficient

working environment and deliver high

quality customer service to both its internal

and external clients. During 2013, initiatives

such as the development and launch of the

Bank’s Succession Management and Wellness

Programmes, enhancement to the Energy

Management Programme and upgrade to areas

of the Bank’s plant were priorities.

8.1.2 Organization Development

The Bank continued its strategic focus on

aligning human resources, processes and

technology towards enhancing operational

efficiency and effectiveness during 2013.

Organizational reviews of some departments

which have been impacted by expanded or

new mandates were the primary focus. This

was to ensure that the necessary staffing and

work arrangements were properly aligned to

support achievement of prescribed objectives.

The review is continuous and includes the

reassessment and redefinition of work processes,

organizational structures and specific jobs in

instances where new and improved processes

are required.

8.1.3 The Bank’s Succession Management

Team

This programme focused on identifying and

mitigating risks associated with the disruption

or loss of effectiveness as a consequence

of critical positions being vacant. Against

this background, the process of identifying

positions at risk commenced during 2013.

Additionally, a programme of targeted training

and development geared towards improving

the skills and competencies of candidates

identified for the succession management pool

was implemented. Emphasis will be placed

on enhancing the Succession Management

Programme in 2014.

8.1.4 Staffing

At the end of the review year, the Bank’s staff

complement was 562, reflecting a decrease of

4.0 per cent relative to end-2012. The staff

complement comprised of 483 permanent

employees and 79 fixed-term contract staff. For

the review period, the staff attrition rate was

7.7 per cent, compared to 6.5 per cent for 2012.

The increase in the staff turnover was largely

attributable to a higher level of resignations.

8.1.5 Industrial Relations

The industrial relations environment remained

stable in 2013. Major emphasis was placed

on improving communication through regular

updates to the Combined Delegates Council

- 142 -Administration

Bank of Jamaica

and timely advice to staff. Special focus was

also placed on the timely implementation of

the relevant items of the Heads of Agreement

between the Government of Jamaica and the

Jamaica Confederation of Trade Unions for the

contract period 2012 – 2015.

8.1.6 Occupational Health & Safety

During the year, the Bank continued the drive

to provide a healthy, safe, productive and

rewarding work environment. A comprehensive

Wellness Programme “BOJ...Banking on OUR

Wellness” was launched in May 2013. The

Programme was aimed at:

1. Providing a work environment that

will support employee health and well-

being;

2. Helping individuals become actively

involved in improving their personal

health by building knowledge, skill

and ability to take control of their well-

being;

3. Improving understanding of workplace

issues that impact the health and well-

being of the Bank’s staff; and

4. Improving job satisfaction and morale,

which contribute to a more effective

organization.

A proactive approach was employed in carrying

out the occupational and safety health mandate

for employees and visitors to the Bank. This

approach included close monitoring of the

Bank’s main plant and external facilities

through frequent inspections as well as air and

water quality assessments.

8.1.7 Training & Development

The strategic training outlook for 2013

represented a continuation of Vision 2015,

a four-year training strategy under the

theme, “Targeted Training: Creating a New

Generation of Central Bankers”. The Training

Institute was charged with the responsibility

to increase the identification, development

and implementation of targeted training

programmes, aimed at supporting new and

existing mandates through more effective

training delivery.

During 2013, the Training Institute facilitated

targeted training programmes with particular

focus on Economists, Bank Supervisors,

Financial Analysts, Cambio Inspectors and

Accountants as well as on building leadership

capacity. The training and development

programmes were predicated on the new and

future roles being assumed by the Bank.

For the review year, the Bank’s Training

Institute facilitated 134 training programmes

that involved 586 participants. Forums on

health and lifestyle (wellness) were also

organized and conducted during the year. Of

the persons trained, 59 attended 48 overseas

training programmes conducted or sponsored

by regional and international organizations,

including the Caribbean Regional Technical

Assistance Centre (CARTAC), World Bank,

International Monetary Fund, Centre for

Latin American Monetary Studies (CEMLA),

Caribbean Group of Bank Supervisors (CGBS)

- 143 -

Annual Report 2013

Administration

and the Federal Reserve Board. The Bank

also collaborated with CEMLA in hosting the

second regional Payment System Workshop

for the Caribbean and Latin America, having

hosted the first such seminar in 2012.

8.1.8 Pension Administration

Pension Administration continued to focus on

the Bank’s role as Administrator and Investment

Manager of the Pension Scheme. Amendments

to the pension scheme’s constitutive documents

were reviewed by the Bank’s management

during the year. Finalization of the review

process by the Bank’s Board and the Trustees of

the Scheme should take place in 2014.

During the year, a Pension Management

Committee was established to monitor the

activities of the pension scheme and provide

reports to the management of the Bank on the

pension scheme’s operations. The Committee

focused on the implementation of measures

and policies to enhance governance, risk

assessment and compliance with statutory

requirements.

Membership in the pension scheme declined

by 5 to 1 022 at end-2013, attributable mainly to

staff resignations. Membership comprised 482

active members, 255 pensioners, 253 deferred

pensioners and 30 beneficiaries (spouse and

dependent children).

8.1.9 Energy & Environmental Management

The Bank’s Energy Management Programme

recorded its fourth consecutive year of reduction

in energy consumption since the start of the

initiative in 2010. The 2013 consumption of

3 986 528 kWh was 30.0 per cent below the

base year (2009) consumption of 5 676 648

kWh and translated to estimated savings

of approximately $144.0 million since the

programme was implemented. For 2013, there

was a marginal reduction of 62 248 kWh (1.6 per

cent) relative to 2012. This trend is expected

to continue throughout 2014 as renewed focus

will be placed on the area.

The Bank’s Environmental Management

Programme also yielded positive results with

improvements in the air and water quality,

reduction in the use of copy and print paper

and the elimination of the use of styrofoam

products. The process of reducing the use

of paper and plastic commenced with two

Divisions towards the end of the year and is

expected to be completed in early 2014.

8.1.10 Plant and Physical Infrastructure

The programme to optimize the performance of

the physical plant and equipment continued in

2013. This involved the upgrade of the Bank’s

electrical and air-conditioning systems as well

as the general plant.

8.1.11 Safety & Security

Improvement work on the fire and life safety

module of the Bank’s Enterprise Building

Integrator commenced with the replacement of

530 smoke detectors throughout the building

- 144 -Administration

Bank of Jamaica

and the upgrading of the fire controllers which

will be commissioned in 2014. The review and

upgrade of security systems and equipment

continued during the period.

- 145 -

9. Governance

9.1. OverviewUnder the Bank of Jamaica Act, the Governor is

the Chief Executive Officer of the Bank as well

as Chairman of the Board of Directors. The

Governor is responsible for the business of the

Bank, and more specifically, the formulation

and implementation of monetary policy,

the supervision and regulation of deposit-

taking entities and other specified financial

institutions, the issuance of currency and

the provision of fiscal agency services to the

Government. In addition, the Governor has

statutory responsibility for the oversight of

Jamaica’s payment, clearing and settlement

systems under the Payment Clearing and

Settlement Act (2010).

9.2. Board MembershipThe Board of Directors is comprised of the Gov-

ernor, the Senior Deputy Governor and six in-

dependent directors appointed by the Minister

of Finance for three-year renewable terms. The

Financial Secretary is an ex officio member

of the Board. In December 2013, there was a

change in the composition of the Board of the

Bank due to the retirement of Senior Deputy

Governor Myrtle Halsall. She was replaced

by Mr John Robinson, the new Senior Deputy

Governor. In this regard, at 31 December 2013

the Board was comprised of Mr Brian Wynter,

Chairman; Mr Christopher Bicknell, Dr Chris-

tine Clarke, Ms Janice Holness, Dr Vincent

Lawrence, Mr Dennis Morrison, Mr John Rob-

inson and Mr Devon Rowe.

Matters of importance which fall outside the

daily management functions of the Bank are

submitted to the Board. Additionally, on the

recommendation of the Governor, the Board

is responsible for the appointment of auditors,

attorneys, currency agents, other agents of the

Bank as well as the Bank’s senior managers.

9.3. Statutory MeetingsThe Bank’s board is required by law to meet

at least 10 times annually. In this regard, for

2013, 10 meetings were held.

9.4. Committee Meetings The Board has three standing committees. These

are the Audit Committee, the Budget Committee

and the Human Resource Development (HRD)

Committee. These committees have written

terms of reference outlining their respective

responsibilities. The Audit Committee, chaired

by Dr Vincent Lawrence, has oversight of the

internal audit function as well as responsibility

for overseeing the relationship with the Bank’s

external auditors. In 2013, this Committee

held three meetings, satisfying the minimum

stipulation. The Budget Committee, chaired

by Dr Christine Clarke, oversees the financial

affairs of the Bank including scrutiny of the

- 146 -Governance

Bank of Jamaica

annual budget prior to final approval by the

Board. This Committee met once in 2013,

satisfying the minimum requirement. The

(HRD) Committee, chaired by Mr Dennis

Morrison, meets when necessary. There was

no meeting of this Committee in 2013.

9.5. Executive CompensationThe Bank’s Executive Management comprises

the Governor, the Senior Deputy Governor and

three Deputy Governors. These officers are

appointed under fixed-term contracts by the

Minister of Finance and Planning, as provided

for under the Bank of Jamaica Act. The

Governor and Senior Deputy Governor are also

ex officio members of the Board of Directors.

The compensation of Executive Management

for the year ended 31 December 2013 is

described below.

Salary Range of Executive Management

$9 555 031 to $18 023 335

Allowances - Deputy Governors

$948 060

Members of the Executive Management

team are eligible for benefits available to

other members of staff, inclusive of health

insurance, life insurance and staff loans. With

the exception of the Governor, all the executive

managers are members of the non-contributory

pension scheme sponsored by the Bank. The

Governor is paid a gratuity in lieu of pension

benefits.

In addition, the Governor is provided with a

residence which is maintained by the Bank. He

is also eligible for reimbursement of prescribed

overseas medical insurance premium and

expenses for his children’s education. The

Governor and the Deputy Governors are

provided with fully maintained motor vehicles.

Non-executive Directors are not remunerated

for their services but are paid reimbursable

expenses within the scale of rates approved

by the Ministry of Finance and Planning for

Directors of public bodies. They are not eligible

for staff-related benefits.

- 147 -

10. Community Outreach

10.1. Overview

Bank of Jamaica remains dedicated to promoting

the cultural and social development of the

country, especially in downtown Kingston.

This corporate social responsibility is effected

through community outreach programmes that

support education as well as the visual and

performing arts.

10.2. Support for Education

10.2.1. Internship Programme

Bank of Jamaica facilitates the educational

development of students at the undergraduate

and post graduate levels by providing

internship opportunities for periods of up to

10 weeks. The Bank of Jamaica Summer Work

Experience Programme (BOJ-SWEP) exposes

students at the secondary and tertiary levels to

a practical, professional and challenging work

environment while providing an opportunity

for them to make a meaningful contribution to

the operations of the Bank. During 2013, 686

applications were received from secondary and

tertiary level students to participate in the BOJ-

SWEP.

Of the number of students who applied, 81

were selected for the programme, inclusive of

11 interns, and assigned to Departments across

the Bank and to three external agencies based

on their areas of study. The Programme was

arranged in two cohorts over the period 03

June – 23 August 2013.

The internships were offered to students from

the University of the West Indies (UWI) and the

University of Technology (UTECH). The Bank

also accommodated for internship one student

who was sponsored by CARTAC. The interns

were granted opportunities to apply their

academic knowledge to assignments in the

fields of Economics and Law as well as Library

and Information Science and in the process

gained relevant experience.

10.2.2. Schools’ Education Programme

The Schools’ Education Programme continues

to allow students to interact with the BOJ

staff members and discuss several aspects

of economics. This programme included the

Bank’s hosting of the Seminars in Economics

series for CAPE students in its auditorium

over the period 21 to 22 March. More than

300 students from high schools across Jamaica

attended each day.

10.2.3. St. Michael’s Primary School

The Bank continued its involvement throughout

2013 with St Michael’s, a primary school in

the neighbourhood. In this regard, the Bank

provided material and stationery for the school.

In addition, the Bank sponsored the Boys’ Day

and the annual summer school programme

- 148 -Public Finance

Bank of Jamaica

through the payment of a stipend to teachers

and the provision of lunch for staff and students

each day.

10.2.4. Money Museum

Throughout 2013, the Bank’s Money Museum

retained its primary function of showcasing the

history of money in general and the Jamaican

currency in particular. In addition, the Money

Museum has become the starting point for

persons to learn about the role and functions

of the Bank of Jamaica in the economy and a

means of connecting with the wider society in

an enjoyable way.

10.3. Visual and Performing Arts

10.3 1. Lunch Hour Concerts

The Lunch Hour concerts are now a fixture on

the downtown entertainment scene. The 2013

concerts provided free entertainment by top

quality professionals and amateur acts in the

fields of music, dance, theatre and the spoken

word.

10.3 2. Art Exhibitions

During 2013, the Bank hosted two ceramic

exhibitions: The Association of Jamaican

Potters’ annual group exhibition in June and

the Mustard Seed Communities’ exhibition in

November.

10.3 3. University Singers in Concert

The annual concert, “An Evening with The

University Singers”, is held in December and

continues to delight hundreds of supporters.

The Chapel on the Mona campus of the

UWI continues to be the venue. Given the

popularity of this concert, patrons have become

accustomed to arriving at the venue an hour or

two early to guarantee being seated.

- 149 -

11. Bank of Jamaica’s Strategic Objectives 2012-2015

11.1. Overview

The medium-term goal of the Bank of Jamaica

is to reduce inflation to single digits, in

line with the average inflation of Jamaica’s

main trading partners, while maintaining a

sound financial sector, in addition to robust

payments and settlement systems. In order

to enhance the Bank’s capacity to meet these

objectives, major institutional reforms are

being contemplated, viz. (i) progressively

fulfil the requirements for full-fledged

inflation targeting (FFIT) for implementation

once the issue of fiscal dominance has been

successfully resolved by the medium-term

economic programme; (ii) amendment of the

Bank of Jamaica Act to give the BOJ overall

responsibility for financial system stability;

and (iii) development of the Omnibus Banking

Law, which will further strengthen BOJ’s

capacity to conduct supervision and regulation

of financial conglomerates. In light of these

reforms and the increased accountability that

will accompany such institutional changes, the

Bank has defined seven strategic objectives to

provide a ‘road map’ for its operations for 2014.

These objectives, as set out below, also inform

the performance benchmarks for the Bank.

11.2. Strategic Objectives

The Bank’s objectives for 2014 are to:

1. Enhance the Monetary Policy Framework

to Achieve Inflation Objective by:

i. deepening research and development

and enhancing the monetary analysis

framework and the monetary

transmission;

ii. strengthening the inflation forecast

and policy assessment system

(IFPAS) through operationalization

of the Dynamic Stochastic General

Equilibrium (DSGE) model and

enhanced surveillance;

iii. assessing the adequacy of the Open-

Market Operations structure to ensure

its effectiveness in attaining the inflation

objectives; and

iv. developing a comprehensive data

management infrastructure integrated

with the enterprise business intelligence

system (EBIS).

2. Strengthen the Bank’s Institutional

Framework for Maintaining Financial

System Stability by:

i. strengthening the macro-prudential

surveillance and risk management

framework, focussing on macro-financial

forecast model; designing framework &

tools for coordinated “bottom-up” stress

- 150 -Strategic Objectives

Bank of Jamaica

testing and self-assessment of SFIs as

well as making internal preparations for

a Financial Stability Committee;

ii. enhancing the financial and prudential

database;

iii. promoting an appropriately robust

legal and regulatory framework and

maintaining an adequate and effective

supervisory framework, including the

implementation of enhanced framework

for cambio and remittance companies,

licensing and development of enhanced

ladder of enforcement for non-compliant

licensees and full implementation of

the new credit reporting oversight

framework;

iv. fostering the development of stable,

robust and efficient money and foreign

exchange markets to support monetary

and financial stability objectives,

focussing on the development of a

discount window, identifying and

implementing specific enhancements

for foreign exchange markets to broaden

the range of products and improve

market efficiency;

v. promoting the efficiency, integrity,

reliability and safety of the payment

and settlement systems, focussing on

the development of business continuity

plan (BCP) for the RTGS;

vi. strengthening the payment system

oversight towards ensuring the safety

and security of the system;

vii. taking the leading role in co-ordinating

the implementation of the CFATF action

plan leading to the fourth round mutual

evaluation of Jamaica; and

viii. leading the development of the country’s

strategies and policies in preparation

for the implementation of FATCA.

3. Benchmark and Monitor the Financial

Performance of the Bank by:

i. implementing a new suite of

management reports to support decision

strategies for effective management at

the divisional level;

ii. improving efficiency and effectiveness

of the budgeting, budgetary control and

financial reporting processes;

iii. reviewing the reserve management

function to ensure attainment of the

risk minimization, capital preservation

and return maximization imperatives,

including greater use of available funds

management expertise; and

iv. ensuring the efficiency of the currency

operations, including assessing the

performance of the new substrates and

reviewing the currency structure to

determine efficacy.

- 151 -

Annual Report 2013

Strategic Objectives

4. Improve the Effectiveness of the Bank’s

Communication by:

i. reviewing and enhancing the

programme for regular external and

internal communication using new and

existing channels;

ii. emphasising topics and subjects that

relate to the organization’s strategic

direction and objectives, promoting

stakeholder discussions on monetary

policy framework and inflation objective

and introducing public education on

the new credit reporting framework,

pursuant to the scheduled launch of

operations of licensed credit bureaus;

iii. promoting financial literacy;

iv. enhancing market transparency through

timely and accurate information

dissemination to all stakeholders; and

v. ensuring the reinforcement of key

strategic messages.

5. Align the Bank’s Human Resources,

Processes, Technology and Organizational

Structure to Support the Attainment of the

Bank’s Strategic Objectives by:

i. developing and implementing a

succession management programme

to ensure that the Bank is adequately

staffed at all times;

ii. developing and administering targeted

training programmes to address the

current and future skills and competency

requirements of the Bank, consisting of

technical as well as management and

leadership training;

iii. enhancing the Bank’s organization

development programme, ensuring

the optimum organizational structure

with the required alignment of

human resources, work processes and

technology; and

iv. undertaking a strategic compensation

review.

6. Enhance the Capacity and Improve the

Stability and Performance of the Bank’s

ICT Infrastructure by:

i. enhancing the IT security arrangements

for the Bank’s data and information;

ii. strengthening the business continuity

plan (BCP) within the context of the IT

framework;

iii. facilitating the implementation of the

fixed-income trading platform; and

iv. developing and implementing a foreign

exchange trading platform.

- 152 -Strategic Objectives

Bank of Jamaica

7. Implement Programmes to Improve the

Operational Efficiency and Reliability of

the Bank’s Physical Plant and Equipment

by:

i. delivering agreed capital projects on

time and within budget;

ii. implementing environmental awareness

programmes, including the greening of

the Bank;

iii. enhancing the energy management

programmes; and

iv. initiating plans for the replacement of

elevators over the next 2-3 years.

- 153 -

12. Calendar of Monetary Policy Developments

2013/02/25 The interest rate applicable to Bank of Jamaica’s 30-day Certificate of Deposit

was reduced by 50 basis points to 5.75 per cent per annum. This policy action

was consistent with the reduction in interest rates on Government of Jamaica

securities, consequent on the National Debt Exchange which settled on 22

February. These actions occurred against the background of a staff level

agreement between the Government and the International Monetary Fund on a

medium-term economic programme.

2013/04/09 The Bank of Jamaica offered a 365-day US-Dollar Indexed Note at a fixed coupon

of 4.75 per cent per annum. The initial exchange rate for the purchase of this

instrument was US$1.00 = J$98.0153.

The interest rate applicable to Bank of Jamaica’s 30-day Open-Market Instruments

remained at 5.75 per cent.

2013/04/15 In order to augment its liquidity management operations, the Bank of Jamaica

offered three variable rate instruments:

i. A 180-day Certificate of Deposit, with offer limit of $3.0 billion. The coupon

was re-priced quarterly at 0.15 percentage point above the three-month GOJ

Treasury Bill rate existing at the beginning of the next interest period. The initial

coupon for the first three months was 5.97 per cent per annum.

ii. A 275-day Certificate of Deposit, for an unlimited amount. The instrument

was re-priced quarterly at 0.20 percentage point above the three-month GOJ

Treasury Bill rate existing at the start of each re-pricing period. The initial

coupon for the first three months was 6.02 per cent per annum.

iii. An 18-month Certificate of Deposit, for an unlimited amount. The instrument is

re-priced quarterly at 0.25 percentage point above the three- month GOJ Treasury

- 154 -Calendar of Monetary Policy Developments

Bank of Jamaica

Bill rate existing at the start of each re-pricing period. The initial coupon for the

first three months was 6.07 per cent per annum.


offered two variable rate instruments:

i. A 276-day Certificate of Deposit, for an unlimited amount. The instrument was

re-priced quarterly at 0.20 percentage point above the three-month GOJ Treasury



ii. An 18-month Certificate of Deposit, for an unlimited amount. The instrument is










ii. An 18-month Certificate of Deposit, for an unlimited amount. The instrument is

re-priced quarterly at 0.25 percentage point above the three- month GOJ Treasury




remained the same at 5.75 per cent.

2013/06/12 The Bank of Jamaica offered two variable rate instruments in order to augment

its liquidity management operations:

i. A 183-day Certificate of Deposit, for a limited nominal amount of $3.0 billion.

- 155 -

Annual Report 2013

Calendar of Monetary Policy Developments

The instrument was re-priced quarterly at 0.15 percentage point above the three-

month GOJ Treasury Bill rate existing at the start of each re-pricing period. The

initial coupon for the first three months was 6.77 per cent per annum.

ii. A 365-day Certificate of Deposit, for an unlimited amount. The instrument is re-

priced quarterly at 0.23 percentage point above the three-month GOJ Treasury



2013/06/20 The Bank of Jamaica offered a special 365-day US Dollar Indexed Note at a fixed

coupon of 4.00 per cent per annum. The initial exchange rate for the purchase of

this instrument was US$1.00 = J$100.1081.





i. A Variable Rate Certificate of Deposit 2013(D), which was originally issued on

12 June 2013, was re-opened for a limited nominal amount of $2.0 billion. The

tenor for the re-opened instrument was 164 days. This instrument maintained

the original issue terms. The initial coupon was 6.77 per cent per annum up to

the first interest payment date on 12 September 2013 and was re-priced quarterly

at 0.15 percentage point above the three- month GOJ Treasury Bill rate for the

following interest payment date up to the maturity date on 12 December 2013.

ii. A 365-day Certificate of Deposit, for an unlimited amount. The instrument re-

prices quarterly at 0.23 percentage point above the three month GOJ Treasury




Bank of Jamaica



2013/07/09 To augment its liquidity management operations, the Bank of Jamaica offered

two variable rate instruments:

i. A 365-day Certificate of Deposit, for an unlimited amount. The instrument,

which qualified as a liquid asset, is re-priced semi-annually at 0.23 percentage

point above the six-month GOJ Treasury Bill rate existing at the start of each re-

pricing period. The initial coupon for the first six months was 7.35 per cent per

annum.

ii. An 18-month Certificate of Deposit, for an unlimited amount. The instrument,


point above the six- month GOJ Treasury Bill rate existing at the start of each re-


annum.

The interest rate applicable to Bank of Jamaica’s 30-day Certificate of Deposit




i. A 365-day Certificate of Deposit, for an unlimited amount. The instrument, which

qualified as a liquid asset, is re-priced semi-annually at 0.23 percentage points

above the six month GOJ Treasury Bill rate existing at the start of each re-pricing

period. The initial coupon for the first six months was 7.35 per cent per annum.

ii. An 18-month Certificate of Deposit, for an unlimited amount. The instrument,


points above the six-month GOJ Treasury Bill rate existing at the start of each re-


annum.

- 157 -

Annual Report 2013



three variable rate instruments:





ii. A 276-day Certificate of Deposit, for an unlimited amount. The instrument,

which qualified as a liquid asset, was re-priced quarterly at 0.20 percentage

point above the three-month GOJ Treasury Bill rate existing at the start of each

re-pricing period. The initial coupon for the first three months was 7.55 per cent

per annum.

iii. An 18-month Certificate of Deposit, for an unlimited amount. The instrument,

which qualified as a liquid asset, is re-priced quarterly at 0.25 percentage point

above the three-month GOJ Treasury Bill rate existing at the start of each re-

pricing period. The initial coupon for the first three months is 7.60 per cent per

annum.





i. A 182-day Certificate of Deposit, for an unlimited amount. The instrument re-

priced quarterly at 0.15 percentage point above the three-month GOJ Treasury




prices quarterly at 0.20 percentage point above the three-month GOJ Treasury




Bank of Jamaica

The interest rate applicable to Bank of Jamaica’s 30-day Open Market Instruments


2013/08/26 Bank of Jamaica, in order to augment its liquidity management operations,

offered









first three months was 7.54 per cent.

The interest rate applicable to Bank of Jamaica’s 30-day Certificate of deposit












- 159 -

Annual Report 2013




2013/09/20 The Bank of Jamaica offered two variable rate instruments:









The interest rate applicable to Bank of Jamaica’s 30-day Certificate of Deposit



i. A 272-day Certificate of Deposit, for an unlimited amount. The instrument,

which qualified as a liquid asset, re-prices quarterly at 0.20 percentage point

above the three month GOJ Treasury Bill rate existing at the start of each re-

pricing period. The initial coupon for the first three months was therefore the

three-month GOJ Treasury Bill rate of 7.42 per cent, plus 0.20 percentage point.




first three months was therefore the three-month GOJ Treasury Bill rate of 7.42

per cent, plus 0.23 percentage point.




Bank of Jamaica





first three months was the three-month GOJ Treasury Bill rate of 7.42 per cent,

plus 0.20 percentage point.

ii. A 2-year Certificate of Deposit, for an unlimited amount. The instrument re-




















- 161 -

Annual Report 2013


2013/11/06 The Bank of Jamaica offered the following variable rate instrument:




first three months was the three month GOJ Treasury Bill rate of 7.37 per cent,




2013/11/11 The Bank of Jamaica offered a special instrument:

i. US Dollar Indexed Linked Note 2014C, for an unlimited amount. The instrument

paid a coupon of 4.0 per cent annum. The initial conversion exchange rate

was US$1:00=J$104.5135, which was the BOJ 10-day moving average buying

exchange rate applicable on 11 November 2013. For each interest payment and

at maturity, the applicable exchange rate is the BOJ 10-day moving average

selling exchange rate applicable on the date of payment multiplied by a factor

1.002. All payments on this instrument are made in Jamaica Dollars.

Interest rate applicable to Bank of Jamaica’s 30-day Open-Market Instruments


2013/11/20 The Bank of Jamaica offered the following instrument:

i. Bank of Jamaica US Dollar Certificate of Deposit: BOJ-USD CD 2015. This

instrument was a 2-year instrument with an unlimited offer amount at a fixed

coupon of 2.50 per cent per annum.




Bank of Jamaica

2013/11/28 The Bank of Jamaica offered two instruments:

i. Bank of Jamaica US Dollar Indexed Linked Note: BOJ US-Linked Note 2014D.

This was a 1-year instrument with an unlimited offer amount. The coupon of

3.50 per cent per annum is paid semi-annually.

ii. Bank of Jamaica Variable Rate Certificate of Deposit: BOJ VR-CD 2014W. This

was a 1-year instrument with an unlimited offer amount.

The instrument is re-priced quarterly at 0.25 percentage point above the three-

month GOJ Treasury Bill rate existing at the start of each re-pricing period.

The initial coupon for the first three months is therefore the three- month GOJ

Treasury Bill rate of 7.57 per cent plus 0.25 percentage point.




i. Bank of Jamaica US Dollar Certificate of Deposit: BOJ-USD CD 2015A.

This offer of BOJ-USD CD 2015A was for an unlimited offer amount at a fixed

coupon of 4.0 per cent per annum semi-annually.

ii. Bank of Jamaica Variable Rate Certificate of Deposit: BOJ VR-CD 2014AA. The

offer of BOJ VR-CD 2014AA was for an unlimited offer amount. The instrument is



first three months is therefore the three-month GOJ Treasury Bill rate of 7.37 per

cent, plus 0.25 percentage point.



- 163 -

Annual Report 2013


2013/12/16 The Bank of Jamaica formalized an enhanced liquidity management framework

(ELMF) for deposit-taking institutions (DTIs). The ELMF, which comprises an

overnight and bi-monthly repurchasing facility, is designed to ensure financial

system stability (see Box 2).


i. Bank of Jamaica US Dollar Certificate of Deposit, BOJ-USD CD 2017. This offer

was for an unlimited offer amount at a fixed coupon of 5.0 per cent per annum,

paid semi-annually.

ii. Bank of Jamaica Variable Rate Certificate of Deposit, BOJ VR-CD 2014AB. This

offer was for an unlimited offer amount and re-priced quarterly at 0.23 percentage

point above the three-month GOJ Treasury Bill rate existing at the start of each

re-pricing period. The initial coupon for the first three months is therefore the

three-month GOJ Treasury Bill rate of 7.53 per cent, plus 0.23 percentage point.



- i -

Auditors’ Report

- ii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

KPMG Peat MarwickChartered AccountantsP.O. Box 76Kingston Jamaica

The Victoria Mutual Building6 Duke StreetKingston Jamaica

Telephone +1 (876) 922-6640Telefax +1 (876) 922-7198 +1 (876) 922-7198email: [email protected]

- iii -

Annual Report 2013

Final Accounts for Year Ended 31 December 2013

- iv -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

3

BANK OF JAMAICA

Statement of Financial PositionDecember 31, 2013

* Restated – See note 35.The accompanying notes form an integral part of the financial statements.

Notes 2013 2012 2011J$'000 J$'000 J$'000

ASSETS

Foreign assets:Notes and coins 66,564 59,342 22,605Cash and cash equivalents 4 40,346,255 29,784,471 36,142,913Interest in funds managed by agents 5 15,000,571 13,081,356 12,098,615Investments 6 106,557,831 114,375,202 167,046,339International Monetary Fund -

Holding of Special Drawing Rights 31,389,869 26,958,840 28,536,152Bilateral accounts - - 23,744

Total foreign assets 193,361,090 184,259,211 243,870,368

Local assets:Notes and coins 138,309 127,859 124,726Loans and advances 7 - 1,000,000 -Resale agreements 8 11,500,000 - -Investments 9 99,002,152 92,159,856 92,820,849International Monetary Fund – Quota subscription 10 5,080,610 4,206,706 4,315,897Due from Government and Government Agencies 11 37,288,737 16,440,252* 18,871,646*Property, plant and equipment 12 3,312,961 3,424,013 3,521,325Intangible assets 13 2,679 30,244 47,398Employee benefit assets 14 5,393,500 5,393,100* 4,355,500*Other 15 3,796,848 4,042,626 6,665,704

Total local assets 165,515,796 126,824,656 130,723,045

Total assets 358,876,886 311,083,867 374,593,413

- v -

Annual Report 2013


- vi -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

5

BANK OF JAMAICA

Statement of Profit or Loss and Other Comprehensive IncomeYear ended December 31, 2013

* Restated – See note 35The accompanying notes form an integral part of the financial statements.

Notes 2013 2012J$'000 J$'000

Operating income:Interest 25 11,757,259 8,918,503Foreign exchange gain 26 1,906,921 5,797,505Other 141,057 111,521

Total operating income 13,805,237 14,827,529

Operating expenses:Interest on deposits and open market liabilities 27 3,802,008 5,322,778Interest on IMF loan 1,058,956 871,203Staff costs 28 2,315,831 2,234,609*Currency expenses 1,001,338 1,061,013Property expenses, including depreciation 866,003 837,875Loss on disposal of securities in National Debt

Exchange 21,084,780 -Other operating expenses 709,330 714,661

Total operating expenses 29 30,838,246 11,042,139

Operating (loss)/profit (17,033,009) 3,785,390

Other income/(expenses):Pension, medical and life insurance 14 265,400 172,000*Loss on re-measurement of staff loans ( 18,209) ( 60,138)Gain on disposal of securities designated

as available-for-sale 986 16,414Gain on disposal of property, plant and equipment 7,003 4,032

(Loss)/profit for the year before transfer to pension equalisation reserve (16,777,829) 3,917,698

Transfer to pension equalisation reserve 24(c) ( 376,100) ( 259,700)*

(Loss)/profit for the year transferred to general reserve fund 11 (17,153,929) 3,657,998

Other comprehensive income:Item that will never be reclassified to profit or loss

(Loss)/gain on fair value of pension asset and obligation, net ( 605,700) 612,800

Items that are or will be reclassified to profit or lossChange in fair value of available-for-sale securities ( 4,671,711) ( 1,866,496)

Total other comprehensive income/(loss) for the year ( 5,277,411) ( 1,253,696)*

Total comprehensive (loss)/income for the year (22,431,340) 2,404,302

- vii -

Annual Report 2013


6

BANK OF JAMAICA

Statement of Changes in Capital and ReservesYear ended December 31, 2013

The accompanying notes form an integral part of the financial statements.

General SpecialShare reserve stabilisation Othercapital fund account reserves TotalJ$'000 J$'000 J$'000 J$'000 J$'000

(Note 21) (Note 22) (Note 23) (Note 24)

Balances at December 31, 2011As previously reported 4,000 20,000 777,130 12,294,923 13,096,053Prior year adjustments (note 35) - - - 115,800 115,800

As restated 4,000 20,000 777,130 12,410,723 13,211,853

Total comprehensive income for the year:

Profit for the year:As previously reported - 3,655,097 - - 3,655,097Prior year adjustments (note 35) - 2,901 - - 2,901

As restated - 3,657,998 - - 3,657,998

Other comprehensive income:As previously reported:Realised change in fair value of available-

for-sale securities - - - 240,527 240,527Unrealised change in fair value of available-

for-sale securities - - - ( 2,107,025) ( 2,107,025)

- - - ( 1,866,496) ( 1,866,496)

Prior year adjustment (note 35) - - - 612,800 612,800

As restated - - - ( 1,253,696) ( 1,253,696)

Total comprehensive income, as restated (note 35) - 3,657,998 - ( 1,253,696) 2,404,302

Other changes in reserves:Profit due to consolidated fund (note 11):

As previously reported - ( 3,655,097) - - ( 3,655,097)Prior year adjustments (note 35) - ( 2,901) - - ( 2,901)

As restated - ( 3,657,998) - - ( 3,657,998)

Transfer from coins in circulation - - 70,465 - 70,465Transfer of surplus on defined benefit

pension scheme:As previously reported - - - 422,600 422,600Prior year adjustments (note 35) - - - ( 66,100) ( 66,100)

As restated (note 35) - - - 356,500 356,500

Other changes in reserves, as restated - ( 3,657,998) 70,465 356,500 ( 3,231,033)

Balances at December 31, 2012As previously reported 4,000 20,000 847,595 10,851,027 11,722,622Prior year adjustment 2011 - - - 115,800 115,800Prior year adjustment 2012 - - - 546,700 546,700

As restated (note 35) Carried forward - 20,000 847,595 11,513,527 12,385,122

- viii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

7

BANK OF JAMAICA

Statement of Changes in Capital and Reserves (Cont’d)Year ended December 31, 2013


General SpecialShare reserve stabilisation Othercapital fund account reserves TotalJ$'000 J$'000 J$'000 J$'000 J$'000

(Note 21) (Note 22) (Note 23) (Note 24)

Balances at December 31, 2012 Brought forward - 20,000 847,595 11,513,527 12,385,122

Total comprehensive income for the year:Loss for the year - (17,153,929) - - (17,153,929)Other comprehensive income:

Realised change in fair value of available-for-sale securities - - - ( 2,377,458) ( 2,377,458)

Unrealised change in fair value of available-for-sale securities - - - ( 2,294,253) ( 2,294,253)

- - - ( 4,671,711) ( 4,671,711)Loss on fair value of pension asset

and obligation - - - ( 605,700) ( 605,700)

Total other comprehensive income - - - ( 5,277,411) ( 5,277,411)

Total comprehensive income - (17,153,929) - ( 5,277,411) (22,431,340)

Other changes in reserves:Loss due from consolidated fund (note 11) - 17,153,929 - - 17,153,929Transfer from coins in circulation - - 71,928 - 71,928Transfer of surplus on defined

benefit pension scheme - - - 470,600 470,600

- 17,153,929 71,928 470,600 17,696,457

Balances at December 31, 2013 4,000 20,000 919,523 6,706,716 7,650,239

- ix -

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8

BANK OF JAMAICA

Statement of Cash FlowsYear ended December 31, 2013

* RestatedThe accompanying notes form an integral part of the financial statements.

Notes 2013 2012J$'000 J$'000

Cash flows from operating activities:(Loss)/profit for the year (16,777,829) 3,917,698*Adjustments for:

Depreciation – property, plant and equipment 12 316,065 319,321Amortisation – intangible assets 13 35,381 35,082Gain on disposal of property, plant and equipment ( 7,003) ( 4,032)Employee benefits, net ( 146,800) ( 185,600)*Unrealised exchange gain (15,062,735) ( 9,647,889)IMF Quota Subscription ( 873,904) 109,191Unrealised exchange loss on International Monetary

Fund - Allocation of SDR's 7,346,445 ( 917,933)Interest income 25 (11,757,259) ( 8,918,503)Interest expense 27 3,802,008 5,322,778Operating loss before changes in other assets and

other liabilities (33,125,631) ( 9,969,887)Other assets 309,478 2,580,379Other liabilities 3,138,031 3,689,331Due from Government and Government Agencies ( 1,620,549) ( 1,142,728)

Interest received 9,551,587 8,905,813Interest paid ( 4,073,246) ( 5,203,338)

Net cash used by operating activities (25,820,330) ( 1,140,430)

Cash flows from investing activities:International Monetary Fund

- Holding of Special Drawing Rights ( 4,431,029) 1,577,313Interest in funds managed by agents ( 39,289) ( 94,118)Foreign currency denominated investments 17,841,350 60,444,488Local currency denominated investments ( 9,538,446) ( 996,336)Loans and advances 1,000,000 ( 1,000,000)Resale agreements (11,500,000) -Additions to property, plant and equipment 12 ( 254,029) ( 244,707)Additions to intangible asset 13 ( 7,816) ( 17,928)Proceeds of disposal of property, plant and equipment 56,019 26,730

Net cash (used)/provided by investing activities ( 6,873,240) 59,695,442

Cash flows from financing activities:Notes and coins in circulation 5,197,185 2,088,206Deposits and other demand liabilities 14,692,593 (23,837,003)Open market liabilities 19,617,603 (45,144,294)Foreign liabilities 32 ( 3)

Net cash provided/(used) by financing activities 39,507,413 (66,893,094)

Net increase/(decrease) in cash and cash equivalents 6,813,843 ( 8,338,082)Cash and cash equivalents at beginning of year 29,971,672 36,290,244Effect of exchange rate fluctuation on cash held 3,765,613 2,019,510

Cash and cash equivalents at end of year 40,551,128 29,971,672

- x -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

9

BANK OF JAMAICA

Statement of Cash Flows (Continued)Year ended December 31, 2013


Notes 2013 2012J$'000 J$'000

Cash and cash equivalents at December 31 comprise:Foreign cash and cash equivalents 4 40,346,255 29,784,471Foreign notes and coins 66,564 59,342Local notes and coins 138,309 127,859

40,551,128 29,971,672

- xi -

Annual Report 2013


10

BANK OF JAMAICA

Notes to the Financial StatementsYear ended December 31, 2013

1. Identification

Bank of Jamaica (hereafter “the Bank”) was established under the Bank of Jamaica Act (hereafter “the Act”) most recently amended on December 31, 2010. The Bank is domiciled in Jamaica and its principal office is located at Nethersole Place, Kingston, Jamaica.

The principal objects of the Bank, as set out in the Act, are to issue and redeem notes and coins; to keep and administer the external reserves of Jamaica; to influence the volume and conditions of supply of credit so as to promote the fullest expansion in production, trade and employment, consistent with the maintenance of monetary stability in Jamaica and the external value of the currency; to foster the development of money and capital markets in Jamaica; and to act as banker to the Government of Jamaica.

2. Basis of preparation

(a) Statement of compliance:

The financial statements are prepared in accordance with the relevant provisions of the Bank of Jamaica Act, and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

New, revised and amended standards and interpretations that became effective during the year:

Certain new, revised and amended standards and interpretations came into effect during the financial year under review. None of them had, or, based on the Bank’s current operations, are expected in the foreseeable future to have, any significant effect on the amounts and disclosures in the financial statements, except that the amendment to IAS 19, Employee Benefits, effective for annual reporting periods beginning on or after January 1, 2013, was adopted. It requires that:

• all actuarial gains and losses be recognised immediately in other comprehensive income, thereby removing the corridor approach and eliminating the ability of entities to recognise all changes in the defined benefit obligation and in plan assets in profit or loss;

• the expected return on plan assets recognised in profit or loss is to be calculated using the rate used to discount the defined benefit obligation; and

• all past service costs, including unvested amounts, are immediately recognised in profit or loss.

The Bank has adopted these amendments with the result that the foregoing changes, as well as the effect of the asset ceiling are presented in other comprehensive income.

- xii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

11

BANK OF JAMAICA


2. Statement of compliance, basis of preparation and significant accounting policies (continued)

(a) Statement of compliance (continued):

New, revised and amended standards and interpretations that became effective during the year (continued):

IFRS 13, Fair Value Measurement, which is effective for annual reporting periods beginning on or after January 1, 2013, defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. It explains how to measure fair value and is applicable to assets, liabilities and an entity’s own equity instruments that, under other IFRSs, are required or permitted to be measured at fair value, or when disclosure of fair values is provided. It does not introduce new fair value measurements, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards. The adoption of this standardresulted in additional disclosures as set out in notes 12 and 33.

New, revised and amended standards and interpretations that are not yet effective:

At the date of authorisation of these financial statements, certain new, revised and amended standards and interpretations have been issued which were not effective at the reporting date and which the Bank has not early-adopted. The Bank has assessed them with respect to its operations and has determined that the following are relevant to its financial statements.

• IFRS 9, Financial Instruments, which is effective for annual reporting periods beginning on or after January 1, 2017 (previously January 1, 2015), retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The standard includes guidance on classification and measurement of financial liabilities designated as at fair value through profit or loss and incorporates certain existing requirements of IAS 39,Financial Instruments: Recognition and Measurement, on the recognition and de-recognition of financial assets and financial liabilities. The Bank is assessing the impact that the standard will have on its 2017 financial statements.

• Amendments to IAS 32, Financial Instruments: Presentation, which is effective for annual reporting periods beginning on or after January 1, 2014, clarifies those conditions needed to meet the criteria specified for offsetting financial assets and liabilities. It requires the entity to prove that there is a legally enforceable right to set off the recognised amounts. Conditions such as whether the set off is contingent on a future event and the nature and right of set-off and laws applicable to the relationships between the parties involved should be examined. Additionally, to meet the criteria, an entity should intend to either settle on a net basis or to realise the asset and settle the liability simultaneously. The Bank is assessing the impact that the amendment will have on its 2014 financial statements.

- xiii -

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BANK OF JAMAICA


2. Basis of preparation (continued):

(b) Functional and presentation currency

The financial statements are presented in Jamaica Dollars (J$) which is the Bank’s functional currency.

(c) Basis of measurement

The financial statements are prepared on the historical cost basis, except that:

(i) available-for-sale investments and certain classes of property, plant and equipmentare included at fair value; and

(ii) the defined benefit asset is recognized as plan assets, less the present value of the defined benefit obligation, adjusted for the effect of limiting the net defined benefit asset to the asset ceiling as explained in note 3(f).

(d) Estimates assumptions and judgements

The preparation of the financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of, and disclosure relating to assets, liabilities, contingent assets and contingent liabilities at the reporting date and the income, expenses, gains and losses for the year then ended. Actual results may differ from these estimates.

Accounting estimates and judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next financial year are set out below:

(i) Pension and other post-retirement benefits

The amounts recognised in the statements of financial position and profit or loss and comprehensive income for pension and other post-retirement benefits are determined actuarially using several assumptions. The primary assumptions used in determining the amounts recognised include the discount rate used to determine the present value of estimated future cash flows required to settle the pension and other post-retirement obligations, and the expected rate of increase in medical costs for post-retirement medical benefits.

The discount rate is determined based on the estimate of yield on long-term government securities that have maturity dates approximating the terms of the Bank’s obligation. In the absence of such instruments in Jamaica, it has been necessary to estimate the rate by extrapolating from the longest-tenor security on the market. The estimate of expected rate of increase in medical costs is determined based on inflationary factors. Any changes in these assumptions will impact the amounts recorded in the financial statements for these obligations.

- xiv -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

13

BANK OF JAMAICA


2. Basis of preparation (continued):

(d) Estimates assumptions and judgements (continued):

(ii) Fair value of financial instruments

There are no quoted market prices for a significant proportion of the Bank’s financial instruments and non-financial assets and liabilities. Accordingly, fair values of financial assets are estimated using prices obtained from a yield curve. That yield curve is, in turn, obtained from a pricing source which estimates the yield curve onthe basis of indicative prices submitted to it by licensed banks and other financial institutions in Jamaica. There is significant uncertainty inherent in this approach which is categorised as a level 2 fair value; consequently, the estimates arrived atmay be different from the actual price of the instrument in an actual arm’s length transaction (see notes 9 and 33).

The fair value of property, plant and equipment is determined by property valuers, as set out in note 12, using largely unobservable inputs, making it a level 3 fair value.

3. Significant accounting policies:

(a) Foreign currencies:

The rate of exchange of the Jamaica Dollar for the United States dollar is determined by the weighted average rate of trades reported by authorised foreign exchange dealers and cambios and the rate at which the Bank itself buys United States dollars. The rates of exchange for other currencies are derived from the US$ rate, thus determined, using rates published by The World Markets Company Plc (WM Reuters).

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated at the foreign exchange rates prevailing at that date. Transactions in foreign currencies are translated at the foreign exchange rates ruling at the dates of those transactions.

Gains and losses arising on fluctuations in exchange rates are included in profit or loss.

(b) Financial instruments:

(i) Classification of investments

Management determines the classification of investments at the time of purchase and takes account of the purpose for which the investments were purchased. Investments are classified as held-to-maturity, loans and receivables and available-for-sale securities.

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank has the positive interest and ability to hold to maturity and which are not designated as at fair value through profit or loss or as available-for-sale. Where the Bank sells other than an insignificant amount of held-to maturity securities, the entire category would be tainted and would be reclassified by the Bank, which would also be prohibited from classifying any securities as held-to-maturity for the current and following two financial years. Held-to-maturity securities are recognised on the date the Bank commits to purchase them, and are measured at amortised cost.

- xv -

Annual Report 2013


14

BANK OF JAMAICA


3. Significant accounting policies (continued):

(b) Financial instruments:

(i) Classification of investments (continued)

Loans and receivables are non-derivative financial assets acquired by the Bank with fixed or determinable payments and which are not quoted in an active market. An active market is one where quoted prices are readily and regularly available from anexchange, dealer, broker or other agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. Loans and receivables are recognised on the day they are acquired by the Bank.

Other financial instruments held by the Bank are classified as available-for-sale. Available-for-sale instruments are recognised on the date the Bank commits to purchase the instruments.

(ii) Measurement

Financial instruments are measured initially at cost, including transaction costs.

Subsequent to initial recognition, available-for-sale investments are measured at fair value, except that any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably determined, is stated at cost, including transaction costs, less impairment losses.

Non-derivative, non-trading financial liabilities, held-to-maturity securities and loans and receivables are measured at amortised cost, less impairment losses. Amortised cost is calculated on the effective interest method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.

Based on the above guidelines, the Bank’s investments are classified and measured as follows:

[i] Loans and advances are classified as loans and receivables and are stated at amortised cost, less allowance for impairment losses as appropriate.

[ii] Local currency denominated Government of Jamaica securities which do not have a quoted market price in an active market and whose fair values cannot be reliably determined, and interest-bearing deposits are stated at historical or amortised cost.

[iii] Local currency denominated Government of Jamaica securities with quoted prices in an active market are classified as available-for-sale and measured at fair value.

[iv] US Government bonds are classified as available-for-sale and are measured at fair value.

[v] Interest in managed funds is classified as available-for-sale and is measured at fair value.

- xvi -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

15

BANK OF JAMAICA



(b) Financial instruments (continued):

(iii) Fair value measurement principles

The fair value of financial instruments classified as available-for-sale is based on their quoted market price at the reporting date without any deduction for transaction costs. Where a quoted market price is not available, the fair value of the instrument is estimated using discounted cash flow techniques or a generally accepted alternative method.

Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates of the amount and timing of such cash flowsand the discount rate is a market related rate at the reporting date for an instrument with similar terms and conditions.

(iv) Gains and losses on subsequent measurement

Gains and losses arising from a change in the fair value of available-for-sale assets are recognised in other comprehensive income, except for impairment losses and, in the case of monetary items such as debt securities, foreign exchange gains and losses, which are recognized in profit or loss. When the financial assets are sold, collected or otherwise disposed of, the cumulative gain or loss recognised in other comprehensive income is recognised in profit or loss.

(v) Cash and cash equivalents

Cash and cash equivalents comprise demand deposit accounts with banks and are shown at cost.

(vi) Other assets

Other assets are stated at amortised cost, less impairment losses.

(vii) Other liabilities

Other liabilities are stated at amortised cost.

(viii) Derecognition

A financial asset is derecognised when the Bank loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered. A financial liability is derecognised when it is extinguished.

Available-for-sale assets that are sold are derecognised and corresponding receivables from the buyer for the payment are recognised as of the date the Bank commits to sell the assets.

Loans and receivables are derecognised on the day they are transferred by the Bank.

- xvii -

Annual Report 2013


16

BANK OF JAMAICA



(c) Property, plant and equipment:

(i) Owned assets:

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, except for freehold land and buildings, which are stated at market value.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour and any other costs directly attributable to bringing the asset to the location and condition where it is ready for its intended use.

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and it can be measured reliably.

The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

The market value of freehold land and building is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arms’ length transaction.

(ii) Depreciation:

Property, plant and equipment are depreciated on the straight-line basis at annual rates estimated to write down the assets to their residual value over their estimated useful lives. Leasehold property is amortised in equal instalments over the shorter of the lease term and the property’s estimated useful life.

Land, works of art and museum coins are not depreciated.

The estimated useful lives are as follows:

Buildings 10 – 20 yearsLeasehold property Shorter of lease term and useful lifeFurniture, plant and equipment 10 yearsComputer equipment 5 yearsMotor vehicles 5 years

The depreciation methods, useful lives and residual values are reassessed at eachreporting date.

(d) Notes and coins in circulation:

The nominal value of numismatic coins sold is included in notes and coins in circulation. The net proceeds from such sales are included in profit or loss.

- xviii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

17

BANK OF JAMAICA



(d) Notes and coins in circulation (continued):

Notes and coins in circulation is stated after a deduction of 25% of the value of coins in circulation in accordance with the Bank of Jamaica (Value of Coins in Circulation) Order 1973, as permitted under Section 22 of the Act. The deductions are credited to the special stabilisation account.

(e) Taxation:

Section 46 of the Act, which exempted the Bank from income tax, stamp duties and transfer tax, was repealed on December 23, 2003; however, the Bank is still exempt from income tax under Section 12(b) of the Income Tax Act. The Bank’s supplies are substantially exempt from general consumption tax (GCT); it incurs GCT at standard rates on taxable supplies acquired.

(f) Employee benefits:

Employee benefits comprise all forms of consideration given by the Bank in exchange for service rendered by employees. These include current or short-term benefits such as salaries, NIS contributions, annual vacation leave, and non-monetary benefits such as medical care and life insurance; post-employment benefits such as pension and medical care; and other long-term employee benefits such as termination benefits.

(i) General benefits

Employee benefits that are earned as a result of past or current service are recognised in the following manner: short-term employee benefits are recognised as a liability, net of payments made, and charged as expense. The estimated cost of accumulated vacation leave is recognised annually. Post-employment benefits are accounted for as described below.

(ii) Post-employment benefits - Defined benefit pension plan

In respect of defined-benefit arrangements, employee benefits and obligations included in the financial statements are determined annually by a qualified independent actuary, appointed by management. The appointed actuary’s report outlines the scope of the valuation and the actuary’s opinion. The actuarial valuations are conducted in accordance with IAS 19, and the financial statements reflect the Bank’s post-employment benefit asset and obligation as computed by the actuary. In carrying out their audit, the auditors rely on the work of the actuary and the actuary’s report.

The cost to the Bank of the pension benefits it is committed to providing is the totalof (1) the net obligation under the plan, and (2) the cost of administration of the plan – all of which costs are borne by the Bank.

- xix -

Annual Report 2013


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BANK OF JAMAICA



(f) Employee benefits (continued):

(ii) Post-employment benefits - Defined benefit pension plan

The Bank’s net obligation under its defined-benefit pension plan is calculated by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods; that value is discounted to determine the present value, and the fair value of any plan assets is deducted. The discount rate is determined by reference to the yield at the reporting date on long-term government securities with maturities approximating the terms of the Bank’s obligation. The calculation is performed by a qualified actuary using the projected unit credit method.

Re-measurements of the net defined benefit liability (asset), which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Bank determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When the benefits of the plan are changed or when the plan is contracted, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Bank recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Where the calculation results in a benefit to the Bank, the recognised asset is limited to the net present value of economic benefits available in the form of any future refunds from the plan or reduction in future contributions to the plan and the present value of any future refunds from the plan or reductions in future contributions to the plan.

(iii) Post-employment defined benefits – Medical care and life insurance

The Bank’s obligation in respect of unfunded long-term employee medical care and life insurance are the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is then discounted to determine its present value. The discount rate is determined as per the defined benefit pension plan set out above. The calculation is performed using the projectedunit credit method. Re-measurements of the defined obligation as well as net interest expense is recognised in the same manner as defined above for defined benefits pension plan.

- xx -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

19

BANK OF JAMAICA


3. Significant accounting policies (continued)::

(g) Statutory transfer of profits and losses:

Section 9 of the Act provides for each financial year’s net income to be credited, or net loss charged, to the General Reserve Fund, and for the balance on the General Reserve Fund in excess of five times the Bank’s authorised share capital to be transferred to the Consolidated Fund. Likewise, any losses not covered by reserves are required by the Act to be funded by Government out of the Consolidated Fund.

(h) Impairment:

The carrying amounts of the Bank’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated at each reporting date. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.

When a decline in the fair value of an available-for-sale financial asset has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that has been recognised in other comprehensive income is recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss.

(i) Calculation of recoverable amount

The recoverable amount of the Bank’s investment in loans and receivables and other receivables is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short-term duration are not discounted.

(ii) Reversals of impairment

An impairment loss in respect of loans and receivables carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. For all other assets, an impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount.

An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. If the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined if noimpairment loss had been recognised.

- xxi -

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BANK OF JAMAICA



(i) Intangible asset:

Intangible asset represents software and is measured at cost less accumulated depreciation and impairment losses. The asset is depreciated on the straight line basis at an annual rate estimated to write down the asset to its residual value over its estimated useful life of 5 years.

(j) Resale agreements:

Resale agreements are accounted for as short-term collateralised lending. They are classified as loans and receivables and carried at amortised cost.

Interest earned on resale agreements is recognised as interest income over the life of each agreement using the effective interest method.

(k) Revenue recognition:

Interest income

Interest income is recognised in profit or loss on the accrual basis using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset (or, where appropriate, a shorter period) to the carrying amount of the financial asset. The effective interest rate is established on initial recognition of the financial asset and is not revised subsequently. Interest income includes coupons earned on fixed income investments, accretion of discount on treasury bills and other discounted instruments, and amortisation of premium on instruments bought at a premium.

4. Cash and cash equivalents

2013 2012J$'000 J$'000

Current accounts and money at call with foreign banks 40,003,312 29,051,024Current accounts with local banks 342,943 733,447

40,346,255 29,784,471

5. Interest in funds managed by agents

This represents investments managed by Crown Agents Investment Management Limited (CAIML) on behalf of the Bank. The portfolio consists of investments in government bonds,treasury bills, corporate bonds and cash denominated in United States dollars and other currencies. The portion denominated in other currencies is hedged in United States dollars as required by the agreement in place between the Bank and CAIML.

- xxii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

21

BANK OF JAMAICA


6. Foreign currency denominated investments

2013 2012J$'000 J$'000

Available-for-sale securities:US Government securities 40,084,032 34,711,648

Loans and receivables:Short-term deposits with foreign banks 66,473,799 79,663,554

106,557,831 114,375,202

7. Loan and advances

In the previous year the Bank granted loans and advances, amounting to J$1,000,000,000, to certain financial institutions. These loans were collateralised by securities issued or guaranteed by the Government of Jamaica.

As at the reporting date, the fair value of the securities obtained and held by the Bank for the loans and advances granted, or which may in the future be granted, was $Nil (2012: $1,330,532,000). All loans and advances mature within twelve months after the reporting date.

8. Resale agreements

The Bank, in pursuing its monetary policy objectives entered into various resale agreements with financial institutions. Under these agreements, the Bank purchased Government of Jamaicasecurities and agreed to resell them on a specified date and at a specified price. These are accounted for as short-term collateralized lending [note 3(j)]. Section 23(f) of the Act requires the Bank to obtain collateral with a market value that is 1⅓ times the amount of the credit granted to each financial institution. At December 31, 2013, securities held had a fair value of $15,288,098,000 (2012: $Nil).

9. Local currency denominated investments

2013 2012J$'000 J$'000

Available-for-sale securities:Jamaica Government Securities:

Treasury bills 5,660 38Variable rate benchmark investments 11,901,080 74,017,330Fixed rate benchmark investments 12,532,027 18,142,488

24,438,767 92,159,856Held to maturity investments:

Jamaica Government Securities:Fixed rate accreting notes (“FRANs”) [See note below] 74,563,385 -

99,002,152 92,159,856

- xxiii -

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BANK OF JAMAICA


9. Local currency denominated investments (continued)

As part of the National Debt Exchange, Government of Jamaica (“GOJ”) mandated the Bank (and all other state-owned/controlled entities that held GOJ issued notes) (“Old Notes”) to exchange those Old Notes for new notes – FRANs - as at February 22, 2013. Old notes with a carrying amount of $94,833,000,000 at that date were exchanged for FRANs with a fair value of $73,748,000,000 resulting in a loss of $21,085,000,000. In summary, under the terms of the FRANs:

(i) A holder of Old Notes was issued J$80 of initial principal value of FRANs for every J$100 of principal value of Old Notes;

(ii) Interest is payable semi-annually on February 15 and August 15 at a fixed rate of 10% p.a. on the accreted principal value with the first payment due on August 15, 2013;

(iii) Accretion for the additional J$20 of principal value will commence in August 2015 as follows:• 0.5% of $100 every six months from August 15, 2015 until August 15, 2020;• Thereafter, 1.0% of $100 every six months until August 15, 2026; and• Thereafter, 1.5% of $100 every six months until August 15, 2027.

(iv) The FRANs may be redeemed by GOJ on any interest payment date after August 15, 2020. (The value at which the FRAN could be redeemed is not included in the offer document.)

10. International Monetary Fund – Quota Subscription

This represents the portion of Jamaica's fee for membership of the International Monetary Fund (IMF), based on its quota, which was paid by the Bank (the other portion having been subscribed by the Government of Jamaica). The Bank holds, on behalf of the IMF, promissory notes issued by the Government reflecting the Jamaica dollar value of the unpaid subscription quota allocated to Jamaica. The Jamaica dollar value of the promissory notes issued are determined by the SDR:J$ rate at April 30 of each year. Jamaica is assigned a quota of SDR 273,500,000 which represents .047% of the total quota allocated by the IMF.

Quotas are reviewed every five years, when adjustments may be considered.

2013 2012SDR'000 J$'000 J$'000

Amount subscribed by the Government of Jamaica(substituted by securities) 242,375 36,229,014 32,757,849

Amount subscribed by the Bank 31,125 5,080,610 4,206,706

Total quota 273,500 41,309,624 36,964,555

2013 2012SDR'000 J$'000 J$'000

Amount subscribed by the Bank (net of reserve tranche of J$Nil):

At beginning of year 31,125 4,206,706 4,315,897

Effect of exchange rate fluctuation * - 873,904 ( 109,191)

At end of year 31,125 5,080,610 4,206,706

* The exchange rate at the reporting date is set out at note 17(d)(iii).

- xxiv -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

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BANK OF JAMAICA


11. Due from Government and Government Agencies

2013Movements during the year

At Atbeginning Advances/ (Settlement)/ end of

of year losses profit yearJ$'000 J$'000 J$'000 J$'000

Withholding tax refund due[see note (c) below] 3,276,736 1,485,047 - 4,761,783

Accrued interest on Government securities 3,437,751 5,647,260 (3,437,751) 5,647,260

Net loss receivable from Consolidated Fund 9,725,765 17,153,929 - 26,879,694

16,440,252 24,286,236 (3,437,751) 37,288,737

2012Movements during the year

At Atbeginning Advances/ (Settlement)/ end of

of year losses profit yearJ$'000 J$'000 J$'000 J$'000

Withholding tax refund due[see note (c) below] 2,134,009 1,142,727 - 3,276,736

Accrued interest on Government securities 3,353,876 3,437,751 (3,353,876) 3,437,751

Net loss receivable from Consolidated Fund 13,383,763* - (3,657,998) 9,725,765

18,871,648 4,580,478 (7,011,874) 16,440,252

(a) By virtue of Section 36 of the Act, the Bank is empowered to make advances to the government of up to thirty percent of the estimated revenue of Jamaica for the financial year of the Government. Such advances are to be repaid within three months of the end of the financial year in which the advances were made. Where advances are not duly repaid,the Bank is prohibited from granting further advances in any subsequent financial year until the outstanding advances are repaid.

During 2013, the Bank extended credit to the Government by way of temporary advancesamounting to $31.8 billion (2012: $7.5 billion), which was repaid during the year.

(b) The Government is required by the Act to pay to the Bank, out of the Consolidated Fund, amounts to cover losses incurred by the Bank. Section 9 (3) of the Act provides that if in the opinion of the Minister of Finance payment to clear the losses cannot be made from the Consolidated Fund, such losses may be cleared by the issue of securities to the Bank chargeable to the Consolidated Fund. At the reporting date, losses of $26,879.69 million (2012: $9,725.77 million) remained unsettled.

- xxv -

Annual Report 2013


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BANK OF JAMAICA


11. Due from Government and Government Agencies (continued)

(c) Income tax is withheld on income earned by the Bank on its holding of securities (in practice, this is GOJ securities) in accordance with Section 31A of the Income Tax Act asan advance on payment of income tax which may be due. However, as the Bank is exempt from income tax it, therefore, has no liability for income tax, and the entire amount of tax withheld is recoverable from Tax Administration Jamaica.

At the reporting date, the age profile of the withholding tax recoverable was as follows:

2013 2012J$'000 J$'000

1-6 months 531,288 467,7106-12 months 940,458 675,0181-5 years 3,054,187 2,080,465Over 5 years 235,850 53,543

4,761,783 3,276,736

The amount is expected to be recovered in accordance with the Government of Jamaica’s programme for the elimination of withholding tax arrears.

12. Property, plant and equipment

Freehold Furniture,land and Leasehold plant and Motor Work-in-buildings property equipment vehicles progress Total

J$'000 J$'000 J$'000 J$'000 J$'000 J$'000Cost or valuation:

December 31, 2011 2,956,154 15,821 1,501,380 374,452 32,940 4,880,747Additions 73,930 19,277 81,409 70,091 - 244,707Transfers 23,719 9,221 - - (32,940) -Disposals/write-offs ( 87) - ( 3,265) ( 62,244) - ( 65,596)

December 31, 2012 3,053,716 44,319 1,579,524 382,299 - 5,059,858Additions 20,201 16,530 98,339 118,959 - 254,029Disposals/write-offs - - ( 154) (129,178) - ( 129,332)

December 31, 2013 3,073,917 60,849 1,677,709 372,080 - 5,184,555

Depreciation:December 31, 2011 238,590 6,082 997,178 117,572 - 1,359,422Charge for the year 125,521 4,433 113,534 75,833 - 319,321Eliminated on disposals - - ( 3,300) ( 39,598) - ( 42,898)

December 31, 2012 364,111 10,515 1,107,412 153,807 - 1,635,845

Charge for the year 126,749 6,078 112,812 70,426 - 316,065Eliminated on disposals - - - ( 80,316) - ( 80,316)

December 31, 2013 490,860 16,593 1,220,224 143,917 - 1,871,594

Net book values:December 31, 2013 2,583,057 44,256 457,485 228,163 - 3,312,961

December 31, 2012 2,689,605 33,804 472,112 228,492 - 3,424,013

December 31, 2011 2,717,564 9,739 504,202 256,880 32,940 3,521,325

- xxvi -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

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BANK OF JAMAICA


12. Property, plant and equipment (continued)

The Bank’s land and buildings at Nethersole Place were revalued in January 2010 by an external, independent valuer, with appropriate recognised professional qualification and recent experience in the location and category of land and buildings being valued (namely, The C. D. Alexander Company Realty Limited, Real Estate Broker, Appraiser and Auctioneer). The Bank’s other land and buildings have not been revalued.

An independent valuer provides the fair value of the land and buildings when requested by the Bank. There has been no recent request to update the valuation; management of the Bank is of the opinion that there was no significant change in the value of land and buildings between the valuation date and the reporting date.

The surplus arising on revaluation, inclusive of depreciation no longer required, is included inproperty revaluation reserve [note 24(b)].

Two fair values were determined at the date of the valuation, viz: $2.23 billion on the depreciated replacement cost basis and $1.882 billion using the Income approach. The management selected the Cost Approach for recording fair value.

The fair value of land and buildings is categorised as level 3 in the fair value hierarchy.

The significant unobservable inputs used in determining the fair value of property, plant and equipment, and the effect of each of them on the value determined, are summarised below:

Valuation techniques Significant unobservable inputs

Inter-relationship between key unobservable inputs and fair value measurement

Depreciated replacement cost.This model takes into account:Building:

(i) An estimate of the full replacement cost at the reporting date

(ii) An estimate of depreciation based on the age and condition of the building

(iii) Deducting the estimated depreciation from the current replacement cost

Land (i) An estimate of the site

improvements made (ii) An estimate of the market

value of the land with the site improvements

Estimates of material, labour, professional fees and other costs of planning, design and construction, expressed as cost per square foot

Judgements about the physical condition of the building

Judgements about the environment in which the building is located

The estimated fair value would increase (decrease) if:• the cost per square

foot were higher (lower)

• judgement about the condition of the building had determined the condition to be better (worse)

- xxvii -

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BANK OF JAMAICA


13. Intangible assets

Computer Work-in software progress Total J$’000 J$’000 J$’000

Cost:December 31, 2011 428,911 4,615 433,526Additions 17,928 - 17,928Transfers 4,615 ( 4,615) -

December 31, 2012 451,454 - 451,454Additions 7,816 - 7,816

December 31, 2013 459,270 - 459,270

Amortisation:December 31, 2011 386,128 - 386,128Charge for the year 35,082 - 35,082

December 31, 2012 421,210 - 421,210Charge for the year 35,381 - 35,381

December 31, 2013 456,591 - 456,591

Net book values:December 31, 2013 2,679 - 2,679

December 31, 2012 30,244 - 30,244

December 31, 2011 42,783 4,615 47,398

14. Employee benefits

The Bank operates non-contributory defined benefit pension, medical, and life insurance schemesfor all its permanent eligible employees and funds supplemental retirement benefits. Benefits under the pension scheme are computed by reference to final salary. The assets of the scheme, which are held separately from those of the Bank, are under the control of a board of trustees, with day-to-day management by employees of the Bank.

(a) Pension asset recognised:

2013 2012J$'000 J$'000

Present value of funded obligations ( 7,283,400) ( 6,794,000)Fair value of plan assets 12,676,900 12,295,400Unrecognised due to ceiling - ( 108,300)

Recognised asset 5,393,500 5,393,100

- xxviii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

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BANK OF JAMAICA


14. Employee benefits (continued)

(a) Pension asset recognised (continued):

(i) Movements in the present value of defined benefit obligations

2013 2012J$'000 J$'000

Balance at beginning of year 6,794,000 6,423,400Benefits paid ( 354,100) ( 404,900)Service and interest costs 889,900 843,400Remeasurement gain on obligation included in OCI ( 46,400) ( 67,900)

Balance at end of year 7,283,400 6,794,000

(ii) Movements in plan assets

2013 2012J$'000 J$'000

Fair value of plan assets at beginning of year 12,295,400 11,999,000Contributions paid 94,500 96,800Interest income on plan assets 1,277,400 1,184,500Benefits paid ( 354,100) ( 404,900)Remeasurement gain on assets include in other

comprehensive income ( 636,300) ( 580,000)

Fair value of plan assets at end of year 12,676,900 12,295,400

Plan assets consist of the following:Government of Jamaica securities 11,555,600 11,809,200Bank of Jamaica certificates of deposit 909,300 77,500Real estate 85,000 85,000Other 127,000 323,700

12,676,900 12,295,400

(iii) Credit recognised in profit or loss

2013 2012J$'000 J$'000

Current service costs 176,600 164,300Interest on obligations 713,300 642,200Interest income on assets (1,277,400) (1,184,500)Interest on effect of asset ceiling 11,400 118,300

( 376,100) ( 259,700)

- xxix -

Annual Report 2013


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BANK OF JAMAICA



(a) Pension asset recognised (continued):

(iv) Items in other comprehensive income

2013 2012J$'000 J$'000

Remeasurement gain on obligation:Change in financial assumptions 304,300 137,400Experience adjustment (350,700) ( 205,300)

( 46,400) ( 67,900)Remeasurement loss on assets 636,300 580,000Change in effect of asset ceiling (119,700) (1,193,200)

470,200 ( 681,100)

(v) Principal actuarial assumptions at the reporting date (expressed as weighted averages)

2013 2012% %

Discount rate 9.5 10.5Future pension increases 2.5 3.0Future salary increases 6 7

(vi) A one percentage point change at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligations by amounts shown below:

One percentage One percentageActuarial assumption point increase point decrease

Discount rate (817,000) 1,091,300Assumed rate of salary escalation 288,700 ( 258,000)Future rate of pension 774,500 ( 584,600)

- xxx -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

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BANK OF JAMAICA



(b) Obligations for post-retirement life insurance and medical benefits:

(i) Liability recognised in statement of financial position

2013 2012J$'000 J$'000

Balance at beginning of year 750,600 608,200Interest cost 81,000 62,600Current service cost 29,700 25,100Benefits paid ( 16,900) ( 13,600)Re-measurement loss on obligation, included in other

comprehensive income [see (iii)] 135,500 68,300

Balance at end of year 979,900 750,600

(ii) Expense recognised in profit or loss:

2013 2012J$'000 J$'000

Current service costs 29,700 25,100Interest on obligations 81,000 62,600

110,700 87,700

(iii) Items in other comprehensive income

2013 2012J$'000 J$'000

Change in financial assumptions 102,200 -Experience adjustment 33,300 68,300

Re-measurement loss on obligation 135,500 68,300

(iv) Principal actuarial assumptions at the reporting date (expressed as weighted averages):

2013 2012% %

Discount rate 9.50 10.50Medical claims growth 7.50 9.50

Assumptions regarding future mortality are based on the PA (90) mortality table for pensioners (British mortality tables), but with each age rated down by six years.

- xxxi -

Annual Report 2013


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BANK OF JAMAICA



(c) At the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by amounts shown below:

One Onepercentage percentage

point increase point decreaseJ$'000 J$'000

Assumed medical cost trend rate and rate ofsalary escalation 187,100 (146,400)

Discount rate (147,400) 188,600

(d) The estimated pension contributions expected to be paid into the plan during the next financial year is J$118,510,000 (2012: J$103,000,000).

15. Other assets

2013 2012J$'000 J$'000

Items in process of collection - 979Staff loans 1,975,174 1,891,723Ex-staff loans 76,413 37,818Stock of unissued notes and coins 1,955,281 2,354,966Accrued interest receivable other than on GOJ securities 203,389 207,226Other 267,657 212,773

4,477,914 4,705,485Less:

Re-measurement of staff loans ( 669,461) ( 651,253)Provision for loan loss on ex-staff loans ( 11,605) ( 11,605)

3,796,848 4,042,627

16. Notes and coins in circulation

2013 2012J$'000 J$'000

Notes 67,059,634 62,150,162Coins 2,758,571 2,542,786

69,818,205 64,692,948

Section 21 of the Act requires the Bank to hold specified assets of an amount in value sufficient to cover the value of the total amount of notes and coins in circulation as defined in that section. The assets held shall include, inter alia, (a) gold; (b) "hard currency" cash, bank balances or securities issued by a foreign government or international financial institution of which Jamaicais a member; or (c) Special Drawing Rights. Specified assets held by the Bank, as at December 31, 2013, were 3.88 (2012: 4.49) times the value of notes and coins in circulation at that date.

- xxxii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

31

BANK OF JAMAICA


16. Notes and coins in circulation (continued)

Coins in circulation are shown net of a reserve of 25% of the gross amount of coins in circulation(note 23).

17. Deposits and other demand liabilities

(a) Deposits and other demand liabilities comprise the following:

2013 2012J$'000 J$'000

Government and Government agencies 25,488,416 8,902,218Commercial banks and specified financial institutions 68,718,764 68,385,891International Monetary Fund [see (c) below] 72,637,206 73,325,376Others 3,117,510 2,073,911

169,961,896 152,687,396

Jamaica dollar equivalent of foreign currency deposits 121,426,390 101,395,792Jamaica dollar deposits 48,535,506 51,291,604

169,961,896 152,687,396

(b) Deposit and other demand liabilities include the reserve deposits prescribed by Section 28 of the Bank of Jamaica Act, Section 14 of the Banking Act, Section 14 of the Financial Institutions Act and Section 31 of the Building Societies Regulations. Reserve deposits at the reporting date were $57,144,713 million (2012: $50,131.14 million).

(c) Under Section 28A of the Bank of Jamaica Act, commercial banks and specified financial institutions may be required to make special deposits with the Bank of Jamaica in the form of cash or specified securities. There were no special deposits at the reporting date.

(d) IMF related information

(i) The above IMF balance consists of the following loans:

2013 2012 2013 2012SDR'000 SDR'000 J$'000 J$'000

2010 Standby agreement 366,525 541,800 54,786,340 73,226,2112013 Extended fund facility 118,690 - 17,741,193 -

Total draw-downs 485,215 541,800 72,527,533 73,226,211Other IMF amounts 734 734 109,673 99,165

Total IMF liability 485,949 542,534 72,637,206 73,325,376

- xxxiii -

Annual Report 2013


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BANK OF JAMAICA


17. Deposits and other demand liabilities (continued)

(d) IMF related information (continued)

(ii) The following reconciliation shows the total IMF liability convertedat the SDR to J$ exchange rates prevailing at April 30 and December 31

2013 2012J$'000 J$'000

At the December 31, 2013 SDR rate:Amount at which the loan is carried by the Bank 79,322,157 77,341,414

Effect of exchange rate depreciation (note 20) ( 6,684,951) ( 4,016,038)

At the April 30, 2013 SDR rate:Amount at which the loan is carried by

the IMF [per (a) above] 72,637,206 73,325,376

(iii) The following table shows the rate of exchange of J$ to SDR at April 30 and December 31, 2013

2013 2012

April 30 J$1 = 0.00669008 0.00739899December 31 J$1 = 0.00612620 0.00701471

As at March 3, 2014, the date of approval of these financial statements, the exchange rate was J$1 = SDR0.0059813.

(iv) The balance on the Extended Fund Facility reflected in these financial statements does not include an amount of SDR58.00 million (J$8,669.55 million) as it was disbursed toGovernment of Jamaica for fiscal support.

18. Open market liabilities

As part of the process of controlling liquidity in the financial system, the Bank acquires funds from or makes funds available to financial institutions and this is effected by entering into short-term agreements with the institutions. In the case of funds acquired, receipt of funds is evidenced by the Bank issuing Certificates of Deposit to the depositor.

19. International Monetary Fund - Allocation of Special Drawing Rights

This represents the Bank's obligation for Special Drawing Rights (SDRs) allocated to it. This allocation does not change unless there are cancellations or further allocations.

2013 2012SDRs'000 J$'000 J$'000

At beginning of year 261,644 35,362,449 36,280,382Effect of exchange rate fluctuation - 7,346,445 ( 917,933)

At end of year 261,644 42,708,894 35,362,449

- xxxiv -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

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BANK OF JAMAICA


20. Other liabilities

2013 2012J$'000 J$'000

Interest payable 611,348 340,110Staff and staff-related expenses 307,951 379,397SDR equalisation provision [note 17(d)] 6,684,951 4,016,038Overdrafts 2,486 2,486Items in process of collection 17,549 -Other 64,383 83,844

7,688,668 4,821,875

21. Share capital

Section 8 of the Act provides for the capital of the Bank to be J$4,000,000, which has been paid by the Government of Jamaica.

22. General reserve fund

Section 9 of the Act provides that the Bank shall establish and maintain a General Reserve Fund:

(a) to which, at the end of each financial year, the net income for that year shall be transferred or the net losses charged;

(b) from which shall be paid to the Consolidated Fund the amount by which, at the end of the financial year, the balance thereon exceeds five times the Bank's authorised share capital;

(c) into which should be paid from the Consolidated Fund at the end of the financial year, the amount by which the Bank’s net loss exceeds the balance in the General Reserve Fund.

23. Special stabilisation account

The special stabilisation account is maintained at 25% of the coins in circulation as a reserve against coins that are unlikely to be redeemed (note 16).

- xxxv -

Annual Report 2013


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BANK OF JAMAICA


24. Other reserves

This represents the following:

2013 2012J$'000 J$'000

Securities revaluation reserve [see (a)] ( 854,796) 3,816,916Property revaluation reserve [see (b)] 2,321,411 2,321,411Pension equalisation reserve [see (c)] 5,240,101 5,375,200

6,706,716 11,513,527

(a) This represents the unrealised gains net of losses on the revaluation of available-for-sale investments securities.

(b) The property revaluation reserve represents the surplus arising on the revaluation of certain freehold properties (see note 12).

(c) The pension equalisation reserve represents the pension surplus arising on the actuarial valuation, under IAS 19, of the Bank’s pension scheme. Annual changes in the value of the plan are shown in the statement of comprehensive income, then transferred to this reserve.

25. Interest income

2013 2012J$'000 J$'000

(a) Interest income comprises:

Loans and receivables:Cash and cash equivalents 17,592 64,921Funds managed by agents 141,596 125,267Investment securities 238,770 206,116Loans and advances - 2,767Resale agreements 111,984 -Other 120,091 87,539

Available-for-sale:Investment securities 3,806,353 8,431,893

Held to maturity:Investment securities 7,320,873 -

11,757,259 8,918,503(b) Analysed as follows:

Government of Jamaica (note 30) 10,370,919 7,565,718Other sources 1,386,340 1,352,785

11,757,259 8,918,503

- xxxvi -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

- xxxvii -

Annual Report 2013


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BANK OF JAMAICA


30. Related party balances

(a) A related party is a person or entity that is related to the Bank:

(i) A person or a close member of that person’s family is related to the Bank if that person:

(a) has control or joint control over the Bank;

(b) has significant influence over the Bank; or

(c) is a member of the key management personnel of the Bank

(ii) An entity is related to the Bank if any of the following conditions applies:

(a) The entity and the Bank are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(b) The entity is a post-employment benefit plan for the benefit of employees of either the Bank or an entity related to the Bank.

(c) The entity is controlled, or jointly controlled by a person identified in (i).

(d) A person identified in (i)(a) has significant influence over the Bank or is a member of the key management personnel of the Bank.

A related party transaction is a transfer of resources, services or obligations between the Bank and a related party, regardless of whether or not a price is charged.

The Bank has related party relationships with its Board of Directors, the members of the Executive management, the Bank of Jamaica pension scheme and the Government of Jamaica and its agencies (see notes 11 and 17).

The statement of financial position includes balances, arising in the ordinary course of business,with related parties, as follows:

2013 2012J$'000 J$'000

Loans:Executive management (included in staff loans, note 15) 93,150 83,290

Open market liabilities:Pension fund 909,288 77,500

The executive management team consists of twelve (12) persons.

The interest rates applicable on loans to executive management range from 1% - 3%. In addition, a deemed taxable income is computed on the interest saved by virtue of the concessionary interest rate. No non-executive director receives emoluments or is in receipt of a loan from the Bank.

- xxxviii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

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BANK OF JAMAICA


30. Related party balances (cont’d)

The statement of comprehensive income includes income earned from/expenses incurred in transactions with related parties, in the ordinary course of business, as follows:

2013 2012J$'000 J$'000

Interest expense:Government and Government agencies (note 27) 451,523 610,790Pension scheme 36,878 30,444Executive management 1,650 3,106

Interest income:Government of Jamaica [note 25(b)] 10,370,919 7,565,718Executive management 2,507 2,598

Pension contribution:Pension scheme 104,899 101,173

Executive management compensation is as follows:

2013 2012J$'000 J$'000

Emoluments, included in staff costs (note 28) 172,959 161,327

31. Commitments

At the reporting date the Bank had:

(a) Capital commitments as follows:

2013 2012J$'000 J$'000

Authorised and contracted 53,507 19,783Authorised but not contracted 170,512 9,917

224,019 29,700

(b) Operating lease commitments, payable as follows:

2013 2012J$'000 J$'000

Within one year 11,040 9,621Within 1-5 years 43,897 -Over 5 years 70,954 -

130,891 9,621

32. Contingent liabilities

At December 31, 2013 and 2012, the Bank was a defendant in various relatively minor suits claiming damages. The Bank is of the view that the claims are generally without merit and will not result in any significant losses to the Bank. There are no lawsuits pending with the Bank as plaintiff as at December 31, 2013 and December 31, 2012.

- xxxix -

Annual Report 2013


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BANK OF JAMAICA


33. Fair value of financial instruments

Fair value is the arm’s length consideration for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties, who are under no compulsion to act and is best evidenced by a quoted market price, if one exists.

Determination of fair value:

The financial instruments held at the reporting date were: cash and cash equivalents, interest in funds managed by agents, loans and advances, resale agreements, foreign and local currencydenominated investments, International Monetary Fund – Holding of Special Drawing Rights, due from Government and Government Agencies, other assets, deposits and other demand liabilities, open market liabilities, International Monetary Fund – Allocation of Special Drawing Rights, foreign liabilities and other liabilities.

The fair value of foreign and local currency denominated investments is assumed to be equal to the estimated market values as provided in notes 6 and 9, respectively. These values are obtained on the basis outlined in note 3(b)(iii). The ranges of interest rates used to discount estimated cash flows, where applicable, are based on the yield curves from the Bank and Bloomberg at the reporting date and were as follows:

2013 2012% %

Foreign currency denominated investments:US$ bonds 0.15 – 3.82 0.16 – 3.64

Government of Jamaica local securities:Treasury bills 8.30 6.97Variable rate benchmark investments 7.67 – 8.04 6.51 – 6.94Fixed rate benchmark investments 5.89 – 11.05 6.70 – 9.07

The fair value of certain short-term financial instruments was determined to approximate their carrying value.

No fair value has been estimated on the amount due from Government and Government Agencies, as there is no practical means of estimating its fair value.

Fair value hierarchy

The table below analyses financial instruments carried at fair value and those not carried at fair value but for which fair value has been disclosed. The different levels have been defined as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

- xl -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

39

BANK OF JAMAICA


33. Fair value of financial instruments (continued)

(a) Securities carried at fair value

2013Level 1 Level 2 Level 3 TotalJ$'000 J$'000 J$'000 J$'000

Available-for-sale financial assetsUS Government securities 40,084,032 - - 40,084,032Government of Jamaica securities - 24,438,767 - 24,438,767Securities included in funds

managed by agent- Sovereign bonds - 6,708,959 - 6,708,959- Corporate bonds - 8,138,720 - 8,138,720

40,084,032 39,286,446 - 79,370,478

2012Level 1 Level 2 Level 3 TotalJ$'000 J$'000 J$'000 J$'000

Available-for-sale financial assetsUS Government securities 34,711,648 - - 34,711,648GOJ securities - 92,159,856 - 92,159,856Securities included in funds

managed by agent- Sovereign bonds - 10,629,763 - 10,629,763- Corporate bonds - 2,445,711 - 2,445,711

34,711,648 105,235,330 - 139,946,978

(b) Securities not carried at fair value

December 31, 2013Level 1 Level 2 Level 3 TotalJ$'000 J$'000 J$'000 J$'000

Held to maturity financial assetsGovernment of Jamaica securities

(FRANs) - 76,369,096 - 76,369,096

There were no securities not carried at fair value for which fair values were disclosed in 2012.

There were no transfers between levels during the year ended December 31, 2013 (2012: No transfers).

- xli -

Annual Report 2013


40

BANK OF JAMAICA


33. Fair value of financial instruments (continued)

(c) Valuation techniques for investment securities classified as Level 2.

The following table shows the valuation techniques used in measuring the fair value of investment securities.

Type of security Valuation techniquesGOJ J$ securities • Obtain bid yield from yield curve

provided by a recognized pricing source (which uses Jamaica-market-supplied indicative bids)

• Adjust yield based on internal policy, by an amount which depends on the term to maturity or to the next re-pricing date

• Using the adjusted yield, determine price using standard approach

• Apply modified price to estimate fair value

Interest in funds managed by agent

• Estimated using bid prices published by major overseas broker.

34. Financial risk management

(a) Introduction and overview

The Bank has exposure to the following risks from its use of financial instruments:

• credit risk• liquidity risk• market risks

The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The Bank has established an Investment Committee which is responsible for providing oversight on the conversion of investment strategy into performance, portfolio construction and risk modelling. There is also a Credit Committee which is responsible for evaluating and approving applications for staff loans. Both committees report to the Committee of Administration, which reports on a regular basis to the Board of Directors.

The Bank’s Audit Committee is responsible for monitoring compliance with the Bank’s risk management policies and procedures and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Audit Committee is assisted in these functions by the Internal Audit Department. This department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Board of Directors and the Audit Committee.

(b) Credit risk

Credit risk is the risk of loss arising from a counter-party to a financial contract failing to discharge its obligations. This risk arises primarily from the Bank’s foreign and local currency investment securities, loans and advances, cash and cash equivalents, interest in funds managed by agents and other assets.

- xlii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

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BANK OF JAMAICA


34. Financial risk management (continued)

(b) Credit risk (continued)

(i) Management of credit risk on classes of financial assets exposed to that risk:

• Foreign currency investments and interest in funds managed by agents

Credit risk in the foreign currency investment portfolio is managed by restricting the holdings of investments substantially to US Government securities, other highly rated sovereign securities, Jamaica Government US$ debentures and placements in highly rated supranational institutions. The Bank uses the credit ratings ascribed by Moody’s Investor Services and Standard & Poors Financial Services LLC as its main criteria for assessing the creditworthiness of financial institutions and sovereigns. The Bank’s foreign investments are restricted to money market placements with financial institutions with minimum short-term credit ratings of A-1/P-2 and with minimum long-term ratings of Aa1/AA+. Additionally, capital market issues must have a minimum credit rating of Aa1/AA+. In order to reduce consolidated credit risk exposure, the Bank has investment limits in place. The Bank’s foreign investment portfolio consists of short-, medium- and long-term investments each of which has stipulated percentage limits (upper and lower) of the portfolio at market value.

• Local investment securities

Credit risk for local securities is managed by investing only in Government of Jamaica securities. Management does not expect this counterparty to fail to meet its obligations.

• Loans and advances

Credit risk is managed by requiring institutions to deposit with the Bank or its agents, designated securities sufficient to collateralise loans and advances. The collateral value of securities accepted is limited to a defined percentage of market value.

• Cash and cash equivalents

Cash and cash equivalents are held in financial institutions which management regards as strong and there is no significant concentration. The strength of these financial institutions is continually reviewed by the Investment Committee.

• Other assets

Other credit exposures consist mainly of staff loans for housing and motor vehicles. There is a documented credit policy in place which guides the Bank’s credit process for staff loans. The policy includes established procedures for the authorisation of credit. Staff loans are limited to a percentage of the value of the assets being purchased. Mortgages and liens are obtained for staff housing and motor vehicle loans, respectively, which must also be insured.

- xliii -

Annual Report 2013


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BANK OF JAMAICA




(ii) Impaired loans and securities

Impaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan or securities agreements.

(iii) Past due but not impaired loans and securities

These are loans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security available or the stage of collection of amounts owed to the Bank.

(iv) Loans with renegotiated terms

Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Bank has made concessions that it would not otherwise consider. Once the loan is restructured, it remains in this category independent of satisfactory performance after restructuring. The Bank had no such loans as at December 31, 2013 and 2012.

(v) Allowances for impairment

The Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The allowance is the aggregate of the estimated losses on individual exposures.

(vi) Write-off policy

The Bank writes off a loan or security balance (and any related allowances for impairment losses) when the Bank determines that the loan or security isuncollectible. This determination is usually made after considering information such as changes in the borrower’s financial position, or that proceeds from collateral willnot be sufficient to pay back the entire exposure.

(vii) Exposure to credit risk

Current credit exposure is the amount of loss that the Bank would suffer if every counterparty to which the Bank was exposed were to default at once; this is represented substantially by the carrying amount of financial assets shown on the statement of financial position.

Exposures to credit risk attached to financial assets are monitored through credit rating and lending limits, which are regularly reviewed. In addition, securities issued or guaranteed by the Government of Jamaica are required to collateralise advances tofinancial institutions.

There has been no change to the nature of the Bank’s exposure to credit risk or the manner in which it manages and measures the risk.

- xliv -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

43

BANK OF JAMAICA




(vii) Exposure to credit risk

The Bank’s significant concentrations of credit exposure by geographical region (based on the region of ownership of the entity that issued the security or holds the cash or cash equivalents) are as follows:

2013 2012J$'000 J$'000

Caribbean 112,469,222 94,376,499North America 144,172,439 118,850,864Europe 53,791,883 68,759,794Other 267,764 266,936

Total financial assets 310,701,308 282,254,093

(c) Liquidity risk

Liquidity risk is the risk that the Bank will not be able to meet its financial liabilities as they fall due. Prudent liquidity management implies maintaining sufficient cash and marketable securities, and ensuring the availability of funding through an adequate amount of committed standby credit facilities to meet commitments.

The Bank’s exposure to liquidity risk to meet foreign liabilities, as an institution, is limited due to the minimal amount owed to overseas creditors/lenders. Management of liquidity risk relates primarily to the availability of liquid foreign resources to sell to the Government of Jamaica and its agencies to repay their suppliers and lenders. The Bank manages this risk through a combination of:

• Budgetary procedures to identify the timing of Government foreign payments.• Scheduling the maturity of foreign deposits to coincide with the demands of

Government and its Agencies.• Maintaining a portion of its foreign assets in cash or near cash as precautionary funds

to meet unforeseen demands.

The Bank, like all central banks, has no real liquidity risk in relation to its domestic financial obligations.

The Bank is not subject to any imposed liquidity limit.

- xlv -

Annual Report 2013


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(c) Liquidity risk (continued)

The following table presents the undiscounted contractual maturities of financial liabilities:2013

Within 1 1 to 3 3 to 12 1 to 5 Month months months years TotalJ$'000 J$'000 J$'000 J$'000 J$'000

Deposits and other demand liabilities 169,961,896 - - - 169,961,896

Open market liabilities 19,783,217 3,518,961 35,128,144 1,567,742 59,998,064Foreign liabilities 47 - - - 47Other 7,688,668 - - - -Commitments 876 88,679 7,809 137,704 235,068

197,434,704 3,607,640 35,135,953 1,705,446 230,195,075

2012Within 1 1 to 3 3 to 12 1 to 5 Month months months years Total

Deposits and other demand liabilities 152,687,396 - - - 152,687,396

Open market liabilities 36,763,974 - 3,616,487 - 40,380,461Foreign liabilities 16 - - - 16Other 4,821,875 - - - 4,821,875Commitments 1,425 968 36,928 - 39,321

194,274,686 968 3,653,415 - 197,929,069

(d) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market riskexposures within acceptable parameters, while optimising the return on financial assets.Market risk exposures are measured using sensitivity analysis.

There was no change during the year in the Bank’s exposure to market risks or the manner in which it manages and measures the risk.

(i) Currency risk

Currency risk is the risk that the market value of, or the cash flows from, financial instruments will vary because of exchange rate fluctuations. The Bank is exposed to foreign currency risk due to fluctuations in exchange rates on transactions and balances that are denominated in currencies other than the Jamaica dollar. At the reporting date, the Bank’s net exposure to foreign exchange rate fluctuations, in Jamaica dollar equivalent, was as follows, based on currencies in which reported amounts are denominated:

- xlvi -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

45

BANK OF JAMAICA



(d) Market risk (continued)

(i) Currency risk (continued)

2013US Euro Pound Other Total

$'000 $'000 $'000 $'000 $'000

Foreign currency assets:Notes and coins - for local sale 43,469 1,555 25,439 2,331 72,794

- for repatriation 22,450 4,304 9,688 30,122 66,564Cash and cash equivalents 33,388,010 4,638,418 686,298 1,263,398 39,976,124Interest in funds managed

by agents 15,000,571 - - - 15,000,571Interest receivable on BHAs 173,600 - 508 25,464 199,572Items in the process of collection 488 - 10 10 508Investment securities 106,557,831 - - - 106,557,831IMF- Holding of special

drawing rights - - - 31,389,869 31,389,869IMF - Quota subscription - - - 5,080,610 5,080,610

155,186,419 4,644,277 721,943 37,791,804 198,344,443

Foreign currency liabilities:Open market liabilities 25,308,042 - - - 25,308,042Deposits - current accounts 46,185,937 37,249 2,035,044 530,954 48,789,184Deposits - IMF 72,637,206 72,637,206IMF - Allocation of special

drawing rights - - - 42,708,894 42,708,894Foreign liabilities - - - 47 47Bilateral - - - 70,973 70,973Interest payable 233,917 - - - 233,917

144,365,102 37,249 2,035,044 43,310,868 189,748,263Net foreign currency assets/

(liabilities) 10,821,317 4,607,028 (1,313,101) ( 5,519,064) 8,596,180

- xlvii -

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(i) Currency risk (continued)

2012US Euro Pound Other Total

$'000 $'000 $'000 $'000 $'000

Foreign currency assets:Notes and coins - for local sale 30,744 3,993 9,768 4,081 48,586

- for repatriation 20,185 2,794 6,976 29,387 59,342Cash and cash equivalents 24,510,879 566,962 687,759 3,285,424 29,051,024Interest in funds managed

by agents 13,081,356 - - - 13,081,356Interest receivable on BHAs 184,630 - 48 18,864 203,542Items in the process of collection 920 - 3 - 923Investment securities 114,375,202 - - - 114,375,202IMF- Holding of special

drawing rights - - - 26,958,840 26,958,840IMF - Quota subscription - - - 4,206,706 4,206,706

152,203,916 573,749 704,554 34,503,302 187,985,521

Foreign currency liabilities:Deposits - current accounts 26,088,837 31,154 1,544,965 412,214 28,077,170Deposits - IMF 73,318,622 - - - 73,318,622IMF - Allocation of special

drawing rights - - - 35,362,449 35,362,449Foreign liabilities - - - 16 16Bilateral - - - 3,000 3,000Interest payable 17,259 - - - 17,259

99,424,718 31,154 1,544,965 35,777,679 136,778,516Net foreign currency assets/

(liabilities) 52,779,198 542,595 ( 840,411) ( 1,274,377) 51,207,005

Exchange rates at December 31:

2013 2012

US$1 to J$ 105.99 92.68UK£1 to J$ 175.55 150.65CDN$1 to J$ 99.76 93.08Є to J$ 146.06 122.18

At March 3, 2014, the date of approval of these financial statements, the exchange rates were US$1 to J$108.0043, UK£1 to J$180.9990, CDN$1 to J$97.5693 and Є 1 to J$149.1701.

The exchange rate for SDR to J$ is shown in note 17(d)(iii).

Sensitivity to exchange rate movements

A 15 percent (2012: 10 percent) devaluation of the Jamaica Dollar against currencies which expose the Bank to risk at December 31 would have increased profit by $1,289,427,000 (2012: $5,120,700,500) while a 0.5 percent (2012: 1 percent) revaluation would have decreased profit by $42,981,000 (2012: $512,070,050). The analysis assumes that all other variables, in particular, interest rates, remain constant. The analysis has been performed on the same basis as for 2012.

- xlviii -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

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BANK OF JAMAICA




(ii) Interest rate risk:

Interest rate risk is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. It arises when there is a mismatch between interest-earning assets and interest-bearing liabilities which are subject to interest rate adjustments within a specified period. It can be reflected as a loss of future net interest income and/or a loss of current market values. The Bank manages this risk by monitoring interest rates daily and ensuring that, even though there is no formally predetermined gap limits, to the extent practicable, the maturity profile of its financial assets is, at least, matched by that of its financial liabilities.

The following table summarises the carrying amounts of financial assets and liabilities to arrive at the Bank’s interest rate gap based on the earlier of contractual re-pricing and maturity dates.

2013Weighted

Within Three to Over Payable Non-rate average3 months 12 months 12 months after notice sensitive Total interest J$'000 J$'000 J$'000 J$'000 J$'000 J$'000 %

AssetsNotes and coins - - - - 204,873 204,873 -Cash and cash equivalents - - - - 40,346,255 40,346,255 -Interest in funds managed by agents - - - 15,000,571 - 15,000,571 0.46Foreign currency denominated

investments 1,911,475 4,838,977 99,807,379 - - 106,557,831 0.69International Monetary Fund -

Holding of Special Drawing Rights - - - - 31,389,869 31,389,869 -Resale agreements 11,500,000 - - - - 11,500,000 6.00Local currency denominated

investments 6,309 - 98,995,843 - - 99,002,152 9.36International Monetary Fund –

Quota Subscription - - - - 5,080,610 5,080,610 -Due from Government and

Government Agencies - - - - 37,288,737 37,288,737 -Other assets - - - - 3,796,848 3,796,848 -

Total financial assets 13,417,784 4,838,977 198,803,222 15,000,571 118,107,192 350,167,746

LiabilitiesNotes and coins in circulation - - - - 69,818,205 69,818,205 -Deposits and other demand liabilities:

Jamaica dollar equivalent offoreign currency deposits 99,300,123 - - 22,126,267 - 121,426,390 0.35

Jamaica dollar deposits 13,235,969 - - 35,299,537 - 48,535,506 0.64Open market liabilities 19,783,217 38,647,105 1,567,742 - - 59,998,064 5.38International Monetary Fund –

Allocation of Special DrawingRights - - - - 42,708,894 42,708,894 -

Foreign liabilities - - - - 47 47 -Bilateral accounts - - - - 70,973 70,973 -Other liabilities - - - - 7,688,668 7,688,668 -

Total financial liabilities 132,319,309 38,647,105 1,567,742 57,425,804 120,286,787 350,246,747Total interest rate sensitivity

gap (118,901,525) ( 33,808,128) 197,235,480 (42,425,233) ( 2,179,595) ( 79,001)

Cumulative gap (118,901,525) (152,709,653) 44,525,827 2,100,594 ( 79,001) -

- xlix -

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(ii) Interest rate risk (continued):

2012Weighted

Within Three to Over Payable Non-rate average3 months 12 months 12 months after notice sensitive Total interest

J$'000 J$'000 J$'000 J$'000 J$'000 J$'000 %

AssetsNotes and coins - - - - 187,201 187,201 -Cash and cash equivalents - - - - 29,784,471 29,784,471 -Interest in funds managed by agents - - - 13,081,356 - 13,081,356 0.97Foreign currency denominated

investments 1,865,207 2,628,872 109,881,123 - - 114,375,202 0.62International Monetary Fund -

Holding of Special Drawing Rights - - - - 26,958,840 26,958,840 -Loans and advances 1,000,000 - - - - 1,000,000 7.0Local currency denominated

investments 691,970 307,048 91,160,838 - - 92,159,856 8.91International Monetary Fund –

Quota Subscription - - - - 4,206,706 4,206,706 -Due from Government and Government Agencies - - - - 16,440,252 16,440,252 -Other assets - - - - 4,042,627 4,042,627 -

Total financial assets 3,557,177 2,935,920 201,041,961 13,081,356 81,620,097 302,236,511 -

LiabilitiesNotes and coins in circulation - - - - 64,692,948 64,692,948 -Deposits and other demand liabilities:

Jamaica dollar equivalent offoreign currency deposits 84,456,678 - - 16,939,114 - 101,395,792 0.21

Jamaica dollar deposits 17,613,770 - - 33,677,834 - 51,291,604 0.72Open market liabilities 36,763,974 3,616,487 - - - 40,380,461 6.3International Monetary Fund –

Allocation of Special DrawingRights - - - - 35,362,449 35,362,449 -

Foreign liabilities - - - - 16 16 -Bilateral accounts - - - - 3,000 3,000 -Other liabilities - - - - 4,821,875 4,821,875 -

Total financial liabilities 138,834,421 3,616,487 - 50,616,948 104,880,288 297,948,145 -Total interest rate sensitivity

gap (135,277,244) ( 680,567) 201,041,961 (37,535,592) (23,260,191) 4,288,366 -

Cumulative gap (135,277,244) (135,957,812) 65,084,149 27,548,557 4,288,366 - -

- l -Final Accounts for Year Ended 31 December 2013

Bank of Jamaica

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BANK OF JAMAICA




(ii) Interest rate risk (continued):

Sensitivity to interest rate movement

An increase of 300 (2012: 300) basis points and a decrease of 100 (2012:100) basis points in interest rates for Jamaica dollar financial instruments and a change of 20 (2012: 20) basis points for United States dollar financial instruments would have increased or decreased profit and reserve by the amounts shown below. The analysis assumes that all other variables, in particular, foreign currency rates, remain constant. The analysis has been performed on the same basis as for 2012.

Increase DecreaseEffect on Effect on Effect on Effectprofit/loss reserves profit/loss on reserves

J$'000 J$'000 J$'000 J$'000December 31, 2013

Fixed rate financial instruments - (6,805,576) - 5,324,389Variable rate financial instruments 357,000 ( 31,586) (119,000) 8,745

357,000 (6,837,162) (119,000) 5,333,134

December 31, 2012Fixed rate financial instruments - (6,566,569) - 6,605,046Variable rate financial instruments 2,214,730 ( 362,250) (738,243) 32,057

2,214,730 (6,928,819) (738,243) 6,637,103

(e) Capital management

The Bank’s capital consists of share capital, general reserve fund, special stabilisation account, securities revaluation reserve, property revaluation reserve and pension equalisation reserve. The share capital of the Bank may be increased by resolution of the Board of Directors. This resolution has to be approved by the House of Representatives of Jamaica. The Bank’s net profit is transferred to the general reserve fund. Whenever the credit in the reserve fund exceeds five times the authorised share capital such excess profit is paid to the Consolidated Fund. The Bank has been complying with this requirement. There were no changes in the Bank’s approach to capital management during the year.

35. Prior year adjustment

The Bank has adopted the 2011 amendment to IAS 19, Employee Benefits, which is effective for annual reporting periods beginning on or after January 1, 2013. The adoption of this policy removed the corridor method for recognising actuarial gains and losses and required an adjustment to the computation of interest and service costs recognized for the year. All actuarial gains and losses are now recognised immediately in other comprehensive income.

- li -

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35. Prior year adjustment

The change in accounting policy was applied retrospectively. The effects of the adjustments are detailed below:

Due from government

Employee Employee and benefit benefit government Other Profit forasset obligation agencies reserve the year$'000 $'000 $'000 $'000 $'000

Balances at Dec 31, 2011:

As previously reported 4,290,100 641,800 18,854,846 12,294,923 (1,495,390)Effect of remeasurement of employee

benefit asset/obligation 65,400 ( 33,600) 16,802 115,800 ( 16,802)

As restated 4,355,500 608,200 18,871,648 12,410,723 (1,512,192)

Balances at December 31, 2012:

As previously reported 4,712,700 718,800 16,426,351 10,851,027 3,655,097Effect of remeasurement of employee

benefit asset/obligation 680,400 31,800 13,901 662,500 2,901

As restated 5,393,100 750,600 16,440,252 11,513,527 3,657,998

Effect on total comprehensive income for year ended December 31, 2012:As previously reported 1,788,601Prior year adjustment (see below) 615,701

As restated 2,404,302

Effect on profit for the year ended December 31, 2012:Decrease in pension, medical and life insurance income ( 60,500)Decrease in transfer to the pension equalization reserve 62,500Increase in staff cost 901

2,901

Effect on other comprehensive income for year ended December 31, 2011:Actuarial gain recognised in other comprehensive income 612,800

Increase in other comprehensive income 612,800

Effect on total comprehensive income for the yearended December 31, 2012:Increase in profit 2,901

Increase in other comprehensive income 612,800

615,701

- xlvii -

Annual Report 2012

Appendicies

Inflation Outturn for 2013 Relative to 2012 Weight 2013 2013 2013 2012 YOY in CPI Basket

Per cent Inflation

%Wgt Inflation

%Share Inflation

Per cent Inflation

%pt Chg Inflation

01 FOOD & NON-ALCOHOLIC BEVERAGES 37.45 7.9 3.0 31.8 14.3 -6.4 01.1 Food 35.10 7.7 2.7 29.1 14.7 -7.0 Bread and Cereals 6.10 7.6 0.5 4.9 8.2 -0.7 Meat 7.66 7.1 0.5 5.8 11.7 -4.6 Fish and Seafood 5.33 4.4 0.2 2.5 12.9 -8.4 Milk, Cheese and Eggs 3.11 13.3 0.4 4.4 15.8 -2.5 Oils and Fats 1.64 11.4 0.2 2.0 9.4 2.1 Fruit 1.14 20.3 0.2 2.5 18.0 2.4 Vegetables and Starchy Foods 6.85 5.7 0.4 4.2 28.4 -22.6 Vegetables 4.64 5.6 0.3 2.8 32.6 -27.0 Starchy Foods 2.21 7.1 0.2 1.7 19.1 -12.0 Sugar, Jam, Honey, Chocolate and Confectionery 1.72 7.5 0.1 1.4 7.2 0.3 Food Products n.e.c. 1.55 7.3 0.1 1.2 10.2 -2.9 01.2 Non-Alcoholic Beverages 2.35 11.5 0.3 2.9 8.4 3.0 Coffee, Tea and Cocoa 0.66 12.6 0.1 0.9 13.0 -0.4 Mineral Waters, Soft Drinks, Fruit and Vegetable Juices 1.69 11.0 0.2 2.0 6.6 4.4 02 ALCOHOLIC BEVERAGES & TOBACCO 1.38 11.0 0.2 1.6 6.1 4.9 03 CLOTHING & FOOTWEAR 3.33 9.2 0.3 3.3 11.6 -2.4 03.1 Clothing 2.12 9.9 0.2 2.3 12.0 -2.1 03.2 Footwear 1.22 8.1 0.1 1.1 11.1 -3.0 04 HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS 12.76 10.0 1.3 13.7 5.3 4.7 04.1 Rentals for Housing 3.52 1.2 0.0 0.4 1.6 -0.4 04.3 Maintenance and Repair of Dwelling 0.80 14.4 0.1 1.2 8.9 5.4 04.4 Water Supply and Miscellaneous Services Related to the

Dwelling 1.32 28.7 0.4 4.1 6.6 22.1 04.5 Electricity, Gas and Other Fuels 7.12 10.4 0.7 7.9 6.6 3.8 05 FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE

HOUSEHOLD MAINTENANCE 4.93 7.3 0.4 3.8 8.6 -1.3 05.1 Furniture and Furnishings (inc. Floor Coverings) 0.69 8.3 0.1 0.6 9.5 -1.2 05.2 Household Textiles 0.32 6.6 0.0 0.2 9.3 -2.6 05.3 Household Appliances 0.56 8.4 0.0 0.5 11.1 -2.7 05.4 Glassware, Tableware and Household Utensils 0.05 7.6 0.0 0.0 10.4 -2.8 05.5 Tools and Equipment for House and Garden 0.15 10.0 0.0 0.2 4.4 5.5 05.6 Goods and Services for Routine Household Maintenance 3.16 6.8 0.2 2.3 8.0 -1.3 06 HEALTH 3.29 5.9 0.2 2.1 3.1 2.8 06.1 Medical Products, Appliances and Equipment 1.22 6.7 0.1 0.9 4.3 2.4 06.2 Health Services 2.07 5.4 0.1 1.2 2.4 3.1 07 TRANSPORT 12.82 20.4 2.6 28.1 2.5 17.9 08 COMMUNICATION 3.99 -4.2 -0.2 -1.8 -39.4 35.2 09 RECREATION & CULTURE 3.36 5.9 0.2 2.1 6.6 -0.8 10 EDUCATION 2.14 4.0 0.1 0.9 3.7 0.3 11 RESTAURANTS & ACCOMMODATION SERVICES 6.19 7.8 0.5 5.2 5.3 2.5 12 MISCELLANEOUS GOODS & SERVICES 8.37 10.3 0.9 9.2 6.0 4.3

0.0 ALL DIVISIONS 100.0 9.5 9.5 100.0 8.0 1.5

Regional Inflation and Change in Inflation for 2013 Relative to 2012

Inflation (%)

Inflation (YOY Percentage Point Change)

GKMA OUC RUA GKMA OUC RUA

01 FOOD & NON-ALCOHOLIC BEVERAGES 10.4 7.9 6.1 -8.4 -4.2 -6.1 01.1 Food 10.4 7.5 5.8 -8.8 -4.7 -6.8 Bread and Cereals 8.4 7.2 7.3 -2.5 -0.6 0.3 Meat 8.7 7.6 5.7 -5.6 -1.6 -5.0 Fish and Seafood 4.7 5.4 3.9 -9.4 -5.0 -9.2 Milk, Cheese and Eggs 13.5 14.6 12.6 0.6 0.3 -6.1 Oils and Fats 13.9 15.2 8.6 3.7 7.2 -0.8 Fruit 21.6 20.9 17.5 5.4 0.5 -1.7 Vegetables and Starchy Foods 12.9 2.4 0.3 -26.7 -17.6 -22.5 Vegetables 12.6 3.0 -1.6 -33.9 -20.1 -25.0 Starchy Foods 13.6 0.7 5.4 -7.0 -12.2 -15.9 Sugar, Jam, Honey, Chocolate and Confectionery 8.0 7.0 7.4 -0.4 -2.6 1.7 Food Products n.e.c. 8.1 7.8 6.6 -12.0 -1.4 2.4 01.2 Non-Alcoholic Beverages 10.0 13.3 11.5 -0.9 3.8 5.3 Coffee, Tea and Cocoa 8.4 12.7 14.8 -6.9 -3.4 4.3 Mineral Waters, Soft Drinks, Fruit and Vegetable Juices 10.7 13.5 9.9 1.3 6.2 5.7 02 ALCOHOLIC BEVERAGES & TOBACCO 9.7 13.4 10.9 1.1 7.1 6.4 03 CLOTHING & FOOTWEAR 6.9 15.9 8.4 -9.7 5.3 -0.6 03.1 Clothing 6.9 20.1 8.0 -13.8 10.1 0.1 03.2 Footwear 6.8 8.4 9.0 -4.6 -3.4 -1.7 04 HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS 8.2 10.4 11.7 3.2 5.5 5.9 04.1 Rentals for Housing 1.3 1.2 0.8 -1.0 0.6 0.2 04.3 Maintenance and Repair of Dwelling 10.6 16.3 15.7 0.8 9.8 6.1 04.4 Water Supply and Miscellaneous Services Related to the

Dwelling 28.9 28.9 28.1 22.3 22.3 21.5 04.5 Electricity, Gas and Other Fuels 8.8 10.4 11.3 2.1 3.7 4.9 05 FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE

HOUSEHOLD MAINTENANCE 7.4 7.8 6.9 -3.2 -1.2 0.2 05.1 Furniture and Furnishings (inc. Floor Coverings) 8.0 8.8 8.3 -3.7 -0.1 0.3 05.2 Household Textiles 5.4 12.1 4.5 -5.4 4.1 -4.4 05.3 Household Appliances 7.3 9.2 9.0 -1.1 -4.0 -3.5 05.4 Glassware, Tableware and Household Utensils 8.9 10.5 5.7 -1.0 1.4 -5.5 05.5 Tools and Equipment for House and Garden 14.5 10.3 9.2 6.1 3.5 5.7 05.6 Goods and Services for Routine Household Maintenance 7.3 6.8 6.3 -3.5 -1.6 0.9 06 HEALTH 2.0 7.3 7.5 -1.8 4.9 4.5 06.1 Medical Products, Appliances and Equipment 4.2 6.8 8.1 0.3 3.6 3.3 06.2 Health Services 0.4 7.5 7.2 -3.2 5.7 5.3 07 TRANSPORT 20.2 20.2 20.7 17.8 18.1 18.2 08 COMMUNICATION -5.1 -4.4 -3.1 25.3 35.6 43.8 09 RECREATION & CULTURE 6.3 7.1 5.1 2.0 0.4 -3.1 10 EDUCATION 3.7 4.1 4.3 1.7 -1.0 -1.0 11 RESTAURANTS & ACCOMMODATION SERVICES 4.6 11.1 9.1 -0.3 4.9 3.8 12 MISCELLANEOUS GOODS & SERVICES 8.3 11.5 11.2 0.3 4.9 7.0 ALL DIVISIONS 9.6 10.1 9.0 -0.4 3.2 2.1

- li -

Annual Report 2012

Appendicies

Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13

Number of institutions in operation 7 7 7 2 2 2 4 4 3 13 13 12 J$MN1Total Assets (incl. contingent accounts) 613,637 659,950 740,692 21,449 21,320 25,372 185,472 201,504 211,088 820,558 882,774 977,1522Total Assets (excl. contingent accounts) 600,935 646,914 726,580 21,290 21,306 25,310 185,472 201,504 211,088 807,697 869,724 962,978Cash & Bank Balances 125,834 132,720 156,634 1,137 1,477 1,718 18,212 19,597 28,380 145,183 153,794 186,732Investments [incl. Securities Purch.] (net of prov.) 177,442 171,846 168,758 12,609 13,470 15,825 66,555 72,027 70,676 256,606 257,343 255,259Total Loans (gross) 266,043 307,479 362,117 6,885 5,625 7,093 89,340 95,879 97,377 362,268 408,983 466,587Total Loans (net of IFRS prov.) a 258,573 298,017 353,710 6,549 5,334 7,051 87,912 94,469 95,835 353,034 397,820 456,596Total Deposits 400,122 444,795 487,472 6,556 7,852 11,118 121,783 131,438 141,352 528,461 584,085 639,942Borrowings (incl. repos) 72,383 80,336 98,274 9,555 8,364 8,372 24,519 26,648 25,135 106,457 115,348 131,781Non-Performing Loans [NPL] (3 mths & >) 23,287 20,978 18,669 3,171 974 120 5,744 6,771 6,224 32,202 28,723 25,013Provision for Loan Losses 18,302 20,913 19,550 2,332 1,040 172 3,597 3,975 4,182 24,231 25,928 23,9043 Capital Base 63,835 65,196 78,931 2,667 3,825 3,943 22,789 24,045 26,058 89,291 93,066 108,932Contingent Accts [Accept., LC's & Guarantees] 12,702 13,036 14,112 159 14 62 0 0 0 12,861 13,050 14,174Funds Under Management 308 320 337 0 0 0 0 0 0 308 320 337Repos on behalf of or for on-trading to clients n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

%Rate of Asset 1 Growth 4.0% 7.5% 12.2% -12.1% -0.6% 19.0% 10.2% 8.6% 4.8% 4.8% 7.6% 10.7%Rate of Deposit Growth 5.5% 11.2% 9.6% -21.6% 19.8% 41.6% 5.1% 7.9% 7.5% 5.0% 10.5% 9.6%Rate of Loans Growth (gross) 5.8% 15.6% 17.8% -4.2% -18.3% 26.1% 2.3% 7.3% 1.6% 4.8% 12.9% 14.1%Rate of Capital Base Growth 5.6% 2.1% 21.1% -26.1% 43.4% 3.1% 10.5% 5.5% 8.4% 5.4% 4.2% 17.0%Rate of NPL (3 Mths &>) Growth 72.8% -9.9% -11.0% 10.6% -69.3% -87.7% -4.6% 17.9% -8.1% 44.0% -10.8% -12.9%

Investments :Total Assets 1 28.9% 26.0% 22.8% 58.8% 63.2% 62.4% 35.9% 35.7% 33.5% 31.3% 29.2% 26.1%Loans (net of prov.):Total Assets 1 42.1% 45.2% 47.8% 30.5% 25.0% 27.8% 47.4% 46.9% 45.4% 43.0% 45.1% 46.7%Fixed Assets:Total Assets 1 2.1% 2.2% 2.0% 0.5% 0.4% 0.3% 1.6% 1.7% 1.8% 1.9% 2.1% 1.9%Loans (gross) : Deposits 66.5% 69.1% 74.3% 105.0% 71.6% 63.8% 73.4% 72.9% 68.9% 68.6% 70.0% 72.9%

LiquidityAverage Domestic Currency Cash Reserve: Average Prescribed Liabilities 4 12.0% 12.0% 12.0% 12.0% 12.0% 12.1% 1.0% 1.0% 1.0% 9.1% 9.2% 9.3%Average Domestic Currency Liquid Assets: Average Domestic Prescribed Liabilities 4 37.7% 31.3% 29.8% 33.8% 32.8% 27.7% 10.7% 13.1% 12.0% 30.5% 26.7% 25.3%

Asset QualityProv. For Loan Losses:Total Loans (gross) 6.9% 6.8% 5.4% 33.9% 18.5% 2.4% 4.0% 4.1% 4.3% 6.7% 6.3% 5.1%Prov. For Loan Losses: NPL (3 Mths &>) 78.6% 99.7% 104.7% 73.5% 106.8% 143.3% 62.6% 58.7% 67.2% 75.2% 90.3% 95.6%NPL (3 Mths &>):Total Loans (gross) 8.8% 6.8% 5.2% 46.1% 17.3% 1.7% 6.4% 7.1% 6.4% 8.9% 7.0% 5.4%NPL (3 Mths &>): (Total Assets 1

+ Provision for loan losses) 3.7% 3.1% 2.5% 14.5% 4.5% 0.5% 3.1% 3.3% 2.9% 3.9% 3.2% 2.5%

Capital AdequacyDeposits + Borrowings: Capital (:1) 7.4 8.1 7.4 6.1 4.3 5.0 6.5 6.6 6.4 7.1 7.5 7.1Capital Base:Total Assets 1 10.4% 9.9% 10.7% 12.4% 17.9% 15.5% 12.3% 11.9% 12.3% 10.9% 10.5% 11.1%5 Capital Adequacy Ratio [CAR] 15.0% 12.9% 14.0% 12.3% 17.8% 15.8% 20.6% 18.2% 20.0% 16.1% 14.1% 15.1%NPL (3 mths &>):Capital Base+Prov for loan losses 28.4% 24.4% 19.0% 63.4% 20.0% 2.9% 21.8% 24.2% 20.6% 28.4% 24.1% 18.8%

Profitability6 Pre - tax Profit Margin (for the Calendar Quarter) 52.3% 11.9% 25.1% 0.7% -13.5% 12.4% 25.2% 28.7% 40.7% 48.4% 14.6% 27.7%Pre - tax Profit Margin (for the Calendar Year) 32.6% 21.6% 17.3% 5.1% -2.9% 12.8% 24.5% 22.9% 27.4% 30.8% 21.4% 19.0%Return on Average Assets (for the Calendar Quarter) 2.5% 0.4% 0.7% 0.0% -0.3% 0.3% 0.5% 0.7% 0.9% 2.0% 0.4% 0.8%Return on Average Assets (for the Calendar Year) 4.5% 2.6% 2.0% 0.4% -0.2% 1.3% 2.3% 2.0% 2.3% 3.9% 2.4% 2.0%7 Income Assets/Expense Liabilities 105.1% 102.1% 104.4% 102.1% 114.5% 120.9% 111.9% 110.1% 109.9% 106.6% 104.2% 106.0%

COMMERCIAL BANKS FIA LICENSEES BUILDING SOCIETIESSystem Total (aggregation of all 3

sectors)

ANNUAL PRUDENTIAL INDICATORS OF COMMERCIAL BANKS, LICENSEES UNDER THE FINANCIAL INSTITUTIONS ACT (FIA) AND BUILDING SOCIETIES

PUBLISHED PURSUANT TO SECTION 16 (6) OF THE BANKING ACT AND THE FIA AND REGULATION 49 OF THE BANK OF JAMAICA (BUILDING SOCIETIES) REGULATIONS, 1995

31-Dec-13

Notes:n.a. data not availablen/a not applicable

- Based on unaudited data submitted to BOJ by supervised institutions up to 31 January 2014. Prior years indicators may have revisions arising from amendments.

a Effective January 2004, the Bank of Jamaica revised its reporting requirements in line with International Financial Reporting Standards (IFRS) and in this regard the following change was effected: The composition of "Provision for Loan Losses" has been segregated into two (2) distinct components being: i) provision for losses computed in accordance with IFRS; and ii) any incremental provisioning necessary under prudential loss provisioning requirements (treated as an appropriation from net profits). Consequently, "Total Loans (net of prov.)" represents gross loans net of IFRS loan loss provisions per (i) above

1 Total Assets and Liabilities reflected net of IFRS Provision for Losses and include Contingent Accounts (Customer Liabilities for Acceptances, Guarantees and Letters of Credit).In keeping with IFRS, Total Assets and Liabilities were redefined to include Contingent Accounts.

2 Total Assets net of IFRS Provision for Losses and Contingent Accounts (Customer Liabilities for Acceptances, Guarantees and Letters of Credit). 3 Capital Base - Banks & FIA Licensees: (Ordinary Shares+ Qualifying Preference Shares+ Reserve Fund + Retained Earnings Reserve Fund + Share Premium) less impairment by net losses of individual institution. - Building Societies: (Permanent Capital Fund + Deferred Shares + Capital Shares + Reserve Fund + Retained Earnings Reserve Fund ) less impairment by net losses of individual society.4 Prescribed Liabilities include:

5 Capital Adequacy Ratio (CAR): Qualifying Capital (Tier 1 + Tier 2 capital items less prescribed deductions) in relation to Risk Weighted Assets and Foreign Exchange Exposure.6 Pre-tax Profits includes extraordinary income/expenditure and adjustments for prior period. Return on Average Assets is computed using pre-tax profits as well as assets before provision for losses (in accordance with IFRS) and including contingent accounts (Acceptances, Guarantees and Letters of Credit).7 Income Assets comprise FC Cash Reserves, Placements, Investments, Repo Assets and Loans less Non-Performing Loans (3 months & over). Expense Liabilities comprise Deposits and Borrowings including Repo Liabilities (from BOJ, Banks, OFI etc).

COMMERCIAL BANKSDec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13

Required Cash Reserve ratio 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 1% / 12% 1% /12% 1% / 12% Required Liquid Assets ratio (incl Cash Reserve) 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 5% / 26% 5% /26% 5% / 26%

** The requirements are differentially applied to societies not meeting the prescribed threshold of residential mortgage lending in relation to savings funds. Societies that meet the prescribed 'qualifying assets' threshold attract the lower reserve requirements indicated above. Societies which do not, are requested to meet the requirements which apply to commercial banks and FIA Licensees.

Financial Institutions Supervisory DivisionBank of Jamaica

FIA LICENSEES BUILDING SOCIETIES**

(i) deposit liabilities, (ii) reservable borrowings and interest accrued and payable on (i) & (ii).

1

BANK OF JAMAICA Nethersole Place

P.O. Box 621 Kingston, Jamaica

Telephone: 876 922 0750 Internet: www.boj.org.jm

· BANK OF JAMAICA PRINCIPAL OFFICERS As at 31 December 2013 GOVERNOR & SUPERVISOR OF BANKS Mr....

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