ANNUAL REPORT 2015 - Bank of Jamaica · BOJ-SWEP Bank of Jamaica Summer Work Experience Programme....

ANNUAL REPORT

2015

Report and Statement of Accounts for the

Year Ended 31 December 2015

ANNUAL REPORT

2015

Report and Statement of Accounts for the

Year Ended 31 December 2015

© 2016 Bank of Jamaica

Nethersole Place

Kingston

Jamaica

Telephone: (876) 922 0750-9

Fax: (876) 967 4265

Email: [email protected]

Website: 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 OFFICERS

As at 31 December 2015

GOVERNOR & SUPERVISOR OF BANKS

Mr. Brian Wynter, CD

SENIOR DEPUTY GOVERNOR

Mr. John Robinson, JP

DEPUTY GOVERNORS

Mrs. Gayon Hosin - Financial Institutions Supervisory Division

Mr. Livingstone Morrison - Administration & Technical Services,

Finance &Technology and Payment

Systems & Risk Management Division

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 2

2.1 Economic Overview 2

2.2 International Economic Developments 5

2.3 Balance of Payments 9

2.4 Foreign Exchange Market 12

2.5 Prices 14

2.6 Money and Credit 18

2.7 Production 23

2.8 The Stock Market 26

2.9 Public Finance 29

2.10 Monetary Policy and Interest Rates 33

2.11 Economic Outlook 35

3. Financial System Surveillance and Policy 38

3.1 Supervision of Deposit-taking Institutions (DTIs) 38

3.2 Regulation of Cambios and Remittance Companies 50

3.3 Financial System Stability Assessment of DTIs 52

3.4 Financial Legislation 56

4. Financial Market Operations 60

4.1 Open Market Operations 60

4.2 International Reserves 63

4.3 Reserve Management 66

5. Payment System Oversight 68

6. Banking & Depository Services 73

7. Currency Operations 76

8. Administration 79

9. Governance 82

10. Community Outreach 84

11. Bank of Jamaica’s Strategic Objectives 2016-2018 86

Calendar 2015 87

Final Accounts for the Year Ended 31 December 2015 i-l

Appendices lii-lix

CONTENTS

ABBREVIATIONS

ABM Automated Banking Machines

ABT Alcohol, Beverages & Tobacco

ACH Automated Clearing House

AML Anti-money Laundering

ARP Average Realized Price

ASBA Association of Banking Supervisors of the Americas

Avg Average

BCG Basel Consultative Group

BCP Business Communication Plan

BCP Basel Core Principle

Bn Billion

BOE Bank of England

BOJ Bank of Jamaica

BoJ Bank of Japan

BOJ-SWEP Bank of Jamaica Summer Work Experience Programme

BOP Balance of Payments

BMRO Bi -Monthly Repurchase Operation

bps Basis points

BSA Banking Services Act

CAD Canadian Dollar/Current Account Deficit

CAP Clarendon Alumina Partners

CAR Capital Adequacy Ratio

CARTAC Caribbean Regional Technical Assistance Centre

CD Certificate of Deposit

CDB Caribbean Development Bank

CEO Chief Operating Officer

CEMLA Centre for Latin American Monetary Studies

CF Clothing & Footwear

CFATF Caribbean Financial Action Task Force

CGBS Caribbean Group 0f Banking Supervisors

CIS Credit Information Services

CPC Chief Parliamentary Counsel

CFT Counter-Financing of Terrorism

CPI Consumer Price Index

CPI-AF Consumer Price Index excluding Agriculture and Fuel

CPI-FF Consumer Price Index excluding Food and Fuel

CRA Credit Reporting Act

CRR Cash Reserve Requirement

CSD Central Securities Depository

CTMS Central Treasury Management System

D & CC Debit & Credit Card

DNFBPs Designated Non-Financial Businesses & Professions

DTIs Deposit-taking Institutions

DVBP Dollar Value of a Basis Point

EBIS Enterprise Business Intelligence System

ECB European Central Bank

EFF Extended Fund Facility

ELMF Enhanced Liquidity Management Framework

ERPS Electronic Retail Payment Services

EU European Union

EWS Early Warning System

FATF Financial Action Task Force

Fed Federal Reserve (US)

FFIT Full-Fledged Inflation Targeting

FHC Financial Holding Company

FHERM Furniture, Household Equipment & Routine Household Maintenance

FIA Financial Institutions Act

FID Financial Investigations Division

FIDA Financial Investigations Division Act

FIU Financial Intelligence Unit

FNB Food and Non-alcoholic Beverages

f.o.b. Free on board

FRC Financial Regulatory Council

FSB Financial Stability Board

FSC Financial Services Commission

FPP Fiscal Policy Paper

FSAP Financial Sector Assessment Programme

FX Foreign Exchange

FY Fiscal Year

GBP Great Britain Pound

GCT General Consumption Tax

GDP Gross Domestic Product

GFA Gross Foreign Assets

GKMA Greater Kingston Metropolitan Area

GOJ Government of Jamaica

HLTH Health

HWEG Housing, Water, Electricity, Gas and Other Fuels

IDB Inter-American Development Bank

IFPAS Inflation Forecast & Policy Assessment System

IMF International Monetary Fund

IPCP Index of Primary Commodity Prices

IT Information Technology

JCCUL Jamaica Co-operative Credit Union League

JDX Jamaica Debt Exchange

JMD Jamaica Dollar

JMMB Jamaica Money Market Brokers

JSE Jamaica Stock Exchange

JUTC Jamaica Urban Transit Corporation

KYC Know-your-customer

LOI Letter of Intent

LTO Large Tax Payer Office

MaFI Macro-Financial Index

MEFP Memorandum of Economic & Financial Policies

MIIC Miscellaneous Goods & Services

MOU Memorandum of Understanding

MN Million

MPI Micro-prudential Index

NAMLAC National Anti-Money Laundering Committe

NCBJ National Commercial Bank Jamaica Limited

NDA Net Domestic Assets

NDX National Debt Exchange

NII Net Interest Income

NIR Net International Reserves

NPL Non-Performing Loans

NPS National Payment System

NRA National Risk Assessment

NWC National Water Commission

OMO Open Market Operations

OMT Outright Monetary Transaction

OPB Other Public Bodies

OSFI Office of the Superintendent of Financial Institutions

OUC Other Urban Centres

PAYE Pay As You Earn (income tax)

PB Public Bodies

PBOC People’s Bank of China

PD Primary Dealers

PDVSA Petróleos de Venezuela, S.A

POCA Proceeds of Crime Act

POS Point of Sale

pps Percentage points

PSE Public Sector Entity

PSIP Public Sector Investment Programme

QPC Quantitative Performance Criteria

R&A Restaurants and Accommodation

RA Rural Areas

R&C Recreation & Culture

ROAA Return on Average Assets

RSP Remittance Service Provider

RTGS Real Time Gross Settlement

SCT Special Consumption Tax

SDR Special Drawing Rights

SIPPA Security Interest in Personal Property Act

SLF Standing Liquidity Facility

SPB Selected Public Bodies

SMRO Six-Month Repurchase Operation

SSBO Standard of Sound Business Practices

TAJ Tax Administration Jamaica

TPA Terrorism Prevention Act

TRAN Transport

TRIM Trimmed Mean

USA United States of America

USAID United States Agency for International Development

USD US dollar

UTECH University of Technology

UWI University of the West Indies

VRCDs Variable Rate Certificates of Deposit

WASR Weighted Average Selling Rate

WATBY Weighted Average Treasury Bill Yield

WGPSLAC Working Group on Payment Systems for Latin America and the Caribbean

WTI West Texas Intermediate (crude oil)

Y-O-Y Year-over-Year

Inflation declined to 3.7 per cent for 2015 relative to 6.4 per cent for 2014 and marked the fifth consecutive

year of single-digit inflation. This outturn was below the Bank’s projection and reflected the lowest level

for a calendar year since 1967. There was also a significant narrowing in the difference in Jamaica’s

inflation and that of its trading partners. The sharp deceleration in inflation largely reflected the impact

of significant declines in the cost of electricity and transportation resulting mainly from sharp reductions

in international crude oil prices. Upward price impulses emanated primarily from the drought conditions

during the year which served to increase the price of agricultural commodities. The Jamaican economy

expanded by 0.8 per cent in 2015, following an increase of 0.5 per cent in 2014. The expansion was

largely buoyed by improvements in the international economy which facilitated greater tourism expenditure

and remittance inflows as well as some improvements in domestic demand conditions which resulted from

lower unemployment, inflation and interest rates.

In the context of a narrowing of the inflation differential with our major trading partners and continued

improvements in the country’s macroeconomic environment, there was a slowing in the pace of depreciation

in the value of the Jamaica Dollar vis–à–vis the US dollar relative to 2014. This slower pace of depreciation

occurred in the context of the US$2.0 billion raised by the Government on the international capital market,

continued net private capital inflows and a significant narrowing of the deficit on the current account

of the balance of payments. Notwithstanding the improvement in the external accounts, the foreign

exchange market was characterized by intermittent periods of excess demand in 2015. In addition, on 02

January 2015, the proportion of foreign currency purchased by the Bank from the market under the public

sector facility (PSE Facility) was increased by 5.0 percentage points to 25.0 per cent of end user inflows.

Consequently, the Bank intervened in the foreign exchange market from time to time.

During the year, the Banking Services Act (BSA), which amalgamates the statutes which govern the regulation

and supervision of DTIs, took effect. The BSA, effected on 30 September 2015, requires financial holding

companies of Deposit Taking Institutions to be licensed, which will allow for the conduct of consolidated

supervision, among other things. In this regard, during the year, work was undertaken in preparation for the

implementation of the attendant licensing and supervisory measures relevant to consolidated supervision.

In keeping with the provisions of the BSA, the Bank also issued a Consultation Paper on the proposed

Code of Conduct in relation to consumer financial protection in March 2015 which benefited from feedback

from the DTI industry and the Consumer Affairs Commission, among other groups. Other policy matters

of importance included the drafting of regulations to establish a formal supervisory framework for credit

FOREWORD BY THE GOVERNOR

The Bank maintained an accommodative monetary policy stance during

2015, reducing the policy rate, the rate on the 30-day CD, by 50 basis points

(bps) to 5.25 per cent. This policy stance was adopted in the context of a

generally favourable outlook for inflation by the Bank, the persistent trend

decline in inflation expectations of firms and the assessment of diminished

risk to the continued attainment of the monetary targets under the Extended

Fund Facility (EFF)–supported programme. During the year, the Bank also

lowered the interest rates for its lending facilities to DTIs. Consequently

by end-2015, the rates on the Standing Liquidity Facility (SLF) and Bi-

monthly Repurchase Operations (BRO) were 7.50 per cent and 7.05 per

cent, respectively. Of note, the allocation mechanism of the BRO was

changed from a two-weekly fixed price operation to a weekly competitive

price auction in October 2015. Further, liquidity assurance to deposit taking

institutions (DTIs) was enhanced by doubling the global limit on the SLF to

$14.6 billion in 2015.

unions which were then the subject of extensive discussions with sector representatives.

With regard to the health of the banking sector, DTIs remained robust to hypothetical shocks during 2015 due

primarily to strong capital adequacy positions. Stress tests conducted by the BOJ revealed that the average

post-shock capital adequacy ratios (CARs) for the banking system generally remained above the 10.0 per

cent minimum benchmark in response to extreme but plausible hypothetical credit, foreign exchange, interest

rate and liquidity shocks. In addition, the BOJ’s early-warning macro-financial and micro-prudential indices

remained well below crisis threshold levels.

During 2015, the Bank developed a new strategic plan under the theme “One Bank, One Vision, One Mission”.

The plan is underpinned by three broad goals which include the improvement of operational efficiency and

effectiveness, strengthening the Bank’s capacity for new, changing and expanding mandates and supporting

shared national responsibilities. The process of aligning people, processes and technology through the Bank’s

organizational transformation programme continued during 2015. Comprehensive reviews were undertaken

in several core areas of the Bank’s operations including corporate governance, banking supervision and

financial system stability. Additionally, the Bank reviewed its internal training function towards enhancing the

efficiency of its operations and implemented the Electronic Nomination and Confirmation (e-Train) system

which automated the training nomination process. The Bank also hosted six in-house training programmes

with participants from the Caribbean and Latin America. For 2015, 147 training programmes were executed.

The implementation of the Bank’s Succession Management Policy which focused on identifying and mitigating

the loss of critical knowledge and skills associated with positions at risk continued during 2015. In addition,

initiatives under the Bank’s Environment and Energy Management programmes realized reductions in the use

of printed paper, ink and water. The Energy Management programme contributed to a 4.5 per cent reduction

in energy consumption compared to 2014.

The attainment of the monetary targets under the EFF agreement remained a crucial component of the work

of the Bank during 2015 as the Government of Jamaica continued its strong commitment to the economic

reform programme initiated in FY2013/14. In this regard, as at end-September 2015 the country successfully

completed the Tenth Review under the agreement and is adjudged to have met all its targets for end-2015.

Further, signs of the positive impact of the reforms were manifested in both the improved ease of doing

business in Jamaica as well as renewed investor interest in the equities market. In particular, for 2015,

Jamaica was ranked as the top country in the Caribbean for doing business by the World Bank. The JSE Main

Index was also ranked as the top performing stock index globally by Bloomberg L.P.

The outlook for the Jamaican economy continues to be positive. Economic growth is projected to accelerate

in 2016, reflecting the impact of improvements in the international economy and in the domestic business

environment as well as the expected recovery from supply shocks that affected agriculture for most of 2015.

Headline inflation is expected to be moderately higher than the outturn of 3.7 per cent in 2015, to record

a sixth consecutive year of single-digit inflation in 2016. Further, the Bank expects that the country risk-

premium will continue to decline consistent with the continued improvement of the fiscal accounts and debt

trajectory. It is within this context that the Bank will continue to focus on the achievement of stable and low

single-digit inflation.

In closing I extend thanks to the board members, managers and staff for their continued support and

commitment to achieving the objectives of the Bank.

Brian Wynter

Governor

- 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 yet 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.

The BOJ also has responsibility for the supervisory

oversight of commercial banks and other licensed

deposit-taking institutions, and more recently, regulatory

oversight for the holding companies for financial groups

in which a deposit taking institution is held. This requires

that the BOJ routinely monitors institutions’ compliance

with all the relevant legislation and regulations to

ensure the safety and soundness of such institutions

and ultimately the deposit taking system as well as to

ensure the highest level of prudence and integrity in

the management of such entities. The BOJ’s regulatory

mandate also extends to credit bureaux.

Recently, the Bank of Jamaica was accorded institutional

responsibility for the stability of Jamaica’s financial

system. 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. In pursuit of this

mandate, the BOJ has the ability to obtain information

from regulated financial institutions and other persons

who engage in the offer of financial services whose

operations are deemed to be of systemic importance. In

this regard, the Bank is authorized to direct and impose

measures to mitigate and control any risk to the stability

of the overall financial system.

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.

- 2 -

2. The Economy & Monetary Policy Review

2. The Financial Systemof NDX bonds in February 2016. During 2015, the

Bank continued to issue foreign currency CDs as

a part of the strategy to meet its foreign reserve

objectives. In this regard, the Bank issued new

longer dated CDs and prepaid CDs of shorter tenor

which facilitated the extension of the average life

of the portfolio.

Headline inflation, as measured by the annual

point-to-point change in the All Jamaica

Consumer Price Index (CPI), was 3.7 per cent for

2015 relative to 6.4 per cent for 2014. This outturn

was below the Bank’s projection and reflected the

lowest level for a calendar year since 1967. The

sharp deceleration in inflation largely reflected

the impact of significant declines in the costs

of electricity and transportation resulting from

sharp reductions in international crude oil prices

and administered price changes, during the year.

There were upward price impulses primarily from

increases in the cost of food, largely due to drought

conditions during the year. All three measures of

core inflation monitored by the Bank were lower in

2015 relative to 2014 largely reflecting the impact

of relatively weak though improving demand

conditions, continued fiscal consolidation as well

as a slower pace of exchange rate depreciation.

The Jamaican economy expanded by 0.8 per

cent in 2015, following an increase of 0.5 per

cent in 2014. The expansion was largely driven

by an improvement in external demand and to a

lesser extent domestic demand. In particular, the

international conditions facilitated greater tourism

expenditure and remittance inflows relative to

2014. Further, domestic demand conditions

were buoyed by lower unemployment, inflation

and interest rates which contributed to stronger

consumer confidence. In addition, business

confidence continued to be positively impacted

by the implementation of structural reforms and

2.1. Economic Overview

During 2015, the Bank reduced the signal interest

rate, the rate payable on its 30-day Certificate

of Deposit (CD) by 50 basis points (bps) to 5.25

per cent in the context of a generally favourable

outlook for inflation and a persistent trend decline in

private sector inflation expectations. Furthermore,

the policy adjustments were assessed to pose no

risks to the continued attainment of the monetary

targets under the Extended Fund Facility (EFF)-

supported programme. The Bank continued to

hold the interest rate on its overnight CD at 0.25

per cent while the local currency cash reserve and

liquid assets requirements were maintained at 12.0

per cent and 26.0 per cent, respectively.

During the year, the Bank also lowered the interest

rates on its lending facilities by reducing the

spread payable on these instruments relative to

the 30-day CD by 150 bps. This coupled with the

reduction in the signal rate resulted in a 200 bps

reduction in rates payable on its lending facilities.

Consequently by end-2015, the rates on the

Standing Liquidity Facility (SLF) and Bi-monthly

Repurchase Operation (BRO) were 7.50 per cent

and 7.05 per cent, respectively. The Excess Funds

Rate (EFR) was 9.55 per cent.1 It should be noted

that in October 2015 the allocation mechanism of

the BRO was changed from a two-weekly fixed

price operation to a weekly competitive price

auction. Further, the global limit on the SLF was

raised to $14.6 billion in 2015, twice the level in

2014, to provide greater liquidity assurance to

deposit taking institutions (DTIs). The Bank also

offered 3- and 4-month occasional term repos

(OTRO) in the final quarter of 2015 in order to

smooth the liquidity impact of upcoming maturities

1 The EFR is the rate which deposit-taking institutions pay for

accessing overnight liquidity in excess of their individual SLF limit.

- 3 -

Annual Report 2015

The Economy & Monetary Policy Review

reflecting net sales of US$609.8 million in contrast

to a net purchase of US$37.6 million for 2014. The

Jamaica Dollar, however, appreciated relative to

the Canadian dollar and the British Pound partly

reflecting a weakening of those currencies relative

to the USD, amidst heightened expectations of

monetary tightening in the USA.

Against the background of these developments

there was an expansion in the monetary base of

12.2 per cent for 2015, relative to growth of 5.1 per

cent for 2014. The main source of the expansion

in the monetary base was a build-up in the NIR.

This growth in the monetary base was reflected in

a sharp increase in currency issue to 12.5 per cent

relative to 7.4 per cent in 2014. The expansion

in the base facilitated a growth in broad Jamaica

Dollar money supply (M2J) which accelerated to

14.8 per cent in 2015 relative to 3.3 per cent in

2014. The expansion in M2J during the review year

reflected growth of 15.3 per cent and 14.6 per

cent in currency in circulation and local currency

deposits, respectively.

Consistent with the relatively favourable

macroeconomic conditions and the more

accommodative monetary policy stance of the

Bank, there was a general decline in interest rates

on Treasury Bills. Notably, there was a downward

shift in the yield curve for GOJ Treasury Bills for

2015. Specifically, the weighted average yield on

GOJ, 30-, 90- and 180-day instruments fell by

41 bps, 100 bps and 110 bps to 5.97 per cent,

5.96 per cent and 6.04 per cent, respectively.

Money market rates, however, reflected mixed

movements for 2015 relative to 2014. In particular,

the overnight and inter-bank rates increased by

172 bps and 49 bps to an average of 3.67 per

cent for both rates. The 30-day rate, however, fell

by 11 bps to average 6.32 per cent.

Jamaica’s balance of payments in 2015 recorded

a sharp improvement relative to 2014. The current

account deficit (CAD) fell by US$802.0 million

to US$326.2 million in 2015. This improvement

consistent achievement of the quantitative targets

under the four-year EFF-supported programme.

Growth in 2015 was underpinned by increases of

0.9 per cent and 0.8 per cent in the tradable and

non-tradable industries, respectively. With the

exception of Producers of Government Services

and Agriculture, Forestry & Fishing, growth

was recorded in all industries. Labour market

conditions improved marginally in 2015 with the

unemployment rate decreasing to 13.5 per cent

from 13.7 per cent in 2014.

The Bank’s more accommodative monetary policy

stance facilitated an expansion in credit to the

private sector which underpinned the increase

in aggregate demand. For 2015, the stock of

commercial bank credit to the private sector grew

by 9.6 per cent, an acceleration relative to the

increase of 4.8 per cent for 2014 and generally

in line with the five-year average growth. The

expansion in credit was in the context of lower

rates on local currency loans which fell to the

lowest level since 2010. Consequently, there was a

significant narrowing in the overall spread between

local currency loans and deposit rates since 2010.

There was also a rebound in foreign currency loans,

notwithstanding an increase in these interest rates.

Notably, for 2015 the expansion in credit occurred

in the context of a marked improvement in the

quality of the commercial banks’ loan portfolio

relative to 2014.

For 2015, there was a slowing in the pace of

depreciation in the value of the Jamaica Dollar

vis-a-vis the US dollar (USD) to 5.0 per cent from

7.8 per cent in 2014. This outturn was consistent

with the narrowing of the inflation differential

with our major trading partners and continued

improvements in the country’s macroeconomic

environment, particularly, the external accounts.

Notwithstanding these positive developments, the

market was characterised by intermittent periods

of excess demand for foreign currency in 2015.

In this context, the BOJ increased its intervention

sales to the market, with the trading room activity

- 4 -The Economy & Monetary Policy Review

Bank of Jamaica

resulted in a CAD of 2.3 per cent of GDP in 2015

relative to 8.0 per cent in 2014 which was evident

in all sub-accounts except Income. In particular,

the smaller CAD for 2015 largely reflected an

improvement in Goods & Services and to a lesser

extent Current Transfers. This improvement in

Goods & Services occurred in the context of a fall

in imports, associated with significant declines in

the prices of international commodities, mainly

crude oil. Current Transfers were buoyed by higher

remittance inflows. There was a reduction in the

surplus on the Capital & Financial Account for 2015

which largely reflected the impact of transactions

related to the early repayment of debt owed under

the Petro-Caribe Agreement with Venezuela. The

resulting surplus on the capital account and private

investments inflows were more than sufficient

to finance the deficit on the current account.

Consequently, the NIR rose to US$2 437.0 million

with gross reserves representing 23.5 weeks of

projected goods and services imports at end-2015

relative to 18.3 weeks at end-2014.

During 2015, the Government of Jamaica

continued its strong commitment to the economic

reform programme initiated in FY2013/14. In

this regard, as at end-September 2015 the

country successfully completed the Tenth Review

under the EFF-supported programme and is

adjudged to have met all its targets for end-

2015. In particular, the NIR ended 2015 at

US$2 437.0 million exceeding the target of

US$1 640.8 million. Provisional information to

end-2015 also suggest that the Government is

firmly on track to achieve its targets under the

EFF for FY2015/16. Key reforms undertaken

during the year included the establishment of a

Cash Management Unit in the Accountant General

Department, the tabling of legislation governing

the tax regime in the Special Economic Zone

and the introduction of the Banking Services

Act which assigned overall responsibility for

financial stability to the Bank of Jamaica.

In the context of the successes made to date,

the primary balance target for FY2015/16 under

the EFF-supported programme was revised

downwards by approximately J$5.3 billion to

facilitate greater public investment to stimulate

growth. For April-December 2015, the primary

surplus exceeded the revised EFF targeted surplus

of $60.7 billion by $5.3 billion. Similarly, the overall

deficit of $14.5 billion for the review period was

better when compared to the budgeted deficit of

$16.8 billion. At end-2015, Jamaica’s stock of

debt was $2 099.4 billion or 127.8 per cent of

GDP, relative to $2 039.5 billion or 130.5 per cent

of GDP at end-2014.

The general improvement in the domestic

economy was also reflected in increased buoyancy

in the local equities market. For 2015, all indices

of the Jamaica Stock Exchange (JSE) increased

dramatically, with the exception of the Cross Listed

Index. Specifically, the JSE Main Index expanded

by 97.4 per cent following a decline of 5.3 per cent

recorded for the previous year with stronger growth

in the Junior Market, Combined, JSE Select and the

All Jamaica Composite indices. The performance

of the JSE indices for 2015 occurred against the

background of increased investor appetite for

equities influenced by positive developments in

the macroeconomy, higher company profits by

large corporates as well as announcements of

planned mergers and acquisitions. The positive

developments in the macroeconomy included

growth in real economic activity, enhanced

liquidity conditions and Jamaica’s continued

favourable performance under the EFF-supported

programme.

Economic growth is projected to accelerate in

2016, reflecting the impact of improvements in

the business environment, initiatives to lower input

cost, improved external competitiveness as well

as an expected recovery from supply shocks that

affected the agriculture sector for most of 2015.

Growth is also expected to be driven by increased

external and domestic demand conditions relative

to 2015. The global economy is projected to

- 5 -

Annual Report 2015


expand by 3.2 per cent in 2016 relative to 3.0 per

cent in 2015 against the backdrop of continued

expansionary monetary policy by central banks

in major economies. Domestic demand should

remain buoyant with improvements in business

and consumer confidence as well as increased

remittance inflows. Growth in the domestic economy

should be primarily reflected in Agriculture, Forestry

& Fishing, Manufacture, Electricity & Water Supply,

Hotels & Restaurants and Construction.

Against the background of projected higher

domestic output levels for 2016, inflation is

forecasted to be moderately higher than the outturn

of 3.7 per cent in 2015. However, relatively low and

stable inflation expectations as well as projected

moderate increases in imported commodity

prices should serve to suppress upward price

adjustments. Against this background, the Bank

will continue to focus on the maintenance of single

digit inflation and the monetary targets outlined

under the country’s EFF-supported programme.

2.2. International Economic Developments

2.2.1. Overview

The global economy expanded at a tempered

pace in 2015 when compared to 2014,

notwithstanding additional expansionary policy

measures implemented by a number of central

banks. The slower growth reflected weaker

expansion in Emerging Market and Developing

Economies (EMDEs), the impact of which was

partly offset by marginally higher growth for the

Advanced Economies (AEs). For the EMDEs,

slower growth was largely underpinned by the

continued weakening of the Chinese economy

and the recession in Brazil and Russia. Of note,

the slower growth in China had a stronger than

anticipated adverse impact on global financial

and commodities markets, particularly crude oil.

In the context of these developments, economic

expansion in a number of advanced countries

was constrained. In particular, slower growth was

recorded for Canada and the United Kingdom, the

impact of which was offset by stronger expansion

in the Euro Area and Japan while the USA grew at

the same pace as in 2014.

Inflation in most advanced and emerging market

economies remained suppressed in 2015 and

trended below their respective central bank

targets. Lower inflation across these economies

mainly reflected the impact of the decline in

commodity prices and generally weak domestic

demand. Against this background, a number

of central banks implemented additional

expansionary policy measures with some offering

negative interest rates. In contrast, the Federal

Open Market Committee (FOMC) raised interest

rates in December 2015 for the first time since

2006.

For 2015, the US dollar continued to appreciate

against most major currencies including the

Yuan due to heightened uncertainty in financial

markets. Of note, changes were made to the

foreign exchange market in China, which was

adjudged to have met the criteria for the Board

of the IMF to include the Yuan in the SDR basket.

2.2.2. Output

Global growth is estimated to have moderated to

3.0 per cent for 2015, lower than the growth of

3.4 per cent for 2014. This tempered growth was

driven by the economic slowdown in EMDEs, which

expanded by 4.0 per cent compared to the 4.6 per

cent for 2014. However, the impact of this slower

growth was partly offset by marginally stronger

growth of 1.9 per cent in AEs relative to the 1.8

per cent the previous year (see Tables 1 and 2).

The fall-off in the economic growth momentum

for the EMDEs was widely reflected across most

countries, with notable slower growth in China

and Argentina, exacerbated by contractions

in Brazil and Venezuela. The drag on global

growth was largely attributed to the economic

slowdown in China which had significant adverse

implications for its major trading partners such

as the USA, Japan, UK, Australia, Brazil, Russia


Bank of Jamaica

and the Euro area. Notably, Brazil’s recession

significantly weighed down the economic growth

for the Latin America and the Caribbean region

which contracted by 0.3 per cent for 2015, when

compared to growth of 1.3 per cent the previous

year.

Notwithstanding the adverse developments in

the global environment, the US economy grew

by 2.4 per cent in 2015, similar to the growth

in 2014. This outturn was mainly reflected in

increased consumption spending facilitated by

the lower unemployment rate. At end-2015, the

unemployment rate in the USA fell to 5.0 per cent

from 5.6 per cent at end-2014. Although the

labour market continued to improve in 2015, US

growth was adversely affected by the impact of

the appreciation in the US dollar as well as a fall in

investments mainly in the shale-oil industry. With

regard to Canada, growth decelerated to 1.2 per

cent for 2015 from 2.5 per cent largely reflecting

developments in the oil industry.

Growth in the Euro area accelerated to 1.5

per cent in 2015 from 0.9 per cent in 2014.

This performance was also largely attributed

to the quantitative easing programme that was

implemented by the European Central Bank

(ECB) in March 2015 as well as the depreciation

of the Euro against the US dollar. Expansion in

the region was, however, weighed down by the

challenges faced in the first half of the year, given

deteriorated conditions in the Greek economy

that threatened the economic stability of the

region as well as the risk of prolonged deflation

in the Euro area. Following the implementation

of expansionary policy measures, Japan recorded

growth of 0.4 per cent in 2015. This was in

contrast to a contraction of 0.1 per cent in 2014.

2.2.3. Monetary Policy

Throughout the year, central banks in a number of

advanced, emerging and developing economies

maintained an accommodative monetary policy

stance given the challenges in attaining stronger

growth and targeted inflation in their respective

countries.2 Of note, on 09 March 2015, the ECB

implemented additional accommodative monetary

policy measures through an asset purchase

programme aimed at supporting economic activity

and spurring inflation rates, which remained well

below the medium-term target of 2.0 per cent. In

addition, the ECB effected a reduction of 10 basis

points (bps) on the interest rate on the central

bank’s deposit facility to -0.30 per cent, while

keeping unchanged the 0.05 per cent and the 0.30

per cent offered on its main refinancing operations

and marginal lending facility, respectively.

Against the background of the slow down in the

Chinese economy, the People’s Bank of China

(PBOC), in the March 2015 quarter, reduced the

interest rates on its one-year lending and deposit

facilities by 50 bps each to 4.85 per cent and

2.0 per cent, respectively, and lowered its reserve

requirement ratio by 150 bps. Following a raft of

other policy measures, the benchmark one-year

lending rate and deposit rates were lowered to

4.35 per cent and 1.50 per cent, respectively, in

October, the sixth rate cut in a year. In addition,

the required reserve ratio was reduced by 50 bps

to 17.50 per cent. The measures taken in October

were primarily in an attempt to stabilize its equity

markets and curtail capital outflows as evidenced

in the September 2015 quarter, following a

massive sell-off of Chinese equities.

The Bank of Japan in December 2015, having

decided to maintain its monetary stimulus target,

instituted operational changes to its purchases of

government bonds, exchange-traded funds and

real estate investment trusts. This was in a bid

to facilitate a seamless decline in interest rates

across the entire yield curve.

On 16 December 2015, the FOMC increased the

federal funds rate by 25 bps to a range of 0.25

per cent to 0.50 per cent, the first increase since

2 Subsequently, in December 2015, the ECB extended its quantitative

easing programme by six months to March 2017.

- 7 -

Annual Report 2015


Table 1

Table 2

2014 2015* 2015 2014 2015 2014 2015

Advanced Economies

1.8 1.9 7.3 1.4 0.3 n/a n/a

of which USA 2.4 2.4 5 1.5 0.7 0.0 - 0.25 0.0 - 0.50

UK 2.9 2.2 5.4 2.6 0.2 0.5 0.5

Euro Area 0.9 1.5 10.4* 1.3 0.2 0.25 0.05

Canada 2.5 1.2 7.1 1.9 1.3 1 0.5

Japan -0.1 0.4 3.3 2.7 0.2 0.1 0.1Source: IMF World Economic Outlook Update: October 2015; January 2016* various Statistics Offices

*Estimates ** Point-to-Point *** End-of-period

INDUSTRIAL ECONOMIESReal GDP, Consumer Prices and Unemployment Rates

(Annual percentage change and per cent of labour force)

CountryGDP

(%)

Unemployment Rate***

(%)

Inflation Rate** (%)

CB Target

Interest Rates***

2014 2015* 2014 2015*

Emerging Market and Developing Economies 4.6 4 5.1 5.7

Latin America and the Caribbean 1.3 -0.3 8.2 12

Argentina 4.2 2.2 1.3 0.5

Brazil 0.1 -3.8 6.4 9.3

Chile 1.9 2.3 4.6 4.2

Colombia 4.6 2.5 3.7 4.2

Dominican Republic 7.3 5.5 3 1.1

Ecuador 3.8 -0.6 3.7 3.7

Mexico 2.1 2.5 4 2.7

Peru 2.4 2.4 3.2 3.3

Uruguay 3.5 2.5 8.3 9

Venezuela -4 -10 68.5 190

Caribbean*** 4.7 3.8 4 3.1

Antigua & Barbuda 4.2 2.2 1.3 0.5

Barbados 0.2 1 2.3 0.6

Dominica 3.9 2.8 0.5 0.8

Guyana 3.8 3.2 1.2 1

Jamaica 0.4 1.1 6.4 3.7

St. Kitts & Nevis 6.1 5 0.6 -2.2

St. Vincent & Grenadines -0.2 2.1 0.1 0.5

Trinidad & Tobago 0.8 1 8.5 1.5

Developing Asia 6.8 6.5 3.1 3

China 7.3 6.9 2 1.4

India 7.3 7.3 5.254 5.4

Indonesia 5 4.8 6.4 6.4

Malaysia 6 4.8 3.2 2.1

Philippines 6.1 5.8 4.2 1.4

Thailand 0.9 2.8 1.9 -0.9

Middle East and North Africa 2.6 2.3 6.4 6.1

Sources: The World Economic Outlook Update, October 2015; January 2016*, statistical offices of individual countries.

*Estimates, **Point-to-point, ***Inflation Rate is Annual Average

REAL GDP & CONSUMER PRICES(Annual pe r cent Change)

CountryGDP Inflation Rate**

the global financial crisis. This movement was one

of the most anticipated policy actions for 2015.

The policy action was informed by the continued

improvements in a number of macroeconomic

variables in the USA, particularly in the labour

market, with an outlook for continued strengthening

of the macroeconomy. In addition, consumer price

inflation was expected to move towards the Fed’s

medium term target of 2.0 per cent by 2018.

The central banks of other large emerging market

countries also maintained an accommodative

monetary policy stance for 2015. The Bank of the

Russia Federation effected six reductions to its

key policy interest rate during the year to 11.0 per

cent at end December 2015 from 17.0 per cent

at the start of the year. The central bank noted

that these policy actions were effected against

the background of a contraction in the Russian

economy given the impact of the decline in crude

oil prices as well as a persistent low inflationary

environment arising from the slack in domestic

demand. Amid the economic, fiscal and political

turmoil, coupled with the adverse impact of very

low commodity prices on the exchange rate, the

Central Bank of Brazil pursued contractionary

monetary policy in 2015. In this regard, the Selic

rate was increased by 200 bps to 14.25 per cent

for 2015 in order to restrain intensifying inflationary

pressures.

2.2.4. Inflation

The inflation outturn for advanced and emerging

market countries was mixed in 2015 as reflected in

lower inflation for the AEs and higher inflation for

the EMDEs. Of note, inflation for Jamaica’s major

trading partners, excluding Venezuela, declined

However, given a sharp fall in Jamaica’s inflation,

the inflation differential between Jamaica and its

trading partners narrowed to 2.7 pp from 4.4 pp

at end-2014.

For the AEs, inflation decelerated to 0.3 per cent

from 1.4 per cent. In contrast, inflation for the

EMDEs increased to 5.5 per cent from 5.1 per

cent. Inflation was lower in all major economies

given the impact of declines in commodity prices.


Bank of Jamaica

2.2.6. Commodity Markets

For the review period, the IMF’s Index of Primary

Commodity Prices (IPCP) recorded a sharper

decline of 35.3 per cent for 2015 when compared

to the reduction of the 6.3 per cent for 2014 (see

Table 4). This contraction reflected declines of 44.9

per cent and 17.5 per cent in the Energy and Non-

fuel Commodities indices, respectively. The Energy

index fell in the context of an over supplied crude

oil market coupled with lower global demand and

a stronger USD. This resulted in annual declines of

47.0 per cent, 47.7 per cent and 47.0 per cent in

the Brent, West Texas Intermediate (WTI) and Dubai

crude oil prices, respectively. Notwithstanding,

the relatively lower price environment and a fall in

rig counts which prevailed during 2015, crude oil

production in the USA grew above levels recorded

for 2014, countering expectation of a fall-off

predicted by the International Energy Agency

and the Organization of the Petroleum Exporting

Countries (OPEC), among others. The oversupply

on the international market was also worsened by

the continued record production by major OPEC

producers, notably Saudi Arabia and Iraq. Further

downside pressure on crude oil prices during the

year was fuelled by the expectation of Iran’s return

2014 2015 2014 2015

Canadian Dollar 0.91 0.78 -6.8 -13.5

Japanese Yen/1 105.59 120.99 -7.7 14.6

Great Britain Pound 1.65 1.53 5.3 -7.2

Euro 1.33 1.11 0 -16.4

Real 0.43 0.3 -8.3 -28.6

Yuan 0.16 0.16 -0.2 -1.9

Mexican Peso 0.08 0.06 -4.1 -16

Rupee 0.02 0.02 8.9 -4.9Source: Bloomberg

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

Selected Economies: Exchange Rates(End of Period)

US Dollars per Unit of National

Currency

Annual Per cent Change

Table 3Although both sets of economies benefited from

lower commodity prices during the year, EMDEs

were generally affected by the impact of a

depreciation in respective currencies. In particular,

higher inflation was mainly evident in Brazil and

Venezuela. Notwithstanding the overall increase in

inflation for the EMDEs, inflation in the Caribbean

was noticeably lower in 2015 by 90 bps to 3.1 per

cent when compared to the previous year. Lower

inflation was mainly attributed to the lower prices in

Jamaica, Trinidad & Tobago and St. Kitts & Nevis

(see Tables 1 and 2).

2.2.5. Selected Exchange Rates

With the exception of the Japanese Yen, all of

the selected international currencies depreciated

against the USD in 2015. In particular, the

Canadian dollar (CAD), Brazilian Real, Mexican

Peso and Euro depreciated against the USD by

13.5 per cent, 28.6 per cent, 16.0 per cent and

16.4 per cent, respectively (see Table 3). The

weakening of the CAD, Real, Peso and the Euro

was largely underpinned by the impact of lower

commodity prices, notably crude oil, soybean,

wheat and corn. Additional pressure on the Real

also emanated from the weak economic and

political environment in Brazil. The depreciation

of the Euro also reflected the destabilizing

impact that Greece had on the region, with the

threat of a default on its debt and possible exit

from the Eurozone. Further, the November 2015

terrorist attacks on France, the intensification of

geopolitical tension as well as monetary policy

easing by the ECB served to weaken the Euro.

Against the background of these developments

and uncertainty surrounding the timing of the rate

increase by the FOMC, there was a flight of capital

to safe haven investments, such as the Yen. It is

against this background that the Yen appreciated

by 14.6 per cent against the USD for 2015. With

respect to the GBP, the appreciation largely

reflected the impact of continued improvements in

macroeconomic conditions in that country.

- 9 -

Annual Report 2015


Table 4

2014 2015

All Primary Commodities -6.3 -35.3

1. Non-fuel Commodities -4 -17.5

1.1 Edibles -2.1 -15.7

(a) Food -4.1 -17.1

(b) Beverages 20.7 -3.1

1.2 Industrial Inputs -6 -19.5

(a) Agricultural Raw Materials

1.9 -13.5

(b) Metals -10.3 -23.1

2. Energy -7.5 -44.9

Petroleum/1 -7.6 -47.2

(a) WTI -4.9 -47.7

(b) Brent -9.1 -47

(c) Dubai -8.3 -47

1/ Simple Average of West Texas Intermediate (WTI), Brent and Dubai Fateh Crude oil prices

SUMMARY OF WORLD COMMODITY PRICESAnnual Average pe r cent change

Source: IMF

to the export market in 2016 and the abandonment

of OPEC’s production ceiling in November 2015.

The sharp reduction in the Non-fuel Commodities

index reflected strong declines in both Edibles

and Industrial Inputs. The decline in Edibles

reflected lower prices for Food and Beverages

while the reduction in the Industrial Inputs index

was underpinned by the sharp fall-off in prices for

Metals and Agricultural Raw Materials.3

Lower Food prices for the year were largely reflected

in a significant reduction in the prices of grains,

mainly maize, wheat, soybean, rice and barley.

The decline in grains prices was underpinned

by low global demand caused by the economic

slowdown in major consumer economies such as

China, higher yields in grains producing countries

in light of favourable weather conditions as well

as a stronger US dollar. Of note, the USD index,

which captures the movement of the USD against

major currencies, increased by 9.3 per cent for

2015 when compared to 2014. The decline in the

Beverages sub-index reflected a fall of 20.9 per

cent in the price of Arabica coffee, which largely

resulted from weak global demand conditions.

The decline in the Metals sub-index was also

affected by some of the aforementioned factors.

As a result, the price of copper, aluminium and

nickel fell by 19.7 per cent, 10.9 per cent and 29.8

per cent, respectively. The tempered demand

for the metals also occurred in a context where

manufacturing activities across most major

economies had slowed significantly. Of note,

manufacturing in the USA contracted for the last

two months of 2015 while manufacturing activities

in China contracted for five consecutive months

beginning in August 2015.

3 Agricultural raw materials include timber, cotton, wool, rubber and

hides.

2.3. Balance of Payments

2.3.7. Overview

Provisional data indicate that Jamaica’s current

account deficit (CAD) improved by US$802.0

million to US$326.2 million in 2015 (see Chart

1 and Table 5). This improvement reflected a

CAD of 2.3 per cent of GDP in 2015 relative to

8.0 per cent in 2014. The smaller CAD for 2015

largely reflected an improvement in the Goods &

Services balance and to a lesser extent Current

Transfers. This improvement in the Goods &

Services balance occurred in the context of a fall

in imports, associated with significant declines in

the prices of international commodities, mainly

crude oil. Current Transfers were buoyed by higher

remittance inflows (see International Economic

Developments).

There was a reduction in the surplus on the Capital

and Financial Account for 2015. This largely

reflected the early repayment, in July 2015, of

debt owed under the Petro-Caribe Agreement with

Venezuela. The transaction was financed from the


Bank of Jamaica

Chart 1: Jamaica: Current Account Deficit to GDP Ratio

Table 5

proceeds of two Euro-bonds in July 2015.

Notably, private investments were more than

sufficient to finance the deficit on the Current

Account. In this regard, the net international

reserves (NIR) of the Bank increased by US$435.9

to US$2 437.0 million at end-2015, with gross

reserves representing 23.5 weeks of projected

goods and services imports.

2.3.8. Trade in Goods and Services

The deficit on the Goods & Services balance is

estimated to have improved by US$785.8 million for

2015. This smaller deficit reflected improvement on

both the Goods (merchandise trade) and Services

balance.

2.3.8.0. Merchandise Trade

For 2015, the merchandise trade deficit is

assessed to have narrowed by US$605.7 million,

relative to the deficit in 2014 (see Table 5). The

value of imports (f.o.b.) declined by US$793.2

million or 15.2 per cent, the impact of which was

partly offset by a reduction of US$187.5 million or

12.9 per cent in earnings from exports.

The estimated contraction in imports primarily

reflected a reduction of US$824.9 million or 41.8

per cent in spending on Mineral Fuels in the context

of a decline of 47.5 per cent in the annual average

price of crude oil. In addition there were reductions

in imports of Food, Chemicals, Miscellaneous

Manufactured Goods and Goods Procured in Ports.

These were partly offset by increases in Machinery

& Transportation as well as Manufactured Goods.

There were also notable increases in demand for

Consumer and Capital Goods in a context of higher

aggregate demand including from foreign direct

investment related activities (see International

Economic Developments and Production).

Exports are estimated to have declined by

US$187.5 million for 2015. This mainly reflected

declines of US$104.0 million in earnings from

2014 1/ 2015 2/ Change % Change

1. C URRENT ACCOUNT -1 128.2 -326.2 802 -71.1

% of GDP -8.1 -2.3 5.8

A. GOODS BALANCE -3 759.0 -3 153.3 605.7 -16.1

Exports (f.o.b.) 1 448.6 1 261.1 -187.5 -12.9

Imports (f.o.b.) 5 207.6 4 414.4 -793.2 -15.2

B. S ERVICES BALANCE 626.1 806.1 180.0 28.8

Transportation -696.0 -570.9 125.1 -18.0

Travel 2 057.3 2 144.5 87.2 4.2

Other Services -735.2 -767.5 -32.3 4.4

GOODS & S ERVICES BALANCE -3 132.9 -2 347.1 785.8 -25.1

C. INCOME -286.5 -312.3 -25.8 9.0

Compensation of employees 63.9 80.6 16.6 26.0

Investment income -350.4 -392.9 -42.5 12.1

D. C URRENT TRANSFERS 2 291.2 2 333.3 42.1 1.8

Official 221.0 195.2 -25.8 -11.7

Private 2 070.2 2 138.1 67.9 3.3

2. C APITAL & FINANCIAL A/C 1 128.2 326.2 -802.0 -71.1

A. C APITAL ACCOUNT -27.6 1 430.0 1 457.6 -5 281.6

Official 4.1 1 461.7 1 457.6 35 396.2

Private -31.7 -31.7 0.0 0.0

B. FINANCIAL ACCOUNT 1 155.8 -1 103.8 -2 259.6 -195.5

Official Investment 821.8 -1 202.2 -2 023.9 -246.3

Private Investment3/ 1 287.3 534.2 -753.0 -58.5

Reserves4/ -953.3 -435.9

SUMMARY OF BALANCE OF PAYMENTS (US$MN)

1/ Revised

2/ Provisional

3/ Includes Errors & Omissions

4/ Minus denotes increase

9.9

15.9

20.4

9.37.1

13.3

9.3 9.0 8.1

2.3

0.0

5.0

10.0

15.0

20.0

25.0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

per c

ent

Year

- 11 -

Annual Report 2015


Non-Traditional Exports and US$68.9 million in

Goods Procured in Ports. These outturns primarily

reflected a fall in fuel exports due to the impact of

the fall-off in global fuel prices during the year.

All categories of Other Traditional Export, with the

exception of coffee, also declined for the year in a

context of a prolonged drought (see Production).

Major Traditional Exports, however, increased for

the year, largely due to higher volumes of alumina.

2.3.2.8. ServicesNet earnings from Services are estimated to have

increased by US$180.0 million (28.8 per cent)

to US$806.1 million in 2015. This reflected an

expansion of US$84.0 million in inflows and a

decline of US$96.0 million in outflows.

For 2015, the estimated inflows primarily reflected

an increase of US$124.1 million in receipts from

Travel. Higher earnings from Travel reflected growth

of 2.3 per cent in foreign national stop-over visitor

arrivals, relative to 2014, with an increase in the

estimated average daily expenditure partly offset

by a marginal decline in the average length of stay.

The impact of the increase in Travel was partly

offset by a fall in Transportation and Other Services

inflows mainly associated with lower exports.4

Outflows from Services in 2015 are assessed to

have contracted largely due to lower payments

for Transportation, the effect of which was partly

offset by higher outflows for Travel and Other

Services. With regard to Transportation, there

was an estimated reduction of US$159.4 million

in outflows reflecting lower freight and insurance

charges given the decline in merchandise

imports. Against this background, the deficit on

Transportation and Travel improved by US$125.1

million and US$87.2 million respectively, while

the deficit on Other Services widened by US$32.3

million, respectively.

4 Other Services include communication, computer & information, other

business and government services.

2.3.9. Income

For 2015, the deficit on the income sub-account

is estimated to have widened by US$25.8 million

to US$312.3 million. The higher deficit on the

Income sub-account principally reflected lower

profit inflows from direct investment companies

operating overseas (see Table 5).

2.3.10. Current Transfers

The surplus on the Current Transfers sub-account

is estimated to have recorded an increase of

US$42.1 million in 2015, reflecting growth of

US$67.9 million in Private Transfers, the effect of

which was partly offset by a decline of US$25.8

million in Official Transfers due to lower grant

inflows. The estimated growth in Private Transfers

occurred in the context of continued economic

expansion and improved labour market conditions

in the USA, the major source market for remittance

inflows.

2.3.11. Capital and Financial Account

For 2015, the activity on the Capital and Financial

Account primarily reflected the transactions

associated with the PetroCaribe debt buyback

between the Government of Jamaica and Petróleos

de Venezuela, S.A (PDVSA) of Venezuela. The

surplus of US$1 430.0 million on the Capital

Account largely reflected the discount on the

PetroCaribe transaction.

There were net outflows of US$1 103.8 million

on the Financial Account. This largely reflected

the impact of the approximately US$2.9 billion

debt payment to Venezuela in July, as well as the

repayment of two bonds in June and July 2015

amounting to US$401.4 million.5 The impact of

these payments on the financial account was partly

offset by commercial borrowing of US$2.0 billion

in July 2015.6 Of note, Jamaica also continued

5 Jamaica reduced its debt with PDVSA by approximately 1.5 billion given the discount.

6 The GOJ successfully issued two Euro-bond on the


Bank of Jamaica

20141/ 20152/ Change

GROSS OFFICIAL INFLOWS 2 059.6 2 781.9 722.3 Project Loans 348 325.6 -22.4 Other Loans 1 711.6 2 456.4 744.8

GROSS OFFICIAL OUTFLOWS 1 237.9 4 015.4 2 777.6 Government Direct 525.7 656.6 130.9 Bank of Jamaica 491.4 239.9 -251.4 Other Official 220.8 3 118.9 2 898.1

NET O FFICIAL INVESTMENTS 821.8 -1 233.5 -2 055.21/ Revised2/ Provisional

OFFICIAL INVESTMENT FLOWS (US$MN)

Table 6

its borrowing arrangement under the PetroCaribe

Agreement during 2015. In addition, Jamaica

received loan inflows from the multilateral financial

institutions. Against this background, Net Official

Investments decreased by US$2 023.9 million to

an outflow of US$1 202.2 million (see Table 6).

In contrast to the performance of Net Official

Investments, there was a net inflow of US$534.2

million in Private Investments, mainly reflecting

outlays in the hotel sector as well as continued

work on the North South Highway and the Business

Process Outsourcing Industry.

The surplus on the Capital Account as well as Net

Private Investments were more than sufficient to

finance the deficit on the current account and the

Official Investment outflows. As a result, the NIR

of the Bank increased by US$435.9 million to US$2

437.0 million at end-2015.

international capital market in July 2015. The first Euro-bond, ata value of US$1.35 billion matures in 2028 with a coupon of 6.75 per cent. the second, which expires in 2045, has coupon of 7.875 per cent.

2.4. Foreign Exchange Market

For 2015 there was a slowing in the pace of

depreciation in the value of the Jamaica Dollar

vis a vis the US dollar to 5.0 per cent from 7.22

per cent in 2014. This outturn was consistent

with the narrowing of the inflation differential

with our major trading partners and continued

improvements in the country’s macroeconomic

environment, particularly, the external accounts.

Notwithstanding these positive developments, the

market was characterised by intermittent periods

of excess demand in 2015. In addition, on 02

January 2015, the proportion of foreign currency

purchased by the Bank from the market under

the PSE Facility was increased by 5.0 percentage

points to 25.0 per cent of commercial client inflows.

In this context, the BOJ increased its intervention

sales to the market in 2015, with the trading room

activity reflecting the net sale of US$609.8 million

in contrast to a net purchase of US$37.6 million

during the 2014.

With regard to the other major currencies the Jamaica

Dollar appreciated against the CAD and GBP by

15.06 per cent and 0.32 per cent, respectively,

following an appreciation of 2.1 per cent and a

depreciation of 1.0 per cent, respectively, in 2014.

The appreciation of the Jamaica Dollar relative

to the CAD and GBP in 2015 partly reflected a

weakening of those currencies relative to the USD

on the international market, amidst heightened

expectations of monetary tightening in the US.

For 2015, the lowest quarterly depreciation of the

domestic currency relative to its US counterpart of

0.33 per cent was recorded in the March quarter

relative to a depreciation of 2.9 per cent in the

corresponding quarter of 2014 (see Chart 2). The

relatively low depreciation in the March 2015 quarter

occurred in the context of relatively tight Jamaica

Dollar liquidity in the second half of the quarter.

Against this background, the Bank’s trading room

activity reflected a net sale of US$2.8 million for

the quarter relative to net purchase of US$88.5

- 13 -

Annual Report 2015


Chart 2: Quarterly Appreciation (-) /Depreciation (+) in the Jamaica Dollar relative to the USD dollar

Chart 3: Bank of Jamaica: Foreign Exchange Market Intervention (Spot Market) for 2015

Quarter Earners Inter-Dealer Total End-Users Inter-Dealer Total

March 29.3 8.1 37.4 32.4 8.1 40.5

June 29.2 6.2 35.4 29.6 6.2 35.8

September 27.5 6.8 34.3 27.7 6.7 34.4

December 29.0 8.7 37.7 29.5 8.6 38.1

Annual 28.8 7.5 36.3 29.8 7.4 37.2

Quarter Earners Inter-Dealer Total End-Users Inter-Dealer Total

March 27.8 6.2 34.0 27.2 6.3 33.2

June 27.7 7.2 34.9 26.1 7.2 33.3

September 27.9 8.4 36.3 27.6 8.4 36.0

December 29.7 8.5 38.2 28.3 8.6 36.9

Annual 28.9 7.6 35.9 27.3 7.6 34.9

All Currencies converted to USD

Daily Average Trading Volumes (US$ Million) - Excl. Intervention 2015

Purchases From: Sales to:

2014

Purchases From: Sales to:

Table 7

million for the corresponding period of 2014.

During the two ensuing quarters, the exchange rate

exhibited an increased pace of depreciation,

recording quarterly movements of 1.66 per cent

and 1.74 per cent for the June and September

quarters, respectively. This increased pace of

depreciation occurred in a context of higher net

demand for foreign currency to satisfy non-fuel

current account transactions, exacerbated by lower

receipts for non-traditional exports. As a result,

the Bank responded with more frequent rounds of

intervention sales to smooth foreign currency flows

in the market. Against this background, the Bank

net sold US$84.9 million during the June quarter

and US$297.8 million during the September

quarter (see Chart 3). Foreign currency supplies

were also augmented by hiigher inflows from

tourism and remittances. In particular for the June

2015 quarter, the daily average purchases from

earners increased by US$1.5 million relative to the

corresponding period of 2014 to US$29.2 million

(see Table 7).

The pace of depreciation in the exchange rate

moderated during the December quarter, as

reflected in the depreciation of 1.13 per cent.

Purchases from earners improved relative to the

preceding quarters, in a context where average

daily purchases from earners amounted to US$29.0

million. Daily sales to end-users also increased

in the quarter to US$29.5 million (see Table 7).

Demand pressures increased, particularly during

October and November, amidst uncertainty

surrounding the prospects for an early general

election. This prompted the Bank to intervene

to maintain stability with net sales of US$224.9

million for the quarter (see Chart 3).

Relative to 2014, total foreign currency sales

increased by 13.7 per cent whilst total foreign

currency purchases increased by 8.0 per cent

(see Table 8). Authorised dealers increased their

dominance as the main foreign exchange market

intermediaries during the review year, accounting


Bank of Jamaica

Table 8 Chart 4: Headline Inflation

Source: STATIN

% %

Quarter 2014 2015 2014 2015

March 2 185.7 2 460.4 12.6 2 140.0 2 654.6 24.0

June 2 286.4 2 353.2 2.9 2 185.6 2 379.1 8.9

September 2 375.5 2 538.1 6.8 2 361.2 2 540.8 7.6

December 2 409.8 2 650.6 10.0 2 328.2 2 675.7 14.9

Total 9 257.5 10 002.3 8.0 9 015.1 10 250.2 13.7

Total Purchases and Sales of Foreign Exchange (US$ Million) 2014 - 2015

Purchases Sales

All Currencies converted to USD Includes BOJ Intervention

-0.7

-0.2

0.3

0.8

1.3

1.8

-7.0

-2.0

3.0

8.0

13.0

18.0

Jan-

14Fe

b-14

Mar

-14

Apr

-14

May

-14

Jun-

14Ju

l-14

Aug

-14

Sep-

14O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb-

15M

ar-1

5A

pr-1

5M

ay-1

5Ju

n-15

Jul-1

5A

ug-1

5Se

p-15

Oct

-15

Nov

-15

Dec

-15

Mon

thly

per

cen

t

Ann

ual

per c

ent

Monthly (RHS)Annual AvgAnnual P-T-P

for the market share of 57.4 per cent of total foreign

exchange sales compared with 53.0 per cent for

2014. The market share for cambios declined to

42.6 per cent from 47.0 per cent in 2014.

2.5. Prices2.5.1. Overview

Headline inflation, as measured by the annual

point-to-point change in the All Jamaica Consumer

Price Index (CPI), was 3.7 per cent for 2015 relative

to 6.4 per cent for 2014 (see Chart 4). This outturn

was below the Bank’s projection and reflected the

lowest level for a calendar year since 1967. Inflation

for the year was primarily driven by increases in the

cost of food, largely related to drought conditions

during the year. Inflation impulses also emanated

from a rise in the cost of miscellaneous services

largely attributed to an increase in adult passport

fees as well as insurance premiums and funeral

expenses. Additionally, some price increases were

observed among meals consumed away from

home and accommodation services. The impact

of these impulses was, however, significantly

moderated by relatively weak demand conditions,

slower pace of exchange rate depreciation and

declines in the cost of electricity and transport

resulting from reductions in international crude oil

prices during the year.

All three measures of core inflation monitored by

the Bank were lower in 2015 relative to 2014. In

this regard, the rate of change in the CPI excluding

Food and Fuel (CPI-FF), CPI excluding Agriculture

and Fuel (CPI-AF) and the Trimmed Mean (TRIM)

were 3.7 per cent, 3.5 per cent and 3.0 per

cent, respectively, compared to outturns of 4.6

per cent, 6.0 per cent and 4.1 per cent in 2014.

The generally lower levels of core inflation largely

reflected the impact of relatively weak demand

conditions as well as a slower pace of exchange

rate depreciation.

For 2015, all regions recorded a deceleration in

headline inflation similar to the outturn observed

for 2014. Specifically, the Greater Kingston

Metropolitan Area (GKMA), Other Urban Centres

(OUC) and Rural Areas (RA) recorded inflation

of 5.0 per cent, 3.6 per cent and 2.6 per cent,

respectively, compared to 8.6 per cent, 5.7 per

cent and 4.9 per cent for 2014. The relatively lower

inflation across the regions in 2015 was primarily

reflected in Housing, Water, Electricity, Gas &

Other Fuels (HWEG) and Transport (TRAN) (see

Chart 5 and Appendix A).

2.5.2. Component and Contributing Factors to

Inflation

The main contributor to inflation in 2015 was Food

& Non-Alcoholic Beverages (FNB) which increased

by 8.7 per cent relative to an increase of 10.1 per

cent in 2014. The rise in FNB largely reflected

the impact of drought conditions on domestic

agriculture commodities as well as increases in the

cost of processed foods. Noticeable increases

were also observed within Miscellaneous Goods &

Services (MIS) and Restaurants & Accommodation

- 15 -

Annual Report 2015


Blue bars = positive and Red bars = negative

Chart 5: Annual Inflation & Y-O-Y Change by Region

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

13.2

4.2

2.4

6.32.8

1.3

10.10.0

2.4

3.0

4.7

6.5

FNB

ATB

CF

HWEG

FHERM

HLTH

TRAN

COM

R&C

ED

R&A

MIS

0.1

1.1

2.3

4.6

6.7

2.1

23.1

0.0

2.7

1.1

0.6

0.3

% Inflation (2015) GKMA Change (Y-O-Y % ppt)

8.1

4.8

5.2

8.13.2

2.3

1.1

0.0

2.4

7.6

4.5

6.6

FNB

ATB

CF

HWEG

FHERM

HLTH

TRAN

COM

R&C

ED

R&A

MIS

1.8

2.2

0.8

6.3

6.1

1.5

1.7

0.0

3.1

3.7

0.2

0.6

% Inflation (2015) OUC Change (y-O-Y % ppt)

5.4

6.35.410.6

3.32.30.70.02.9

7.74.75.8

FNBATBCF

HWEGFHERMHLTHTRANCOMR&CED

R&AMIS

2.30.90.68.13.8

1.11.20.02.13.90.01.9

% Inflation (2015) RA Change (Y-O-Y % ppt)

(R&A), contributing approximately 26.0 per cent

of inflation for the year. The expansion in MIS

was primarily due to an increase of 44.4 per cent

in adult passport fees as well as higher funeral

expenses and insurance premiums. Of note, there

was lower rate of inflation across most divisions for

2015 (see Chart 6).

The impact of the price increases in the year was

partly offset by declines in the average prices of

HWEG and TRAN. In particular, TRAN reflected a

decline of 4.0 per cent relative to an increase of

4.6 per cent in 2014(see Chart 7 and Appendix

A). The fall in prices occurred in the context of

a reduction in adult bus fares for Jamaica Urban

Transit Company (JUTC) passengers relative to a

fare increase in the previous year. Lower costs for

transportation was also attributed to declines in

petrol prices during the year. HWEG declined by

8.3 per cent relative to a decline of 2.0 per cent in

2014 primarily reflecting the impact of lower cost

for electricity.

For 2015, FNB accounted for approximately 104.1

per cent of the annual inflation relative to 63.0 per

cent in 2014 (see Chart 7) In contrast, HWEG and

TRAN offset approximately 34.0 per cent and 16.6

per cent of the annual inflation, respectively.

2.5.3. Domestic Agricultre Supply

Domestic agriculture supplies declined in 2015,

attributable to the impact of a drought which was

more prolonged than in 2014. The impact of this

drought on prices was mainly observed during

the second half of the year (see Production).

Consequently, prices within vegetables & starchy

foods increased by 27.0 per cent contributing 59.1

per cent to overall inflation for 2015, compared to

inflation of 16.7 per cent in 2014 (see Chart 8 and

Appendix A).

2.5.4. Imported Inflation

Reductions in international commodity prices and

a decelerated pace of exchange rate depreciation

in the domestic currency significantly constrained

imported inflation in 2015. Specifically, the average

price of crude oil as measured by the West Texas

Intermediate (WTI) declined markedly by 47.5 per

cent in 2015 relative to a decline of 5.1 per cent for

2014. The movement in crude oil prices in 2015

primarily emanated from the impact of significantly

increased global supplies of the commodity

amidst weak global demand (see International


Bank of Jamaica

Chart 7: Inflation contribution by Division

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 Source: STATIN, BOJ

Chart 8: Average Supplies of Agriculture Produce

Chart 6: Inflation rate 2015 and Y-O-Y Percentage Point Change

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

Economic Developments). The fall in crude oil

prices contributed to lower prices for electricity,

water and household fuels within HWEG as well as

automotive fuels within TRAN, respectively. For

2015, the Bank’s grains price index declined by

20.7 per cent relative to a fall of 6.5 per cent in

2014 (see Chart 9). This faster pace of decline

resulted in lower levels of inflation among domestic

processed food items and facilitated the lower

level of inflation in FNB for 2015.

The weighted average selling rate (WASR) of the

Jamaica Dollar vis-á-vis the US dollar depreciated

by 5.0 per cent for 2015 compared to 7.8 per cent

for 2014. The reduction in the pace of depreciation

was largely manifested in lower levels of inflation

among most divisions within the CPI basket with

the exception of R&A.

2.5.5. Administered and Other Price Adjustments

There were some notable wage and administrative

price developments during the review year.

Specifically, in February 2015, the Incorporated

Master Builders Association of Jamaica granted an

increase of 8.0 per cent in the wages of artisans.

In addition, the Government of Jamaica finalized

negotiations with approximately 92.0 per cent

of public sector employees for wage increases

of 4.0 per cent for FY2015/16. In March 2015,

the Government of Jamaica also announced an

increase in the Special Consumption Tax (SCT)

- 17 -

Annual Report 2015


Chart 9 Trends in WTI Crude Oil Price and BOJ Grains Index

Chart 10 Domestic Demand Indicators (Import Value & PAYE)

Sources: MOF, JETS, STATIN, BOJ

Sources: Bloomberg & BOJ

15

20

25

30

35

40

45

50

55

Jun-

10S

ep-1

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ep-1

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ar-1

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n-13

Sep

-13

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-13

Mar

-14

Jun-

14S

ep-1

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ec-1

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ar-1

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n-15

Sep

-15

Dec

-15

J$million Real PayePolynomial Trend

0123456789

Jun-

10S

ep-1

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n-11

Sep

-11

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ep-1

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-14

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ep-1

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n-15

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US$million

Real ImportsPolynomial Trend

80

130

180

230

280

330

Jun-

10S

ep-1

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ep-1

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14S

ep-1

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n-15

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J$million

Real Debit & Credit Card Transaction value

Polynomial Trend

450500550600650700750800850900

Jun-

10S

ep-1

0D

ec-1

0M

ar-1

1Ju

n-11

Sep

-11

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-11

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-12

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ep-1

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ar-1

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n-13

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J$million Real Non-business LoansPolynomial Trend

on petrol prices of $7.00 per litre as well as an

increase of $1.50 on a stick of cigarette. During the

year, there was also an increase of 44.4 per cent

in adult passport fees. With respect to transport

costs, there was a reduction of 16.7 per cent in bus

fares for adult passengers who utilize the services

of the JUTC for the GKMA region. This reduction

was a reversal of the 20.0 per cent increase in

bus fares for that region in the previous year.

During the March 2015 quarter, some inflationary

pressures also emanated from seasonal increases

in premiums for health insurance.

2.5.6. Demand and Supply Conditions

The Bank’s short-term indicators of domestic

demand reflected increases for the year. These

indicators include PAYE receipts and the values of

debit & credit card transactions, imports and non-

business loans. It is estimated that in real terms,

PAYE receipts, total imports, debit & credit card

transactions and non-business loans increased by

12.0 per cent, 7.5 per cent, 21.7 per cent and 6.2

per cent, respectively. This performance is relative

to movements in 2014 of 2.6 per cent, 23.4 per

cent, 10.2 per cent and -0.8 per cent, respectively.

During 2015, there was a continued narrowing of the

output gap relative to the previous year (see Chart

11). Excess capacity among industrial suppliers

combined with weak though improving domestic

demand and continued fiscal consolidation,

assisted in restraining upward price adjustments

during the year.


Bank of Jamaica

Chart 11: Trends in Domestic Output Gap

Chart 12: Headline Inflation versus Expectations

Source: STATIN

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

13.0

Annu

al In

flatio

n (%

)

Mar-13

Apr-13

May-13

Jun-13

Aug-13

Sep-13

Oct-13

Dec-13

Feb-14

Apr-14

May-14

Jun-14

Aug-14

Sep-14

Oct-14

Dec-14

Feb-15

Apr-15

May-15

Jul-15

Aug-15

Sep-15

Oct-15

Dec-15

Actual(Headline) 9.1 9.1 9.2 8.8 9.5 10. 10. 9.5 8.7 7.6 8.0 8.0 9.8 9.0 8.2 6.4 4.5 4.4 4.0 3.8 3.5 1.8 2.0 3.7

Exp(all) 9.7 11. 11. 11. 10. 10. 10. 12. 11. 10. 10. 9.8 9.9 10. 10. 10. 7.7 5.1 5.2 4.0 5.3 4.6 4.1 4.4

Actual (Headline)Exp(all)

Mar Jun Sep Dec2014 -1.0% -0.6% -3.0% -2.4%2015 -1.1% -0.6% -2.1% -1.1%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%2014 2015

2.5.7. Inflation Expectations

The Bank’s survey of inflation expectations at end

2015 indicated a 12-month ahead annual inflation

of 4.4 per cent among businesses. This compares

to the 12-month ahead inflation expectations of

10.0 per cent at end-2014 (see Chart 12). Of

note the actual outturn of 3.7 per cent for 2015

was lower than the 12-month ahead expectation

in 2014. The fall in expectations during the year

may be attributed to lower crude oil prices as well

as the reduced rate of depreciation in the domestic

exchange rate.

2.6. Money and Credit

2.6.1. Money Supply

Growth in broad Jamaica Dollar money supply

(M2J) accelerated to 14.8 per cent in 2015

relative to 3.3 per cent in 2014 (see Table 9).7

The performance in 2015 was also higher than

the average growth of 5.0 per cent recorded over

the last five years. The expansion in M2J during

the review year reflected growth of 15.3 per cent

and 14.6 per cent in currency in circulation and

local currency deposits, respectively. Of note,

the expansion in local currency deposits was

well above the increase of 1.9 per cent for 2014.

During 2015, expansion in local currency deposits

reflected strong growth in demand and savings

deposits relative to the outturn in 2014 as well as

a return to growth in time deposits compared to

the previous year. The acceleration in the annual

growth of broad money occurred in the context

of a pickup in domestic demand and a notable

acceleration in credit growth relative to 2014. The

developments with regards to broad money growth

does pose some upside risk to inflation for 2016.

During the review year, the monetary base

expanded by 12.2 per cent compared to 5.1 per

cent in 2014. Given the outturns for the monetary

base and broad money supply, the money

multiplier increased to 2.60 for 2015 relative to

2.54 recorded in 2014. This increase in the money

multiplier resulted from a decline in the reserve

to deposit ratio, as the currency to deposit ratio

was largely flat in the review year. The reserve

to deposit ratio declined in a context where the

growth in local currency deposits outpaced the

expansion in the reserves of the commercial

banks.

In 2015, growth in the measure of money supply

that includes foreign currency deposits, M2*,

accelerated to 16.0 per cent from 6.7 per cent

7 M2J is the measure of broad money which comprises currency in

circulation and local currency deposits which consist of demand, savings

and time deposits denominated in Jamaica Dollars.

- 19 -

Annual Report 2015


Table 9

Chart 13: Foreign Currency Deposits to Total Deposits 2005 to 2015

30

35

40

45

50

20052006200720082009201020112012201320142015

Per

Cen

t (%

)

2014 2015 2014 2015

Total Money Supply (M2*) 27 912.5 71 247.9 6.7 16.0

Money Supply (M2J) 8 928.0 40 881.5 3.3 14.8

Money Supply (M1J) 9 782.6 27 601.4 8.0 20.8

Currency with the public 4 942.1 9 743.1 8.4 15.3 Demand Deposits 4 840.5 17 858.3 7.5 25.9

Quasi Money - 854.6 13 280.1 - 0.6 9.2

Savings Deposits 203.5 11 955.0 0.2 10.7 Time Deposits -1 058.1 1 325.1 - 3.2 4.1

Foreign Currency Deposits 18 984.5 30 366.4 12.6 17.9

Sources of Change in Money Supply 2014 2015 2014 2015

TOTAL 27 912.5 71 247.9 6.7 16.0

Net Foreign Assets 125 297.1 57 894.4 80.5 20.6

Bank of Jamaica 117 980.4 64 006.0 105.8 27.9Commercial Banks 7 316.7 -6 111.6 16.5 - 11.9

Credit to Private Sector 15 518.8 32 697.8 4.8 9.6Local Currency 16 956.6 26 513.3 7.0 10.3Foreign Currency -3 666.1 6 184.6 - 4.3 7.5

Net Claims on Public Sector -58 641.5 -25 483.8 - 21.2 - 11.7

Net Claims on Financial Institutions -7 289.1 -9 876.3 21.0 23.6

BOJ Open Market Operations/1 24 467.4 -13 978.2 - 49.0 54.9

Other Items (Net) -71 440.1 29 993.8 28.1 - 9.2

COMPONENTS OF CHANGE IN MONEY SUPPLY

Flows (J$MN) % Change

Flows (J$MN) % Change

/1 A negative flow represents an increase in the stock.

in2014. The growth in the review year compares to

expansion of 6.1 per cent over the last five years.

The Jamaica Dollar value of foreign currency

deposits grew by 17.9 per cent in 2015 relative to

12.6 per cent in the previous year, which reflected

an increase of 9.1 per cent in the US dollar stock

and a depreciation of 5.0 per cent in the value of

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

outturn compared to growth of 4.0 per cent in the

US dollar stock and depreciation of 7.8 per cent

in the value of the Jamaica Dollar vis-à-vis the US

dollar in 2014. The growth in the US dollar stock

of foreign currency deposits was reflected in robust

growth in demand, savings and time deposits. In

the context of the strong growth in foreign currency

deposits during the review year, the ratio of foreign

currency deposits to total deposits increased to

45.0 percent at end-2015 from 44.3 percent at

end-2014(see Chart 13).

The main source of the expansion in M2* for 2015

was an increase of $57.9 billion (20.6 per cent)

in the banking system’s net foreign assets (NFA),

and to a lesser extent, an increase of $13.3 billion

(8.1 per cent) in the net domestic assets (NDA).

The expansion in the NFA largely reflected an

increase in the NIR during the year. In addition,

there was an increase of 9.6 per cent in private

sector credit during the year. The impact of these

impulses was partly offset by net placements of

approximately $14.0 billion on the stock of OMO

instruments during the year (see Monetary Policy

and Interest Rates).

2.6.2. Private Sector Credit

For 2015, the stock of commercial bank credit

to the private sector grew by 9.6 per cent and

was largely denominated in Jamaica Dollars (see

Table 10). The outturn represented a marked

acceleration relative to the increase of 4.8 per

cent for 2014 but was generally in line with the

average growth of 9.5 per cent for the previous

five years.

2.6.3. Loans and Advances

Total loans and advances to the private sector

expanded by 9.9 per cent ($34.5 billion) relative to

5.5 per cent ($18.1 billion) in 2014. The expansion

for 2015 reflected an increase in the supply of credit

to both businesses and individuals (see Table 11).

For 2015, the stock of loans to businesses was

more than two times the growth rate of 4.5 per

cent for 2014. The acceleration in business loans


Bank of Jamaica

Table 10

2014 2015 2014 2015 2014 2015

Loans and Advances 349 065.0 383 554.5 18 074.5 34 489.5 5.5 9.9 Business Lending 170 941.0 187 788.7 7 321.5 16 847.7 4.5 9.9

Agriculture & Fishing 8 861.2 9 044.3 1 127.4 183.2 14.6 2.1

Mining & Quarrying 729.0 786.9 -18.6 57.9 -2.5 7.9

Manufacturing 12 679.0 15 823.1 70.1 3 144.1 0.6 24.8 Construction & Land Dev. 24 371.1 26 157.0 1 153.2 1 785.9 5.0 7.3 Transport, Storage & Comm. 12 536.8 11 010.5 -801.5 -1 526.3 -6.0 -12.2 Tourism 29 718.2 33 795.0 2 183.1 4 076.7 7.9 13.7 Distribution 49 101.1 50 815.7 5 134.3 1 714.6 11.7 3.5 Electricity, Gas & Water 8 645.9 11 347.2 -3 369.5 2 701.3 -28.0 31.2 Entertainment 2 130.8 1 609.1 85.1 -521.6 4.2 -24.5 Professional & Other Services 22 167.9 27 399.8 1 757.9 5 231.8 8.6 23.6

Personal & Other Lending 178 123.9 195 765.8 10 752.9 17 641.9 6.4 9.9 Personal 164 882.8 181 535.3 8 570.1 16 652.5 5.5 10.1 Overseas Residents 13 241.1 14 230.5 2 182.8 989.4 19.7 7.5

Commercial Banks'Distribution of Total Loans & Advances to the Private Sector (J$MN)

For Year Ended 31 DecemberFlows %Stock

Table 11

2014 2015 Private Sector Credit 15 518.8 32 697.8

% Change 4.8 9.6of whichLoans and Advances 18 074.5 34 489.5Less Loans to Overseas Residents 2 182.8 989.4Add Corporate Securities ( 372.9) ( 802.3)

Total Credit to the Private Sectorfor Year Ended 31 December

(Flow J$MN)

was reflected across most sectors, particularly,

Professional & Other Services (23.6 per cent),

Tourism (13.7 per cent) and Manufacturing (24.8

per cent).8 Notably, credit extended to Professional

& Other Services was the greatest in the September

quarter and was predominately reflected in

foreign currency denominated loans, which may

have been attributed to investment initiatives

in the Business Process Outsourcing sector.

Tempering those expansions were net repayments

in Entertainment (24.5 per cent) and Transport,

Storage & Communication (12.2 per cent). The

net repayment of credit to the Entertainment and

Transport, Storage & Communication was mainly

8 In addition, the expansion in credit to the Tourism sector was mainly

observed in the September and December quarters and was predominately

reflected in foreign currency denominated loans

observed in the March quarter and was largely

reflected in foreign currency denominated loans.

Regarding Personal & Other Lending, the pace of

growth also accelerated, reaching 9.9 per cent

in 2015 relative to 6.4 per cent in 2014. This

acceleration was largely reflected in personal

loans to domestic residents as loans to overseas

residents moderated. Within personal lending,

instalment and mortgage credit grew by 12.8 per

cent ($7.3 billion) and 18.49 per cent ($3.3 billion),

respectively, relative to 10.3 per cent and 12.6 per

cent, respectively, in 2014.

Foreign currency to loans to the private sector

rebounded for 2015 following a significant

reduction for 2014. More specifically, loans to the

private sector expanded by 4.7 per cent relative

to a contraction of 11.2 per cent for 2014 (see

Table 12). This expansion was predominately

concentrated in the Professional & Other Services,

Tourism and Manufacturing sectors and occurred in

the context of a slower pace of annual depreciation

in the Jamaica Dollar vis-à-vis the US dollar. The

slower pace of depreciation may have facilitated

the net repayments observed in Distribution,

Construction & Land Development and Transport,

Storage & Communication.

2.6.4. Non-performing Loans

At end-2015, there was a marked improvement

in the quality of the commercial banks’ loan

portfolio relative to end-2014 (See Chart 14).

This improvement is consistent with the fall in the

ratio of non-performing loans to total loans to 4.1

per cent at end-2015 from 5.0 per cent at end-

2014. Similarly, non-performing loans as a ratio

of total private sector loans declined to 4.2 per

cent at end-2015 from 5.4 per cent at end-2014. 9 These improvements in the commercial banks’

business loans portfolio reflected increases in loan

write-offs and net repayment of past due loans

by some sectors. Notably, net loan write-offs

amounted to $3.7 billion in 2015 and represented

1.0 per cent of average outstanding private sector

9 Non-performing loans refers to loans overdue for 3 months and over.

- 21 -

Annual Report 2015


Table 12

Chart 14: Loan Quality - Ratio of Non-performing Loans to Total & Private Sector Loans

2010 2011 2012 2013 2014 2015

Overall 20.43 18.03 18.44 17.49 17.18 16.92

Public Sector 10.79 9.98 9.94 10.09 9.83 9.71 Local Govt. & Other Public Entities 10.16 10.61 10.69 10.99 10.16 11.35 Central Government 11.07 9.77 9.72 9.96 9.76 8.85

Private Sector 20.92 18.31 18.64 17.62 17.32 17.08 Instalment 20.96 19.20 17.96 16.81 16.11 15.21 Mortgage 16.93 12.36 9.90 9.88 9.73 9.61 Personal 25.90 21.66 25.21 24.77 25.56 26.23 Commercial 16.29 14.63 12.87 12.76 12.93 12.90

COMMERCIAL BANKS LOCAL CURRENCY WEIGHTED AVERAGE INTEREST RATES

(End of Period) (per cent )

Table 13

3.04.05.06.07.08.09.0

10.011.0

Per

Cen

t

NPL to Private SectorLoansNPL to Total Loans

2014 2015 2014 2015 2014 2015

Private Sector 798 659.0 836 174.0 -101 077.0 37 515.0 -11.2 4.7

Business Lending 648 209.0 670 936.0 -82 717.0 22 727.0 -11.3 3.5

Agriculture & Fishing 16 493.0 15 360.0 -1 913.0 -1 133.0 -10.4 -6.9

Mining & Quarrying 112.0 446.0 10.0 334.0 9.8 298.2

Manufacturing 28 800.0 35 031.0 -8 497.0 6 231.0 -22.8 21.6

Construction & Land Dev. 120 438.0 103 676.0 -15 469.0 -16 762.0 -11.4 -13.9

Transport, Storage & Comm. 65 290.0 53 515.0 -6 977.0 -11 775.0 -9.7 -18.0

Tourism 242 518.0 266 424.0 2 633.0 23 906.0 1.1 9.9

Distribution 101 942.0 83 318.0 -6 809.0 -18 624.0 -6.3 -18.3

Electricity, Gas & Water 36 277.0 52 982.0 -32 822.0 16 705.0 -47.5 46.0

Entertainment 4 319.0 5 268.0 23.0 949.0 0.5 22.0

Professional & Other Services 32 020.0 54 916.0 -12 896.0 22 896.0 -28.7 71.5

Personal & Other Lending 150 450.0 165 238.0 -18 360.0 14 788.0 -10.9 9.8

Personal 70 834.0 65 429.0 -8 042.0 -5 405.0 -10.2 -7.6

Overseas Residents 79 616.0 99 809.0 -10 318.0 20 193.0 -11.5 25.4

Stocks Flows %

Commercial Banks'Distribution of Foreign Currency Loans & Advances to the Private Se ctor

(US$MN)For Year Ended 31 December

loans in comparison to 2014 when net loan write-

offs were $1.8 billion, which was 0.5 per cent of

average outstanding private sector loans.

2.6.5. Interest Rates

In 2015, the weighted average interest rate on

commercial banks’ local currency denominated

loans to the private sector fell to the lowest level

since 2010. Consequently, there was a significant

narrowing in the overall spread between local

currency loans and deposit rates since 2010 (see

Table 14). In contrast, there was an increase in the

weighted average interest rate on foreign currency

denominated loans, which influenced a widening

in the spread between foreign currency loans and

deposits (see Table 15).

2.6.5.1. Interest Rates- Domestic Currency

The overall weighted average lending rate on

local currency denominated loans declined by

26 basis points (bps) to 16.92 per cent at end-

2014, following a decline of 31 bps in 2014 (see

Table 13). The movement in the rate during 2015

reflected declines of 24 bps and 12 bps in the

weighted average lending rates to the private sector

and public sector, respectively. With respect to

the change in the overall private sector loan rate,

there were declines in all loan categories with the

exception of personal loans, which continue to

reflect downward stickiness. In particular, there

was a reduction of 90 bps in the weighted average

interest rate on instalment credit, which followed a

decline of 70 bps for 2014. The notable increase

of 67 basis points in the weighted average lending

rates on personal loans compares to a 79 bps

increase in rates on personal loans in the previous

year.

For the review year, the overall interest rate spread

on local currency denominated loans rose by 76

bps to 15.30 percentage points (pps), following

a reduction of 90 bps in the preceding year (see

Table 14). The increase in the overall interest rate

spread in 2015 occurred in the context of a decline

of 102 bps in the weighted average deposit rate

as well as the fall of 26 bps in the overall weighted

average loan rate. The higher interest rate spread

was influenced by increases in the spread on public


Bank of Jamaica

2010 2011 2012 2013 2014 2015

Weighted Average Local Currency Deposit Rate(% ) 2.95 2.44 2.10 2.04 2.64 1.62

Overall Spread 17.48 15.59 16.34 15.45 14.54 15.30

Spread by SectorPublic Sector 7.84 7.54 7.84 8.05 7.19 8.09 Local Govt. & Other Public Entities 7.21 8.17 8.59 8.95 7.52 9.72 Central Government 8.12 7.33 7.62 7.92 7.12 7.23


(End of Period)(percentage points)

COMMERCIAL BANKS LOCAL CURRENCY INTEREST RATE SPREADS

Table 14 Table 15

Table 16

2010 2011 2012 2013 2014 2015Overall 8.61 7.93 7.55 7.39 7.27 7.35

Public Sector 6.21 7.34 6.84 6.50 6.29 6.48 Local Govt. & Other Public Entities 8.26 7.57 6.82 6.41 6.29 6.48 Central Government 6.80 6.88 6.88 7.02 n/a n/a


COMMERCIAL BANKS FOREIGN CURRENCY WEIGHTED AVERAGE INTEREST RATES

(DOM ESTIC LOANS)(End of Period) (Per Cent )

2010 2011 2012 2013 2014 2015Weighted Average Foreign Currency Deposit Rate (% )

1.41 2.71 1.28 1.06 0.95 0.80

Overall Spread 7.20 5.22 6.27 6.33 6.32 6.55

Spread by SectorPublic Sector 4.80 4.63 5.56 5.44 5.34 5.68 Local Govt. & Other Public Entities 6.85 4.86 5.54 5.35 5.34 5.68 Central Government 5.39 4.17 5.60 5.95 n/a n/a

Private Sector 7.67 5.75 6.45 6.55 6.58 6.74 Instalment 7.70 7.25 6.56 7.53 7.58 7.76 Mortgage n/a n/a 8.16 5.87 5.77 5.90 Personal 11.52 11.05 14.12 14.56 15.94 16.39 Commercial 7.35 5.33 5.87 5.95 5.90 6.16

(End of Period) (percentage points)

COMMERCIAL BANKS FOREIGN CURRENCY INTEREST RATE SPREADS

and private sector loans.

2.6.5.2. Interest Rates- Foreign Currency

The weighted average interest rate on foreign

currency denominated loans increased by 8 bps to

7.35 per cent at end-2015 (see Table 15). This

increase was reflected in the weighted average

interest rates public and private sector loans, which

rose by 19 bps and 1 bp, respectively. Notably,

with the exception of mortgage loans, the change

in the weighted average interest rate on private

sector loans was reflected in higher rates across

all loan categories, with rates on personal loans

recording the sharpest increase.

The overall interest rate spread on foreign currency

denominated loans widened to 6.55 pps at end-

2015 (see Table 16). This outturn was influenced

by an increase in the spread on public and private

sector loans despite the fall in weighted average

deposit rates. Notably, the increase in the spread

on private and public sector loans was reflected

across all loans categories (see Table 16).

2.7. Production

2.7.6. Overview

The domestic economy recorded growth of 0.8 per

cent in 2015, following an increase of 0.5 per cent

in 2014 (see Chart 15). The expansion in 2015

was largely driven by an improvement in external

demand and to a lesser extent domestic demand.

In particular, the international conditions facilitated

greater tourism expenditure and remittance

inflows relative to 2014. Further, domestic

demand conditions were buoyed by lower levels

of unemployment, low inflation and were reflected

in higher consumer confidence. Similarly, business

confidence continued to be positively impacted

by the implementation of structural reforms and

achievement of quantitative targets under the four-

year EFF programme.

- 23 -

Annual Report 2015


Chart 15: Real GDP Growth Rates: 2002 - 2015

Source: STATIN & Bank of Jamaica

Table 17

Growth in 2015 was underpinned by increases of

0.9 per cent and 0.8 per cent in the tradable and

non-tradable industries, respectively. This outturn

reflected a return to growth in the non-tradable

industries as well as a slowdown in the performance

of tradable industries relative to 2014. With the

exception of Producers of Government Services

and Agriculture, Forestry & Fishing, growth was

recorded in all industries (see Table 17).

2.7.7. Performance by Industry

Manufacture recorded an expansion of 3.1 per

cent in 2015, in contrast to a decline of 0.8 per

cent in 2014. The value-added for the industry

reflected expansions of 1.5 per cent and 5.1 per

cent in Food, Beverages & Tobacco and Other

Manufacturing, respectively. Growth in Food,

Beverages & Tobacco was primarily attributed to

expansions in Meat & Meat Products, Animal Feeds,

Grain Mill Products and Manufacture of Beverages

(see Table 18). In contrast, there was a contraction

in sugar production attributed to a reduction in the

quantity of sugar cane supplied to the factories

and a decline in the sucrose content of sugar

cane milled. Additionally, there were mechanical

problems which occurred at some factories. Other

Manufacturing largely reflected recovery in Refined

Petroleum in contrast to 2014 when there were

longer and more frequent disruptions in production.

Of note, the normalization of operations resulted in

growth of 24.7 per cent in production relative to a

contraction of 18.0 per cent in 2014.

Hotels & Restaurants increased by 2.0 per cent

compared to growth of 3.0 per cent in 2014,

mainly reflected in Hotels. The expansion in

Hotels was inferred from increases of 2.3 per cent

and 4.8 per cent in stop-over visitor arrivals and

expenditure, respectively, relative to the previous

year. The growth in visitor arrivals continued to

reflect additional flights as well as increased load

factors for existing flights to the Island. Visitor

expenditure was bolstered by improved labour

market conditions in major source markets as well

as increases in the length of stay and estimates of

expenditure per day by visitors. For Restaurants,

growth is assessed to have expanded mirroring the

improvement in domestic demand.

Electricity & Water Supply expanded by 1.4 per cent

in 2015, reflecting growth in all quarters, except for

the March 2015 quarter. The industry’s performance

reflected higher electricity consumption as water

production declined for the year. The growth in

electricity consumption was influenced by an

increase in demand attributed to lower energy

Industries Growth Contribution Growth Contribution

1. GOODS 0.2 7.5 1.3 41.0Agriculture, Forestry & Fishing -0.4 -5.6 -0.1 -0.6Mining & Quarrying 0.9 3.9 0.6 1.7Manufacture -0.8 -13.5 3.1 31.9Construction 1.7 22.6 0.9 8.0

2. SERVICES 0.6 86.5 0.6 59.5Electricity & Water Supply -1.2 -6.9 1.4 5.3

0.3 11.3 0.4 9.3Hotels & Restaurants 3.0 31.4 2.0 14.1

0.8 16.4 1.1 15.0Financing & Insurance Services 0.5 11.1 0.3 4.8

0.4 8.8 0.5 6.2Producers of Government Services -0.1 -3.7 -0.1 -2.1Other Services 1.4 18.3 0.8 6.9

-0.8 -6.0 0.1 0.5

TOTAL VALUE ADDED 0.5 100.0 0.8 100.0Source: STATIN and Bank of Jamaica.

Note: Growth for 2015 reflects BOJ’s estimates as at February 2016.

Real Estates, Renting & Business

3. FINANCIAL INTERMEDIATION SERVICES INDIRECTLY

INDUSTRIAL CONTRIBUTION TO GDP GROWTH (%)2014 2015

Wholesale & Retail Trade, Repairs &

Transport, Storage & Communication


Bank of Jamaica

Table 18

Source: PIOJ and Bank of Jamaica

prices. Water production was negatively affected

by drought conditions during the year.

Transport, Storage & Communication grew by 1.1

per cent in 2015, relative to an expansion of 0.8 per

cent in 2014, reflecting the performance of both

Transport and Communication. The performance

of Transport was underpinned by increases in land

and air travel while water transport was estimated

to have declined. In particular, the expansion in

land transport emanated from increases in the

number of buses dispatched by the Jamaica

Urban Transit Company (JUTC) as well as greater

demand associated with price reductions during the

year. In addition, land transportation was positively

impacted by higher cruise and stop-over visitor

arrivals. The addition of flights by some airlines as

well as the increase and extension of services by

others stimulated growth in air transportation. The

decline in water transport was primarily attributed

to a decrease of 0.8 per cent in the volume of

cargo processed at Jamaican ports, the impact of

which more than offset the growth of 5.0 per cent

in the number of ship calls. For Communication,

increased mobile data subscriptions and product

offerings by the major market players facilitated

the growth in the industry.

Construction & Installation expanded by 0.9 per

cent in 2015, relative to 1.7 per cent in 2014. The

industry’s value-added expanded consistently

throughout the year reflecting an increase in non-

residential projects as there as a reduction in

residential building construction. Growth in non-

residential construction was largely inferred from

the continuation of the Moneague to Ocho Rios and

the Caymanas to Linstead legs of Highway 2000.

In addition, infrastructural work associated with

the construction and renovation of several hotel

projects as well as the implementation of projects

under the Major Infrastructural Development

Programme contributed to this expansion. The

growth in construction activity was consistent

with the increased levels of imported construction

materials. For residential projects, the contraction

was estimated from a decline of 48.0 per cent

in housing starts from National Housing Trust in

contrast to growth of 2.4 per cent in 2014.

Mining & Quarrying recorded growth of 0.8 per cent

in 2015, following an expansion of 0.9 per cent in

the previous year. The performance of the industry

reflected an increase of 0.9 per cent in total

bauxite production compared to an expansion of

2.4 per cent in 2014. Consequently, growth in total

bauxite production stemmed from an increase of

6.3 per cent and 0.7 per cent in crude bauxite and

alumina production, respectively. The increase in

crude bauxite production reflected an expansion

in the capacity utilisation rate to 93.8 per cent at

one plant from 92.0 per cent for the previous year

as well as the recommissioning of bauxite mining

operations at another plant. Similarly, an increase

in capacity utilization underpinned an expansion of

0.7 per cent in alumina production, a turnaround

relative to a contraction of 0.2 per cent in the

preceding year. Of note, the overall performance

was affected by fewer shutdowns for maintenance

during the year relative to the previous year.

Financing & Insurance Services recorded a fourth

consecutive year of growth with an expansion of

0.3 per cent in 2015, slightly below the outturn

2014 2015 % ChangeItemPoultry Meat 110 112 1.8Sugar 149 137 -8.1Molasses 69 68 -1.4Edible Oil 21 21 0.0Non-Metallic Minerals 830 802 -3.4Animal Feeds 397 415 4.5

Non-Alcoholic Beverages 177 192 8.5Petroleum Products 1 051 1 310 24.6Alcoholic Beverages 67 68 1.5Source: PIOJ and Bank of Jamaica

SELECTED MANUFACTURING ITEMS

Production (tonnes)

Production ('000

- 25 -

Annual Report 2015


Chart 16: Hectares Reaped 2002 – 2015

Crop Group % Change2014 2015

Yams 135.3 136.7 1.1Vegetables 206.1 201.9 -2.1Other tubers 40.9 41.2 0.7Fruits 44.4 43.5 -2.2Condiments 45.4 42.8 -5.8Plantains 39.3 38.4 -2.4Potatoes 59 58.7 -0.4Legumes 4.9 4.7 -4.1Cereals 2.5 2.4 -5.9Total 579.1 571.4 -1.3

SELECTED DOMESTIC CROP PRODUCTIONProduction (‘000 tonnes)

Table 19

Source: Ministry of Agriculture

Source: Ministry of Agriculture

in 2014. The performance of the industry was

influenced by insurance & pension funding and

monetary institutions. In particular, the growth

in monetary institutions was largely attributed to

increased income arising from the higher stock of

loans and advances (see Money and Credit).

The adverse impact of persistent drought conditions

on Agriculture, Forestry & Fishing resulted in a

contraction of 0.1 per cent in 2015. This outturn

reflected the impact of drought conditions which

had a greater effect on short term crops relative

to long term crops. The severe weather conditions

resulted in a shortage of water which along with

massive bush fires, led to a fall in hectares under

cultivation relative to the previous year (see Chart

16).10

The industry’s performance reflected a decline

in domestic crop while traditional export crops

production increased (see Table 19). For

domestic production, with the exception of tubers,

contractions were recorded for all other crops.

The expansion in traditional export agriculture

predominantly reflected higher production of

bananas & plantains and coffee which outweigh

the lower output for citrus, cocoa and sugar (see

Table 20).

Labour Market Developments Labour market conditions improved marginally in

2015 with the unemployment rate decreasing to

13.5 per cent from 13.7 per cent in 2014 (see

Table 21). The decline in unemployment rate was

reflective of 1.0 per cent growth in employment

which outweighed the expansion of 0.7 per cent in

the labour force. Further, there was also a decline

of 0.1 pp in the job seeking rate relative to the

previous year. With the exception of Agriculture,

Forestry & Fishing, Mining & Quarrying and

10 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 established, of which seven

are fully operational and are currently reflecting production.

Transport, Storage & Communication, employment

increased in all industries.

For 2015, real wages declined by 0.2 per cent

following a contraction of 3.4 per cent in 2014. This

contraction was observed in all industries. There

were no inflationary pressures emanating from the

labour market in 2015 as the movements in real

wages was below both measures of productivity.

Specifically, labour productivity measured as

output per hour worked and output per worker

increased by 0.2 per cent and 0.1, respectively.

This compared to contractions of 1.2 per cent and

0.5 per cent in output per worker and output per

hour worked, respectively, in the previous year.


Bank of Jamaica

Table 20

Source: Ministry of Agriculture and Sugar Corporation of Jamaica

Table 21

Source: Planning Institute of Jamaica

Chart 17: Labour Productivity vs. Real Wages 2002 - 2015

2014 2015 % Change

Total Labour Force ('000) 1307.5 1316.6 0.7

Employed Labour Force ('000) 1127.8 1138.7 1.0

Unemployment Rate (%) 13.7 13.5Job Seeking Rate (%) 9.0 9.1

Agriculture, Forestry &Fishing 207.8 202.1 -2.7

Mining, Quarrying & Refining 6.2 5.8 -6.5Manufacture 72.9 73.0 0.1Electricity, Gas & Water 8.5 8.7 2.4Construction & Installation 80.9 82.6 2.1

Wholesale & Retail, Hotels &Restaurants Services

226.4 227.3 0.4

Hotels & Restaurants Services 80.5 88.2 9.6

Transport, Storage &Communications 75.3 74.7 -0.8

Financial Intermediation 26.0 26.4 1.5

Real Estate, Renting and Business Activities

67.4 74.2 10.1

SELECTED LABOUR FORCE INDICATORS

Employment by Industry ('000)

Source: STATIN & BOJ

2.8. The Stock Market

All indices of the Jamaica Stock Exchange (JSE)

increased dramatically for 2015, with the exception

of the Cross Listed Index. Specifically, the JSE Main

Index increased by 97.4 per cent in contrast to a

decline of 5.3 per cent for the previous year (see

Chart 18). Similarly, the Junior Market, Combined,

JSE Select and the All Jamaica Composite indices

grew by 160.3 per cent, 102.3 per cent, 124.3 per

cent and 99.0 per cent, relative to declines of 9.2

per cent, 5.7 per cent, marginal growth of 2.0 per

cent and 2.7 per cent, respectively, for 2014. In

contrast, the Cross Listed Index declined by 14.8

per cent in comparison to a decline of 20.9 per

cent for 2014.11

The performance of the JSE indices for 2015

occurred against the background of improvements

in investor sentiments. This improved investor

sentiment was influenced by positive developments

in the macroeconomy which included growth

in real economic activity, enhanced liquidity

conditions, improved ranking for doing business

in the Caribbean as well as Jamaica’s continued

favourable performance under the EFF supported

programme.12,13 At the firm level, higher company

11 See JSE website for composition of each.

12 Notably, there were three consecutive quarters of GDP growth with

further expansion estimated to occur for the December 2015 quarter.

Liquidity conditions were particularly enhanced during the last two quarters

of the year.

13 In particular, there was the transition of securities dealers’ “retail

repos” business model to a Trust arrangement and the phased increase

2014 2015 % Change

CropSugar 149.1 133.9 -10.2Citrus 4.6 3.1 -31.3Cocoa 0.5 0.3 -40.0Coffee 0.7 0.9 28.6

Pimento 0.4 0.2 -51.4

Sugar cane 1 706.2 1 572.4 -7.8Banana 51.6 52.9 2.5

SELECTED AGRICULTURAL EXPORTS

Source: Ministry of Agriculture and Sugar Corporation of Jamaica

Exports (‘000 tonnes)

Production (‘000 tonnes)

- 27 -

Annual Report 2015


Chart 18: Annual Growth of the JSE Index: 2006-2015

-10.00.0

10.020.030.040.050.060.070.080.090.0

100.0

Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

Ret

urn

(%)

Equities 30-day Repo

Chart 19: Returns from Equities, Fixed Income Investments & US Dollar Positions: Comparative Indicators

profits by large corporates and announcements

of planned mergers and acquisitions contributed

to the favourable performance of equity prices.14

Furthermore, lower interest rates as well as

a relatively stable exchange rate would have

enhanced the attractiveness of stocks for 2015.

More specifically, equities offered an average

return of 91.1 per cent while the Jamaica Dollar

vis-a-vis the US dollar depreciated by 5.0 per

cent. In addition, the average interest rate in the

30-day private money market was 6.3 per cent at

end-2015 (see Foreign Exchange Market & Chart

19).15

Notably, the sharp increases in the JSE indices

during 2015 were mainly reflected in the fourth

quarter (see Chart 20). This performance

was largely due to the announcements of the

favourable terms related to the planned acquisition

of Desnoes & Geddes Limited by Heineken

Sweden (AB), Dolphin Cove Jamaica Limited by

the Dolphin Discovery Group of Mexico as well

as the merger of Radio Jamaica Limited and the

media arm of Gleaner Jamaica Limited. Following

these announcements, all these stocks reflected

in the minimum retail repo transaction size as well as legal and regulatory

enhancements for collective investment schemes. This served to increase

the attractiveness of equities.

14 As at 31 December 2015, the top 5 companies accounted for

approximately 63.5 per cent of the total market capitalisation of the JSE

Main Index.

15 Returns on foreign currency investments is computed as capital

appreciation/depreciation resulting from exchange rate movements.

significant price appreciations.

Consistent with improved investor sentiment, all

market activity indicators of the JSE Main Index

increased during 2015 with the exception of the

volume of stocks traded. Specifically, the number

of transactions and the value of stocks traded

grew by 35.5 per cent and 59.7 per cent, relative

to reductions of 12.1 per cent and 10.0 per cent,

respectively, for the previous year. In contrast, the

volume of stocks traded declined by 11.2 per cent

following growth of 52.7 per cent for 2014 (see

Table 22).

2.8.1. Sectoral Performance

Buoyancy in the JSE Main Index was reflected in

the overall advance to decline ratio which was 27:5

at end-2015 in comparison to 11:18 at end-2014.

Price appreciation was broad-based and reflected

the performance of stocks within all seven sectors.

Notably, stocks within the Finance, Manufacturing

and Communications sectors accounted for seven

of the top ten advancing stocks with average price

appreciations in excess of 100.0 per cent for each

sector (see Table 24).


Bank of Jamaica

-20.0

0.0

20.0

40.0

60.0

80.0

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

Cha

nge

in In

dice

s (%

)

Main JSE Index All Jamaica CompositeJSE Select Junior Market

Chart 20: Quarterly Growth of the JSE Indices: 2014 – 2015

Table 22

Table 23

Table 24

Price( $)

(e.o.p)Price Change

(% )

FINANCEJamaica Stock Exchange Ltd. 18.6 1084.7Mayberry Investment Limited 4.35 186.2MANUFACTURINGCaribbean Cement Company 19.03 689.6Desnoes & Geddes 30 506.1Jamaica Broilers Group 10.26 154.0COMMUNICATIONSRadio Jamaica 3.66 223.9Lime 1.38 187.5TOURISMCiboney Group 0.21 200.0OTHERPulse Investments 3 757.1RETAILHardware & Lumber 18.5 133.0

FINANCESterling Investments Limited 13 -90.3OTHER

Kingston Properties Limited 7.05 -6.7

MANUFACTURING

Trinidad Cement Limited 15 -14.8Mobay Ice Company 14.9 -17.0Salada Foods 8.52 -2.1

TOP TEN ADVANCING STOCKSfor 2015

DECLINING STOCKSfor 2015

Other Developments

Main Market Junior Market Mergers & Acquisitions

JMMB Group Limited Derrimon Trading Company Limited 11.75%

Desnoes & Geddes Ltd & Heineken Sweden

Proven Investments Limited

Dolphin Cove Jamaica & Dolphin Discovery Group of MexicoRadio Jamaica Limited & Media arm of Gleaner Jamaica Limited.

JSE New Listings

STOCK MARKET DEVELOPMENTS IN 2015

Values J$mn Volumes (mn) No. of Transactions

Mar-14 3499.0 865.8 4960.0

Jun-14 2282.1 276.4 4194.0

Sep-14 4684.5 706.8 3592.0

Dec-14 2322.5 268.8 3316.0

Total 12788.0 2117.8 16062.0Mar-15 3699.7 274.4 4109.0

Jun-15 3111.5 297.6 5142.0

Sep-15 8061.7 815.2 4552.0

Dec-15 5555.8 494.1 7954.0

Total 20428.7 1881.3 21757.0

Annual Change % 2014 2015

Values (10.0) 59.7

Volumes 52.7 (11.2)

No. of Transactions (12.1) 35.5

2014-2015TRADING ACTIVITIES OF THE MAIN JSE

2.9. Public Finance

2.9.1. Overview

During 2015, the Government of Jamaica

remained committed to the economic reform

programme that was inititated in FY2013/14. The

primary objective of the programme is to reduce

the country’s significant high debt to a sustainable

level, thereby fostering greater economic growth

and social development. At end-September 2015,

the country successfully completed the Tenth

Review under the EFF-supported programme. This

achievement was aided by an incremental revenue

package amounting to 0.6 per cent of GDP for

FY2015/16 as well as expenditure containment.

- 29 -

Annual Report 2015


Table 25

FY 2014/15 Q1- Q3

FY 2015/16 Q1- Q3

Budget Q1- Q3

Variance %

Revenue & Grants 287 181.7 318 709.7 316 203.4 2 506.3 0.8

Revenue 283 270.6 314 726.8 309 071.5 5 655.3 1.8

Tax Revenue 258 610.9 291 652.0 285 073.0 6 579.0 2.3

Non-Tax Revenue 23 585.3 20 962.6 20 088.0 874.6 4.4

Bauxite Levy 0.0 1 623.6 3 248.1 -1 624.5 - 50.0

Capital Revenue 1 074.4 488.6 662.4 - 173.8 - 26.2

Grants 3 911.1 3 983.0 7 131.9 -3 148.9 - 44.2

Expenditure 313 195.2 343 541.6 347 008.0 -3 466.4 - 1.0

Recurrent Expenditure 294 907.5 317 524.5 320 724.3 -3 199.9 - 1.0

Programmes 81 189.2 100 076.9 100 617.8 - 540.9 - 0.5

Wages & Salaries 120 879.1 126 627.4 124 301.6 2 325.8 1.9

Interest 92 839.1 90 820.2 95 804.9 -4 984.7 - 5.2

Domestic 54 904.5 51 494.9 52 964.4 -1 469.5 - 2.8

Foreign 37 934.6 39 325.3 42 840.5 -3 515.2 - 8.2

Capital Expenditure 18 287.6 26 017.2 26 283.7 - 266.5 - 1.0

Fiscal Balance -26 013.4 -24 831.9 -30 804.6 5 972.8 - 19.4

Primary Balance 66 825.7 65 988.4 65 000.3 988.1 1.5

Overall Balance 42 189.7 -14 547.0 -16 789.0 2 242.0 - 13.4

CENTRAL GOVERNMENT SUMMARY ACCOUNTS(J$MN)

Source: Ministry of Finance & PlanningNote: Fiscal balance equals revenue & grants minus expenditure. Primary balance equals revenue & grantsminus non-interest expenditure. Overall balance equals fiscal balance plus net amortizaton.

Notably, to facilitate greater public investment to

stimulate growth, the primary balance target for

FY2015/16 under the IMF EFF agreement was

revised downwards by approximately J$5.3 billion.

Key components of the economic reform

programme were advanced in 2015. Chief

among these were the establishment of a Cash

Management Unit in the Accountant General

Department, the tabling of legislation governing

the tax regime in the Special Economic Zone and

the completion of the pilot testing of ASYCUDA

World at the Kingston port. Further, proposals

for a comprehensive overhaul of the Customs Act

were tabled in Parliament. To strengthen financial

stability, the Government effected the new Banking

Services Act in September 2015, which assigned

overall responsibility for financial stability to the

Bank of Jamaica as well as finalized the transition

of retail repo business model for non-banks to a

trust-based framework.

Provisional information to end-2015 also suggests

that the Government is firmly on track to achieve

its targets under the EFF, in particular, the primary

balance target for the Central Government, the

overall balance of the public sector and targets for

domestic arears accumulation.

2.9.2. Central Government Performance

For April-December 2015, Central Government

operations resulted in a fiscal deficit of $24.8

billion, relative to the budgeted deficit of $30.8

billion (see Table 25). This outturn was marginally

lower than the deficit of $26.0 billion recorded for

the corresponding period of 2014. Notably, for

the fiscal period the primary surplus exceeded the

revised EFF targeted surplus of $60.7 billion by $5.3

billion. Similarly, the overall deficit of $14.5 billion

for the review period was better when compared to

the budgeted deficit of $16.8 billion.

Revenue & Grants for April-December 2015 was

$2.5 billion higher than budgeted and significantly

above the outturn for the corresponding period of

2014 by $31.5 billion. The stronger performance

relative to budget was largely reflected in Tax

Revenue, the impact of which was partly offset by

lower than budgeted grants and bauxite levy receipts.

For Tax Revenue, higher than budgeted receipts

were recorded in Income & Profits and International

Trade. The outturn for Income & Profits was buoyed

by ‘tax on interest’ and company taxes. The

performance of ‘tax on interest’ was attributable to

lower than expected payment of refunds as well as

higher than anticipated collections from the private

sector. Higher corporate tax receipts were largely

underpinned by buoyant arrears collection as well

as increased compliance due to administrative

efforts by Tax Administration of Jamaica (TAJ).

The favourable outturn in International Trade was

reflected in SCT (Imports) and GCT (Imports) which

offset the shortfall in custom duty. With regard to

GCT (Imports), the outturn was primarily due to

improvements in customs administration, relating

to the implementation of the ASYCUDA World


Bank of Jamaica

Chart 21: C-Efficiency Ratios

Table 26

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16

Per c

ent

C-Efficiency(GCT & SCT)

Trend line

Q1 Q2 Q3 Q1 - Q3 Q1 - Q3 Variance-20 925.7 -11 929.5 -6 459.0 -39 314.2 4 638.9 -43 953.1

- 46.0 1 033.5 - 278.4 709.1-3 334.9 -3 667.0 -1 393.5 -8 395.3

-14 870.9 322 629.6 -5 650.7 302 108.0

-2 673.9 -331 925.7 863.6 -333 735.9

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

BOJ Comm. Banks Other Domestic Foreign

ANALYTIC PROFILE OF PUBLIC SECTOR FINANCING (J$MN)FY - Dec 2015

Budget

Public Bodies

system. Greater receipts from SCT (Imports) were

partly attributable to increased imports of motor

vehicle during the period. Conversely, Production

& Consumption, reflected lower than anticipated

receipts primarily due to delays in payments by the

telecommunication companies as well as shortfalls

in GCT (local). In contrast, there were above-

budget flows from SCT (local) mainly resulting from

the higher than anticipated production of refined

petroleum. Reduced grant receipts reflected the

slower than aniticipated execution of some capital

projects and delays arising from administrative

efforts while the underperformance of the bauxite

levy was due to a lower than aniticipated levy rate.

The favourable performance of Tax Revenue for

the review period, was reflected in a C-Efficiency

(GCT & SCT) ratio of 77.6 per cent.1 This ratio

was 3.1 pps higher than the budgeted ratio of

74.5 per cent and 15.3 pps above the ratio for the

corresponding period of 2014 (see Chart 21). For the fiscal year-to-December 2015, Expenditure

was $3.5 billion below budget and $30.3 billion

1 The C-Efficiency ratio captures the efficiency of Government’s tax

collection and is defined as the ratio of the share of value-added tax

(VAT) revenue to consumption divided by the standard VAT rate. The

generally accepted benchmark for the C-efficiency for small countries is

83.0 percent. Factors linked to a high C-efficiency are a relatively high

ratio of trade to GDP (presumably because it is relatively easier to collect

the VAT at the point of import tan domestically); high literacy rates and

the age of the VAT.

higher than in the corresponding period of 2014.

The below-budget outturn for the review period

was reflected in all areas of expenditure, with the

exception of wages & salaries. Lower foreign

interest payments was due to the smaller than

expected interest costs for new loans as well as

to a slower pace of depreciation in the exchange

rate. The deviation in domestic interest payments

was due to lower than anticipated interest rates.

Greater spending on wages & salaries largely

reflected the implementation of the new wage rate

for public sector workers which was higher than the

budgeted rate.

2.9.3. Financing

The Government’s gross financing requirement

for the fiscal year to December 2015 amounted

to $291.3 billion reflecting a fiscal deficit of $24.8

billion and amortization of $266.5 billion. Given

loan receipts of $276.9 billion during the period,

the Government drew-down $14.4 billion from

bank balances to finance its operations. Loan

inflows during the fiscal period were mainly from

external sources and primarily reflected the issue

of US$2.0 billion on the international capital market

to fund the repayment of the debt to PDVSA and to

contribute to the financing of Central Government’s

operations. In addition, there were project loans of

US$44.2 million as well as policy based loan inflows

of US$155.0 million from the Inter-American

Development Bank (IDB). Domestic loans which

totalled $10.4 billion reflected the issue of Treasury

Bills during the period. Of note, there were no new

issues of Benchmark Investment notes.

- 31 -

Annual Report 2015


Table 27 Table 28

Q1 Q2 Q3 Q1 - Q3 Q1 - Q3 Variance-13 307.8 -8 113.2 3 407.5 -18 013.5 9 782.0 -27 795.5

- 6.8 - 4.0 4.4 - 6.4- 668.9 -3 014.4 2 265.8 -1 417.5

-9 155.7 -6 420.2 -4 023.1 -19 599.0-3 476.4 1 325.4 5 160.4 3 009.4


ANALYTIC PROFILE OF SELECTED PUBLIC BODIES FINANCING (J$MN)FY- Dec 2015

Budget

Selected Public Bodies

BOJ Comm. Banks Other Domestic Foreign

Q1 Q2 Q3 Q1 - Q3 Q1 - Q3 Variance-7 617.9 -3 816.3 -9 866.5 -21 300.7 -5 143.1 -16 157.6

- 39.2 1 037.5 - 282.8 715.5-2 666.0 - 652.6 -3 659.3 -6 977.8-5 715.2 329 049.8 -1 627.6 321 707.0

802.5 -333 251.1 -4 296.8 -336 745.3


FY - Dec 2015Budget

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

Foreign

Other Public Bodies

BOJ Comm. Banks Other Domestic

2.9.4. Public Bodies Performance

For April - December 2015, the Public Bodies

recorded a net build-up in bank balances of

$39.3 billion, relative to the budgeted net use

of financing of $4.6 billion (see Tables 26) and

net use of financing of $4.5 billion for April -

December 2014. The build-up in deposits over

the review period resulted primarily from foreign

financing and commercial bank loans, which were

partly offset by a net use of financing from other

domestic financial institutions.

2.9.4.1. Selected Public Bodies (SPBs)2

The SPBs built-up balances of $18.0 billion

during April – December 2015 in contrast to the

budgeted net use of financing of $9.8 billion and

significantly above the increase of $410.0 million

recorded for the corresponding period of 2014.

The performance of the SPBs mainly reflected

investments held with other domestic financial

institutions and to a lesser extent increased deposits

in commercial banks (see Table 27). The impact

of these inflows was partly offset by a net use of

foreign financing. The investments held with other

domestic financial institutions largely reflected the

activities of Petrojam, the National Housing Trust

and the National Insurance Fund.

2.9.4.2. Other Public Bodies (OPBs)3

The OPBs recorded a net build-up in balances of

2 Includes: Petrojam, National Water Commission, National Housing

Trust, National Road Operating an Contraction Company, National

Insurance Fund, and Port-Authority of Jamaica.

3 Includes: PetroCaribe Development Fund, Road Maintenance Fund,

Students’ Loan Bureau, Civil Aviation Authority

$21.3 billion for April - December 2015 relative to

the budgeted net build-up in deposits of $5.1 billion

and surplus balances of $4.1 billion for the similar

period of 2014 (see Table 28). The net build-up

in balances for the review period mainly reflected

an increase in funds held with commercial banks.

Amortization of foreign loans during the period

primarily reflected the repayment of debt owed to

PDVSA. The debt repayment was partly offset by

a draw-down of funds held with other domestic

institutions, which was mainly due to the use of

loan proceeds from Central Government for the

execution of the PDVSA debt buy-back deal.

2.9.5. Total Debt Stock4

At end-2015, Jamaica’s stock of debt was

$2 099.4 billion (127.8 per cent of GDP), relative

to the stock of debt of $2 039.5 billion (130.5 per

cent of GDP) at end-2014 (see Table 29). The

increase in debt was reflected in an expansion in

the external debt as the domestic debt declined.5 Notably, the debt stock reflected a real decline of

1.4 per cent at end-2015, relative to end-March

2015, compared to a marginal real increase of 0.1

per cent in 2014 (see Chart 22).

2.9.6. External Debt

External debt increased by 20.0 per cent to US$10

295.0 million ($1 239.7 billion) at end-2015

compared to the stock at end-March 2015 (see

Table 30). The growth in the US dollar value of

4 Include debt owed by Central Government to PetroCaribe

Development Fund.

5 External debt is defined as all debt issued outside of Jamaica.


Bank of Jamaica

Table 29 Table 30

Chart 22: Jamaica’s Total Public Sector Debt

Dec-12 Dec-13 Mar-14 Dec-14 Mar-15 Dec-15

Fixed Rate Debt 56.0 67.9 67.0 67.7 68.0 60.7

Debt maturing in less than 5 years 53.2 31.9 30.0 41.6 41.5 48.1Foreign Currency Debt 18.7 23.2 21.5 23.2 24.3 8.1

STRUCTURE OF DOMESTIC DEBT (Per cent)

Source: Ministry of Finance and Planning

Table 31

-2.0-1.5-1.0-0.50.00.51.01.52.02.53.03.5

0

500

1,000

1,500

2,000

2,500

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

Per c

ent

J$ B

illio

n

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

December % FY-Dec 2014 December % FY-Dec 20152014 GDP Growth % 2015 GDP Growth %

Domestic Debt 1 046 850.3 67.0 2.2 859 720.0 52.3 - 18.5External Debt 992 800.0 63.5 7.7 1 239 673.8 75.5 25.6Total Debt 2 039 650.3 130.5 4.8 2 099 393.8 127.8 2.8Source: Ministry of Finance and Planning

JAMAICA'S TOTAL PUBLIC SECTOR DEBT (J$MN)

Dec-13 Mar-14 Dec-14 Mar-15 Dec-15FY-Dec

2015 Growth %

External Debt ($J) 884 002.2 921 490.0 992 800.0 986 782.2 1 239 673.8 25.6External Debt ($US) 8 310.0 8 409.7 8 658.6 8 577.5 10 295.0 20.0Source: Ministry of Finance and Planning

EXTERNAL DEBT December 2013 - December 2015

($ MN)

the external debt reflected the receipt of US$2.0

billion raised on the international capital market,

US$197.7 million from the IDB (including US$42.7

million in project loans) as well as US$118.9 million

in balance of payments support loans from the

IMF. This was partly offset by the amortization of

multilateral and commercial loans over the period

as well as the maturity of three global bonds over

June and July 2015 amounting to US$401.4 million.

The Jamaica Dollar equivalent of the external debt

reflected an increase of 25.6 per cent, partially due

to depreciation of 4.7 per cent of the domestic

currency vis-à-vis the US dollar over the 9 month-

period. At end-2015, external debt was $246.9

billion (US$1 636.4 million) greater than the stock

at end-2014.

The Central Government accounted for 85.2 per

cent of Jamaica’s external debt at end-2015,

relative to 81.2 per cent at end-March-2015. The

ratio of external debt service to exports fell by 3.4

pps to 33.3 per cent at end-2015 relative to end-

2014 mainly due to lower external amortization.

Similarly, the ratio of external debt service to actual

revenue (less grants) was 37.3 per cent at end-

2015 relative to 44.5 per cent at end-2014. The

reduction in the ratio reflected lower repayment of

multilateral loans as well as the impact of increased

revenue receipts. The lower debt service ratios

at end-2015 indicate continued improvements

towards a sustainable external debt position.

2.9.7. Domestic Debt

At end-2015, domestic debt was $859.7 billion

reflecting a decline of 18.5 per cent relative to

end-March 2015. This decline largely reflected the

repayment of loans amounting to US$1.7 billion

to the PetroCaribe Development Fund (PDF).6 Notably, in light of the PDF debt repayment, the

foreign currency and fixed rate portions of the

domestic debt declined to 8.1 per cent and 60.7

per cent at end-2015, respectively, from 24.3 per

cent and 68.0 per cent at end-March 2015 (see

Table 31).

There was a shortening of the maturity profile of

domestic debt at end-2015, with 48.1 per cent of

domestic debt scheduled to mature within 5 years

relative to 41.6 per cent at end-March 2015. This

shortening of the maturity profile primarily due to

net repayment of the longer dated domestic bonds.

6 The GOJ used US$1.5 billion to purchase net present value debt of

US$3.25 billion (as at December 2014) of the debt owed through the PDF

to PDVSA Petróleo S.A. (at a discount of 42.6%). In this context, the GOJ

direct domestic debt of US$1.7 billion to PDF was written off.

- 33 -

Annual Report 2015


Chart 23 Duration of the Domestic Debt Portfolio Chart 24: Interest rate on BOJ 30-day Certificate of Deposit

0.02.04.06.08.0

10.012.014.016.018.0

Dec-

08M

ar-0

9Ju

n-09

Sep-

09De

c-09

Mar

-10

Jun-

10Se

p-10

Dec-

10M

ar-1

1Ju

n-11

Sep-

11De

c-11

Mar

-12

Jun-

12Se

p-12

Dec-

12M

ar-1

3Ju

n-13

Sep-

13De

c-13

Mar

-14

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Per c

ent

2.10. Monetary Policy & Interest Rates

2.10.1. Overview

The Bank of Jamaica (BOJ) reduced the signal

interest rate, the rate payable on its 30-day

Certificate of Deposit (CD) by 50 basis points

(bps) to 5.25 per cent, during 2015 (see Chart

24).1 his adjustment was in the context of a

generally favourable outlook for inflation, which

was projected to end FY2015/16 below the

target band. In addition, the risks to the inflation

forecast were skewed to the downside in the

context of overall improvements in the domestic

macroeconomic environment and a trend decline

in inflation expectations. Furthermore, the policy

adjustments were assessed to pose no risks to

the continued attainment of the monetary targets

under the EFF-supported programme, which were

comfortably met in 2015. The Bank continued to

hold the interest rate on its overnight CD at 0.25

per cent while the local currency cash reserve

and liquid assets requirements were maintained

at 12.0 per cent and 26.0 per cent, respectively.

Jamaica Dollar liquidity continued to be managed

through issues of regular and special open market

operations (OMO) instruments as well as a suite

of repo instruments. In addition, during the year

1 The signal rate was reduced by 25 bps on the 17 April and 16

August.

the Bank complemented the adjustments in the

policy rate by reducing the spread relative to the

policy rate for its lending facilities and offered 3-

and 4-month occasional term repos (OTRO) in the

final quarter of 2015 in order to smooth the liquidity

impact of upcoming maturities of NDX bonds in

February 2016.

2.10.2. Developments and Challenges

Consistent with the generally more accommodative

policy stance in 2015 and in order to refine its

liquidity support mechanism, the Bank reduced the

spread paid on its lending facilities above the signal

rate by 200 bps. This adjustment coupled with the

reduction in the policy interest rate resulted in the

rates on the SLF and BRO declining to 7.50 per cent

and 7.00 per cent, respectively, by end-September

2015. At the end of that period the EFR was

9.55 per cent (see Financial Market Operations).

Subsequently, the allocation mechanism of the

BRO was changed from a two-weekly fixed price

operation to a weekly competitive price auction.

This resulted in the weighted average yield on the

BRO ending 2015 at 7.05 per cent, after peaking

at 9.55 per cent in November. While the allocation

mechanism for the SLF was unchanged, the global

limit was raised to $14.6 billion in 2015, twice the

level in 2014 to provide greater liquidity assurance

to deposit taking institutions (DTIs).

The Bank offered OTROs of tenors 3 and 4 months

between November and December 2015, to mature

between 11 and 26 February 2016. These offers

were aimed at smoothing the anticipated impact on

Consequently, the duration of the GOJ’s domestic

debt market instruments declined to 2.83 years at

end-2015 relative to 3.08 years and 3.03 years at

end-March 2015 and end-2014, respectively (see

Chart 23).


Bank of Jamaica

Table 32

Jamaica Dollar liquidity emanating from the NDX

bond maturities in February 2016. Under the terms

of these OTROSs were that DTIs make placements

on the Bank’s USD CDs with a minimum tenor

of two years and access Jamaica Dollar liquidity

through repurchases. A total of $10.3 billion was

allocated under this facility.

2.10.3. Base Money Management

The Bank’s more accommodative monetary policy

stance facilitated an increase in aggregate demand

which underpinned an expansion in the monetary

base of 12.2 per cent for 2015, relative to growth

of 5.1 per cent for 2014 (see Table 32). As a

consequence, the real expansion in the monetary

base was 8.6 per cent for 2015 relative to a real

decline of 1.3 per cent for 2014. This acceleration

was reflected in a sharp increase in currency issue

to 12.5 per cent relative to 7.4 per cent in 2014. In

addition, commercial banks’ local currency cash

reserves grew by 11.6 per cent compared to 0.3

per cent in 2014. The main source of expansion

in the monetary base for the year was a build-

up in the Net International Reserves (NIR) (see

International Reserves).

The monetary base contracted by 7.2 per cent, for

the first quarter of 2015, reflecting the seasonal

currency reflows following the December holiday

period. This contraction in the monetary base was

influenced by a decline of $41.3 billion in the net

domestic assets (NDA) which was partially offset

by an increase of $33.5 billion (US$292.6 million)

in the NIR. Within the NDA there was a build-up in

Central Government deposits of $33.0 billion and

an increase in OMO liabilities of $13.4 billion.

For the June quarter the monetary base expanded

by 3.4 per cent, largely influenced by an increase

of $23.7 billion in the NDA and partly offset by a

decline of $20.3 billion (US$177.2 million) in the

NIR. The increase in the NDA was mainly reflected

in a drawdown of $40.4 billion in Government

deposits, which was partly offset by an increase of

$12.7 billion in OMO liabilities. The fall in the NIR

mainly reflected the payment of a GOJ Eurobond

which matured, the impact of which was partly

offset by placements on BOJ’s USD CDs and

direct market purchases.

The monetary base expanded by 3.4 per cent for

the September quarter, primarily reflecting a sharp

build-up in the NIR of $37.3 billion (US$325.4

million). This increase in the NIR mainly reflected

the US dollar proceeds of GOJ debt-raising on

the international capital markets in July as well

as market purchases which more than offset the

payment of GOJ debt and market sales during the

period. The impact of build-up in the NIR on the

monetary base was partially offset by a decline

of $33.8 billion in the NDA. The fall in the NDA

mainly reflected a build-up in Central Government

deposits of $38.6 billion.

Consistent with seasonal trends, there was an

expansion of 12.2 per cent in the monetary base

in the December quarter, reflecting a net currency

issue of $13.7 billion. Of note, the real expansion

in currency was 12.7 per cent for the quarter. The

2014 2015Total Jan - Mar Apr - Jun Jul - Se p Oct - Dec Total

Net International Reserves (US$) 953.3 292.6 -177.2 325.4 -4.9 435.9NET INT'L RESERVES (J$) 117976.8 33548.4 -20314.3 37307.1 -558.7 49982.4Assets 90203.6 24850.3 -17482.1 40495.7 2680.5 50544.4Liabilities 27773.2 8698.1 -2832.3 -3188.6 -3239.3 -562.1

NET DOMESTIC ASSETS -112727.7 -41349.6 23708.7 -33784.1 14771.9 -36653

Net Claims on Public Sector -28272.8 -34320.4 45160 -38605 962.9 -26802.6 - Central Govt. Deposits -45516.9 -33039.5 40448.1 -44365.6 3156 -33801 - Govt. Securities 22402.4 278.3 274.9 246.7 357.1 1157 - Operating balance of BOJ 1861.7 -9868.4 16520.6 3652.7 5436.6 15741.5 - Other Current Accounts 18917.4 5205.6 1420.9 -2846.3 -4163.3 -383.1 - Other Public Se ctor -25937.3 3103.6 -13504.5 4707.5 -3823.5 -9516.9

Net Credit to Banks -1709.7 -676.2 -343 -668.2 -1265.6 -2953.1Open Market Operations 24467.4 -13390.9 -12737.7 2865.7 9284.7 -13978.2Other -107212.6 7038 -8370.6 2623.4 5789.8 7080.6

MONETARY BASE 5249.2 -7801.2 3394.3 3523 14213.1 13329.2 - Currency Issue 5135.4 -8580.8 1560.5 2718.2 13659.7 9357.6 - Cash Reserve 91.7 882 1285.7 827.7 917.5 3912.9 - Current Account 22.1 -102.4 548.1 -22.9 -364 58.7

NIR Stock (US$MN) e.o.p. 2001.1 2293.7 2116.5 2441.9 2437.3 2437.3Growth in Monetary Base (%) 5.1 -7.2 3.4 3.4 13.2 12.2Inflation (%) 6.4 -0.6 1.2 2.1 1.0 3.7

SUMMARY ACCOUNTS OF THE BANK OF JAMAICAFLOWS - J$ MILLION

2015

- 35 -

Annual Report 2015


sources of this expansion were a decline in the

stock of OMO instruments of $9.3 billion and a

drawdown in Central Government’s deposits of

$3.2 billion. The net unwinding in the stock of

OMO instruments, included the impact of the

Bank’s offer of its OTROs. With regard to the

NIR, there was a small decline of $529.2 million

(US$4.6 million).

2.10.4. Market Determined Interest Rates

Consistent with the more accommodative

monetary policy stance of the Bank, the weighted

average yields on on all GOJ Treasury Bills declined

during 2015, which resulted in downward shift in

the yield curve for GOJ Treasury Bills (see Table

34). In particular, the weighted average yield on

GOJ, 90- and 180-day instruments fell by 100

bps and 110 bps to 5.96 per cent and 6.04 per

cent, respectively. Money market rates, however,

reflected mixed movements for 2015 relative to

2014. Specifically, the overnight and inter-bank

Table 33

Table 34

2014 2015 2014 2015 2014 2015March 5.79 3.65 9.71 6.68 8 3.99June 4.79 3.14 9.6 6.31 5.48 3.5September 3.54 3.49 8.15 6.14 3.8 3.7December 1.95 3.67 6.43 6.32 3.18 3.67

AVERAGE PRIVATE MONEY MARKET INTEREST O/N 30-day I/B

Table 35

Chart 25: Weighted Average Treasury Bill Yields (WATBY) and Money Market Rates

Criteria Outturn (provisional)Cumulative change in NIR (floor) - US$Mn -356.9 442.2

Cumulative change in NDA (ceiling) - J$Mn 64.0 -37.4

QUANTITATIVE PERFORMANCE CRITERIA* Monetary Targets as at Dec' 15

1.00

3.00

5.00

7.00

9.00

11.00

1.002.003.004.005.006.007.008.009.00

10.0011.00

Per

cent

BOJ Corridor 30-day Tbill90-day Tbill 180-day Tbill30-day PMMR O/N InterbankO/N PMMR BOJ 30 day CD OMO

2.11. Economic Outlook

2.11.1. Overview

The Bank’s forecast for 2016 suggests that inflation

should increase modestly, mainly due to an

improvement in domestic demand, the impact of

which should be partly offset by a fall in commodity

prices. The improvement in domestic demand

and external competitiveness, in conjunction with

stronger growth in the global economy, is expected

to foster accelerated growth in Jamaica’s GDP. Of

note, this acceleration follows three consecutive

years of tepid expansion. The improvement in

output reflects the impact of Jamaica’s on-going

structural adjustment as well as an expected

recovery from supply shocks that affected most

of 2015.

2.11.2. International Economy

The global economy is projected to expand by

3.2 per cent in 2016 relative to 3.0 per cent in

2015. Growth is expected to accelerate in the

economies of the Euro area, Canada and Japan.

Increased economic activity in the Euro area

and Japan should continue to reflect the positive

2014 2015 2014 2015 2014 2015March 6.76 6.30 8.35 6.73 9.11 7.00June 6.80 6.23 7.66 6.48 8.37 6.63September 6.89 6.23 7.47 6.20 8.00 6.35December 6.38 5.97 6.96 5.96 7.14 6.04

WEIGHTED AVERAGE TREASURY YIELDS (per cent)30 -day WATBY 90-day WATBY 180-day WATBY

rates increased by 172 bps and 49 bps to average

3.67 per cent for both rates. The 30-day rate,

however, fell by 11 bps to average 6.32 per cent.


Bank of Jamaica

impact of economic stimulus measures. Higher

growth in Canada is underpinned by an anticipated

improvement in external demand associated with

gains in competitiveness as well as spill over effects

from improvements in their main trading partners.

The US economy is expected to grow at a similar

rate as recorded in 2015. This is underpinned

by an improvement in residential investment and

the labour market notwithstanding a gradual shift

from accommodative monetary policy. China is,

however, expected to record lower growth in 2016

reflecting the continued deceleration in investment

associated with policies aimed at rebalancing the

economy by restraining the expansion of credit.

Average crude oil prices for 2016, as measured by

the West Texas Intermediate (WTI), are forecast to

decline within the range of 20.0 per cent to 40.0

per cent compared to a decline of 47.5 per cent

for 2015. This projection reflects the continued

impact of high excess global supplies which should

offset the impact of increased demand associated

with stronger global growth.

In regard to agricultural raw materials, the average

price is projected to decline within the range of 0.5

per cent to 3.5 per cent in 2016. This projection

reflects a moderation in the pace of price declines

relative to an average reduction of 15.8 per cent

recorded for the last two years. This outlook for

2016 is consistent with the modest improvement in

global demand. Benchmark Thai rice and average

wheat prices are expected to decline within the

range of 2.0 per cent to 5.0 per cent. In contrast,

corn prices are expected to increase within the

range of 1.0 per cent to 3.0 per cent.

2.11.3. Domestic Economy

2.11.3.1. Growth

The rate of growth in the Jamaican economy is

expected to improve appreciably in 2016, within the

range of 1.0 per cent to 2.0 per cent relative to an

estimated expansion of 0.8 per cent for 2015. The

major contributors to output growth are expected

to be Agriculture, Forestry & Fishing, Manufacture,

Electricity & Water Supply, Hotels & Restaurants

and Construction. Growth in Agriculture, Forestry

& Fishing should reflect a recovery in domestic

crop production following two consecutive years

of severe drought conditions as well as increased

cultivation under the Government’s Agro-Parks

initiative. Manufacture is expected to be buoyed

primarily by expansions in agro-processing,

food and beverages as well as refined petroleum

production. Electricity & Water Supply is expected

to be bolstered by increased consumption in the

context of an expansion in demand. For Hotels

& Restaurants, the expansion is premised on a

continued increase in stopover visitor arrivals largely

associated with the resilience of major source

markets particularly the USA, as well as additional

room stock associated with the opening of new

hotels towards the second half of the calendar

year. Construction is expected to benefit from

on-going major infrastructural projects, including

improvements in Jamaica’s energy infrastructure.

The main downside risks to this forecast include

weak external demand associated with slower

growth in Jamaica’s main trading partners, lower

than anticipated business & consumer confidence,

the postponement of major infrastructural projects

and adverse weather conditions. Growth in the

economy could be stronger than projected in

context of an earlier than anticipated start to some

of the major infrastructural projects as well as

faster expansion in the global economy.

2.11.3.2. Inflation

Domestic inflation, as measured by the change

in the consumer price index (CPI), is projected to

increase relative to the outturn of 3.7 per cent in

2015, within the range of 4.5 per cent to 6.5 per

cent for FY2016/17. This forecast is underpinned

by an expected improvement in domestic demand

and a narrowing of excess capacity conditions.

Notably, relatively stable inflation expectations

and low imported commodity prices should

serve to suppress price adjustments. The main

- 37 -

Annual Report 2015


upside risks to this forecast include higher than

anticipated international commodity prices and

adverse weather conditions.

2.11.3.3. Monetary Policy

Current projections suggest that inflation should

increase moderately while output growth should

accelerate in 2016. In this regard, the Bank will

continue to implement monetary policy aimed at

achieving single digit inflation and the monetary

targets outlined under the country’s EFF with the

IMF. Of note, the Bank will also ensure that the

reserves remain adequate in order to meet any

adverse external shocks.

- 38 -

3. Financial System Surveillance and Policy

operations. Regulations to establish a formal

supervisory framework for these entities have

been drafted and been the subject of extensive

discussions with sector representatives. These

Regulations are expected to be presented by the

Minister of Finance to Parliament during 2016 (see

Section 3.1.5)

Bank of Jamaica’s supervisory responsibilities

under the BSA are operationally discharged

through the Financial Institutions Supervisory

Division (FISD) of the Bank. 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 risk-focused

on-site examinations of each licensee with on-

going off-site monitoring facilitated primarily by

prudential reporting requirements. Feedback from

on- and off-site assessments are provided by

Bank of Jamaica to licensees’ management and

Boards through a composite of formal meetings,

official correspondence and written reports on

examination findings. Where there are matters

requiring remedial actions or evidence of unsafe

practices, corrective actions and or sanctions are

applied as relevant, pursuant to the governing

legislation.

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. Supervision of Deposit-taking Financial

Institutions

3.1.1. Introduction

Bank of Jamaica’s responsibility for supervision of

deposit-taking financial institutions (DTIs) derives

from Section 34A of The Bank of Jamaica Act.1

The supervised population comprises entities

operating under the Banking Services Act (BSA).

The BSA which took effect 30 September 2015

repealed the former Banking Act, The Financial

Institutions Act and The Bank of Jamaica (Building

Societies) Regulations. The supervised population

comprises:-

• Commercial banks (previously licensed

under The Banking Act);

• Merchant banks (previously licensed under

The Financial Institutions Act) and

• Building societies (previously licensed

pursuant to The Bank of Jamaica (Building

Societies) Regulations).

Under the BSA, financial holding companies of

DTIs are also required to be licensed which will

allow for the conduct of consolidated supervision.

Additionally, credit unions were 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.2 This specification currently enables

the Central Bank to obtain information on their

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 (see Section 3.1.3.1).

2 By Notice dated 30 June 1999, The Minister of Finance &

Planning designated co-operative societies carrying on the

business of credit unions as “specified financial institutions”

under the Bank of Jamaica Act.

- 39 -

Annual Report 2015

Financial System Surveillance and Policy

3.1.2. Current Priorities in Banking Supervision

3.1.2.1. Implementation of the Banking Services

Act, 2014

Activities related to the implementation of the

Banking Services Act (BSA) which was passed

in 2014, were among the prioritised supervisory

imperatives during 2015. These involved the

review and development of a number of statutory

instruments which took effect on September 30,

2015 alongside the BSA (see Financial Legislation).

The BSA is the primary legislative tool supporting

the major, recent enhancements to Jamaica’s

regulatory and supervisory framework. The

enhancements introduced under the BSA are

informed in large part by assessments of Jamaica’s

observance of international best practice

standards such as the Basel Core Principles

(BCPs) for Effective Banking Supervision.3 Major

enhancements brought about by the BSA include

the following:-

i. Supervisory Autonomy - The BSA introduces

certain provisions consistent with the

recommendations of the IMF and the BCPs which

address supervisory independence. In particular,

the BSA provides for the transfer of certain critical

supervisory powers from the Minister of Finance

to the Supervisor and the Supervisory Committee

(SC).4 During the year work was undertaken to

operationalize the Committee which had its first

meeting in July 2015, and met a total of five times

by year-end.

3 The Basel Core Principles are international best practice

standards for Banking Supervision which are established by the

Basel Committee on Banking Supervision.

4 The Supervisory Committee is provided for under Section

6 of the BSA and consists of five persons: three ex-officio

members and two persons appointed by the Governor-General,

on the advice of the Minister of Finance. The ex-officio

members of the Supervisory Committee are the Supervisor

(Chairman), a member of the senior executive staff of the

Bank with responsibility for financial stability oversight (currently

the Senior Deputy Governor) and the Deputy Supervisor. The

appointed members are Professor David Tennant, Professor of

Development Finance, University of the West Indies and Miss

Shirley-Ann Eaton, Attorney-at-Law.

Concomitant with increased supervisory autonomy,

are provisions which:-a. Strengthen the governance and accountability

structure of the Supervisory Authority;

b. Prescribe the establishment of an independent

Supervisory Appeals Board (SAB) 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

(See item v hereunder)5 and

c. Codify timelines for supervisory determinations

in relation to new businesses or products, new

delivery channels for existing businesses or

products, strategic alliances, joint ventures

and co-branding initiatives.

ii. Consolidated Supervision Framework - The BSA introduces an enhanced framework for

consolidated supervision which is informed by

international best practice standards. Under this

regime each financial group to which a deposit-

taking institution (DTI) belongs, is required to

structure itself in a way which facilitates effective

consolidated supervision, and establish a Financial

Holding Company (FHC) which is to be licensed

by the BOJ. Each FHC has the responsibility for

ensuring that, among other things, the financial

group is adequately capitalized on a consolidated

basis and is subject to effective group wide

governance and risk management. As a result

of the multi-jurisdictional reach, and diversity in

financial service offerings associated with some of

Jamaica’s financial groups, there will be greater

5 The Supervisory Appeals Board (SAB) is a tribunal provided

for by Section 27 of the BSA, empowered to hear appeals on

decisions made by the Supervisor and Supervisory Committee.

The Supervisory Appeals Board shall consist of three to five

members appointed by the Governor-General on the advice

of the Minister of Finance. These persons must appear to the

Minister of Finance to be knowledgeable and experienced in

matters relating to law, banking, finance or the regulation of

financial services and otherwise qualified for appointment to

the Appeals Board and of which at least one member shall be

a retired judge.

- 40 -Financial System Surveillance and Policy

Bank of Jamaica

need for cooperation and collaboration between the

BOJ, and other domestic and overseas regulators

(see Section 3.1.3). During the year, work was

undertaken in preparation for the implementation of

the attendant licensing and supervisory measures

relevant to consolidated supervision.

iii. Counterparty Exposure Limits:-

The regulatory framework which aims to

constrain the buildup of concentration risk has

been enhanced through strengthened provisions

addressing counterparty exposures incurred by

licensees. Specifically, the Act provides for:-

a. A comprehensive application of

counterparty exposure limits to ensure

that any connection which ties the fortunes

of a group of counterparties

(“counterparty group” as per the BSA) will

be accurately reflected within the

computation of a single counterparty

exposure;6

b. An expansion in the application of large

exposure limits to now incorporate all

‘counterparty exposures’. In this regard,

the term ‘counterparty exposure’ includes

all direct and indirect credit exposures,

commitments, contingent liabilities,

investments (debt and equity) and other

holdings of debt or equity securities,

reverse repurchase transactions and

derivatives; and

c. Standardization of counterparty exposure

limits for all DTIs and the application of

these limits on a consolidated basis.

At year end, development of supervisory

guidance in relation to counterparty exposures

was underway.

6 The ties in the BSA include, cross guarantees, common

collateral, common ownership, partnerships or joint ventures

and the ability to exercise direct or indirect control over the

same persons.

iv. Agent Banking - The BSA sets out a

framework which will allow DTIs to extend certain

banking services to their customers through

agents. Agents may be eligible for appointment by

DTIs if they meet certain requirements under the

BSA.

The Supervisory Authority (through the Supervisor

or the Supervisory Committee) is empowered to,

inter alia:-

a. Approve a DTI to appoint a person to

offer prescribed banking services;

b. Authorize a person to be an agent

and offer prescribed banking

services;

c. Prescribe operational thresholds,

limits or other restrictions in relation

to the services offered through an

agent;

d. Examine the books, documents,

records, statements and other

relevant information of an agent

and

e. Revoke approvals given to conduct

agent banking.

During 2015, the Bank of Jamaica issued a

consultation paper to the industry, feedback from

which has contributed to the development of the

framework which was in progress at year-end. The

provision of banking services through this delivery

channel is expected to widen access to financial

services and promote financial inclusion.

v. Enforceable Code of Conduct - The BSA

provides for the Supervisor to issue a Code of

Conduct on customer related matters. The Act

further indicates the matters which the Code may

address which include obligations for DTIs to:7

7 The Bank of Jamaica is spearheading an initiative to develop

a national financial inclusion strategy under which, among

other matters, a framework for financial consumer protection is

expected to be addressed.

- 41 -

Annual Report 2015


• provide reasonable notice

of fees, charges, terms and

conditions and changes thereto;

• allow customers’ access to their

information at reasonable cost;

• express interest rates as effective

annual rates calculated in a

standard manner across the

banking services industry;

• keep language in contracts

simple and clear and identify

key terms for customers’

attention and

• provide effective mechanisms

to address customer complaints,

communicate those mechanisms

and procedures to customers’

and maintain relevant reporting

and record keeping in that

regard.

In keeping with the provisions of the BSA, Bank

of Jamaica issued a Consultation Paper on the

proposed Code in March 2015 which benefited

from feedback from the DTI industry, and the

Consumer Affairs Commission, among other

persons. At year-end the Code was in process of

finalisation with an expectation of issue during the

first quarter of 2016.

The Code addresses a small part of the existing

gap in financial consumer protection arrangements

and there remains a need for other mechanisms to

be implemented to provide for a comprehensive

market conduct framework for consumers of

deposit taking financial services. The existing gaps

in the framework for deposit-taking consumers

were also highlighted in the Parliamentary study

on Banking Fees (contained in the Report of the

Sessional Select Committee of the House of

Representatives on Economy and Production on

Private Members’ Motion No. 31/13 regarding

Bank Fees) during 2015. Financial consumer

protection is among a number of matters proposed

to be covered under a National Financial Inclusion

Strategy which is being spearheaded by the Bank

of Jamaica and expected to involve both public

and private sector stakeholders.

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 on its website since December

2010, information on fees and charges for

certain widely used services of commercial banks,

building societies and merchant banks.8 The

Banking Services Act now specifically provides for

the publication of information on licensees’ fees

and charges as well as statistics on customer

complaints.

3.1.2.2. Crisis Management

During the year, the Bank participated in efforts

geared towards the development of a national

crisis management plan and resolution framework

for financial institutions. This multi-agency effort is

expected to result in the development of a concept

paper which will form the basis of a stakeholder

consultation process scheduled to start in February

2016.9 In turn, this will inform the finalization of the

legislative provisions to support the national crisis

management plan and the resolution framework

scheduled to take effect by end- September 2016.

3.1.2.3. International Best Practice Standards–

Supervisory Approach

i. Anti-Money Laundering and Counter Financing

of Terrorism (AML/CFT) Supervision - Based on

a self-assessment of the Supervisory Authority’s

compliance with the supervisory standards

promoted by the Financial Action Task Force

(FATF), an exercise, which commenced in 2014 to

revise Bank of Jamaica’s examination procedures

in line with these standards and best practices, was

8 http://www.boj.org.jm/financial_sys/rates_charges.php

9 This work involves, in addition to the Bank of Jamaica, the

Financial Services Commission, the Jamaica Deposit Insurance

Corporation and the Ministry of Finance.


Bank of Jamaica

completed during 2015.10 This work was geared

towards enhancing the AML/CFT supervisory

process based on changes to standards which

promote the adoption of risk-based supervisory

methodologies. The revised examination

procedures were adopted in specialized AML/CFT

onsite reviews as of May 2015.

ii. Risk-Based Supervision – In line with the

drive to improve the efficiency and effectiveness

of the supervisory process, the Supervisory

Authority carried out work during 2015 (including

the development of supervisory guidance) with

a view to streamlining Jamaica’s risk focussed

supervisory practices to a risk-based approach

informed by emerging supervisory practices

internationally, including the Basel Core Principles.

This new approach will also be integrated with the

consolidated supervision framework.

3.1.2.4. Caribbean Financial Action Task Force (CFATF) - Mutual Evaluation

The CFATF, undertook its fourth round Mutual

Evaluation of Jamaica in June 2015, the results of

which were under review by the Bank of Jamaica

at year-end.11 Under this evaluation, compliance

of the country’s AML/CFT measures was assessed

in relation to the FATF 40 Recommendations . The

Bank of Jamaica is the Competent Authority for

licensees under the BSA pursuant to The Proceeds

of Crimes Act and The Terrorism Prevention Act,

and is responsible for monitoring compliance

with legal requirements. The Competent Authority

is also tasked with issuing guidelines regarding

10 FATF is an inter-governmental body established in 1989 with objectives of setting standards and promoting effective

implementation of legal, regulatory and operational measures

for combating money laundering, terrorist financing and other

related threats to the integrity of the international financial

system. The FATF currently comprises 34 member jurisdictions

and 2 regional organisations, representing most major financial

centres across the globe.

11 CFATF, an associate member of FATF, is an organization

of twenty-nine states of the Caribbean Basin which have

agreed to implement common counter measures to address

criminal money laundering & terrorism financing/proliferation of

weapons of mass destruction.

effective measures to prevent money laundering

and terrorism financing within licensees (see

Section 3.1.3.5).

3.1.3. Supervisory Cooperation and Interaction

3.1.3.1. Financial Regulatory Committee and

Financial Regulatory Council

The ammendments to the Bank of Jamaica

Act enabled the establishment of a Financial

Regulatory Committee with the objective of

facilitating information sharing, coordination and

cooperation among regulatory authorities. The

Committee consists of :-

• The Governor of the Bank of Jamaica,

Chairman;

• The Financial Secretary;

• The Executive Director of the Financial

Services Commission and

• The CEO, Jamaica Deposit Insurance

Company.

This Committee replaces the Financial Regulatory

Council (the Council) which was established

in 2000 with the mandate to develop policies

and strategies to facilitate co-ordination and

information sharing between the various supervisory

and related agencies operating in the Jamaican

financial sector. The conduct of the Council,

which comprised the members now mandated

under the law, was guided by a Memorandum

of Understanding signed by each member that

addresses a range of common issues, including

information sharing. The Council met during 2015

to examine issues affecting the financial industry,

as well as issues specific to corporate groups

comprising financial entities which are supervised

respectively by the Bank of Jamaica and the

Financial Services Commission.

3.1.3.2. The Caribbean Group of Banking

Supervisors

The Bank of Jamaica continued to serve as

Administrator for the Secretariat of the Caribbean

Group of Banking Supervisors (CGBS), through a

- 43 -

Annual Report 2015


Unit in FISD, throughout 2015.12 Chairmanship of

the Group is rotated on a two year basis among

CARICOM jurisdictions, and in that regard, during

2015 the Bank of Jamaica completed a two-year

term as Chair.

During the year, the Secretariat coordinated

two Administrative meetings, three Supervisory

Colleges and in conjunction with conference host

Centrale Bank van Suriname, staged the “XXXIII

Annual Conference” (see Section 3.1.3.3).13 Three

training programmes were organized and held for

the region with international facilitators from the

Federal Reserve System (USA), the Financial

Stability Institute and the Association of Banking

Supervisors of the Americas (ASBA) .

3.1.3.3. Information Sharing

The Bank of Jamaica is one of fourteen signatory

jurisdictions to a regional Information Sharing

Agreement (MOU), to facilitate cross border

cooperation between home and host supervisory

authorities for regional banking entities. During

2015, under powers of the MOU, the Bank engaged

in discussions and exchanged relevant information

with regional jurisdictions with common banking

group presence. Bank of Jamaica also participated

in a regional regulatory college organised by CGBS

to discuss matters of mutual interest pertaining to

a cross border banking group, and international

12 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. Participation in CGBS

was later extended to banking supervisors from non-CARICOM

Caribbean territories and now comprises membership from

seventeen regional jurisdictions, eleven of which are currently

core members of CARICOM.

13 A regulatory or supervisory college generally refers to

a working group of national banking supervisors that have

supervisory responsibility for entities in a cross border group,

which is formed for the collective purpose of enhancing

effective consolidated supervision of the cross border banking

group on an ongoing basis.

colleges organised by Canada’s Office of the

Superintendent of Financial Institutions (OSFI) in

relation to Canadian cross-border banks.

3.1.3.4. ASBA

Bank of Jamaica is a member of the hemispheric

group, the Association of Banking Supervisors

of the Americas (ASBA). During 2015, the Bank

remained an active contributor to the work of the

organisation, and was appointed as the Caribbean

representative on the ASBA Board for a two year

term.

3.1.3.5. Caribbean Financial Action Task Force

(CFATF)

In another area of regional involvement, three

staff members, two of whom have been trained

as ‘financial sector experts’ to undertake CFATF

AML/CFT Country Reviews, participated in CFATF

plenaries and contributed to the dialogue on

enhancing AML/CFT frameworks of member

countries (see Section 3.1.2.4)

3.1.3.6. Caribbean Regional Technical Assistance

Centre (CARTAC)

At the request of CARTAC , a senior staff member

conducted training sessions on “Credit Risk” in

a joint CARTAC/Caribbean Association of Credit

Union Supervisors regional training programme on

credit unions supervision.14

3.1.4. The Supervised Environment

During 2015, the market composition and total

number of licensed DTIs operating in Jamaica

(11) was unchanged (see Tables 36 and 37).

Amidst increased service offerings through

technologically-driven delivery channels such

as internet banking and ATMs, licensees offered

their services through a reduced physical branch

14 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.


Bank of Jamaica

network of 161 locations compared with 165 in

2014

A notable development during the year, was

Ministerial Approval being granted to Jamaica

National Building Society (JNBS) during September

2015 for the conversion of the society to a

commercial bank (subject to conditions) and

reorganization of the corporate group. At year

end, JNBS was working on fulfilling the conditions

of approval.

During the year, the combined asset base of

the DTI system increased by 9.5 per cent or

$103.2billion to $1,194.1 billion, somewhat slower

than the growth of 11.6 per cent or $113.0 billion

during 2014.15 The moderated expansion resulted

primarily from the reduced impact of revaluation

15 Assets include acceptances, guarantees and letters

of credits and are shown net of provisions for losses under

International Financial Accounting Standards

gains on the foreign currency portfolio, reflecting

a slower pace of depreciation in the Jamaican

Dollar relative to 2014. Core growth was evident in

loans (10.0 per cent or $48.6 billion), investment

securities (8.1 per cent or $26.1 billion) and sundry

assets (26.1 per cent or $19.6 billion). Asset

growth was funded primarily by deposit inflows

(11.9 per cent or $82.1 billion) and shareholders’

equity (10.0 per cent or $16.1 billion).

Assets of the commercial banking sub-sector,

grew by 10.5 per cent or $87.3 billion to $916.9

billion (12.0 per cent or $88.7 billion in 2014).

Consequently, market share of this sub-sector

inched up to 76.8 per cent from 76.0 per cent (see

Table 38). While all commercial banks reported

larger asset bases when compared with the

previous year, market leaders, NCBJ and BNSJ,

collectively commanded a smaller share of the

market of 72.8 per cent at end-2015, relative to

74.2 per cent at end-2014.

Growth in building societies’ assets slowed to

7.2 per cent from 8.9 per cent reported at end of

2014, resulting in a smaller share of system assets

at 20.7 per cent relative to 21.1 per cent at end-

2014. All building societies recorded assets growth

during year, although the two largest institutions

accounted for a reduced 90.1 per cent share of

the sub-sector’s assets relative to 90.3 per cent

at end 2014.

Merchant banking assets contracted by 2.1 per

cent in contrast to growth of 22.2 per cent in 2014,

resulting in a reduction in the share of the market

to 2.5 per cent from 2.8 per cent in 2014.

Table 36

Table 37

Supervised Entities

2011 2012 2013 2014 2015

Commercial Banks

7 7 7 6 6

Merchant Banks 2 2 2 2 2Building Societies

4 4 3 3 3

Total 13 13 12 11 11

MARKET COMPOSITION (Number of Licensed Deposit-taking Entities)

Sub-sector Institution NameRelated Deposit-taking Institution

Bank of Nova Scotia Jamaica Limited

Scotia Jamaica Building Society

Citibank N. A.

FirstCaribbean International Bank (Jamaica) LimitedFirst Global Bank Limited

National Commercial Bank Jamaica LimitedSagicor Bank (Jamaica) Limited

JMMB Merchant Bank Limited

MF&G Trust and Finance LimitedJamaica National Building Society

Scotia Jamaica Building Society Bank of Nova Scotia Jamaica Limited

Victoria Mutual Building Society

LICENSED DEPOSIT-TAKING INSTITUTIONSas at 31 December 2015

Commercial Banks

Merchant Banks

Building Societies

J$BN % J$BN % J$BN %

Commercial Banks 741.0 75.8 829.6 76.0 916.9 76.8

Buildings Societies 211.5 21.6 230.3 21.1 246.7 20.7

Merchant Banks 25.4 2.6 31.0 2.8 30.4 2.5

System Total 977.9 100.0 1 090.9 100.0 1 194.0 100.0

MARKET SHARE (%) OF LICENSED DEPOSIT TAKING INSTITUTIONS

2013 2014 2015

Table 38

- 45 -

Annual Report 2015


Chart 26: Profile of System Assets as at 31December 2013 - 20153.1.4.1. Balance Sheet Profile

The profile of DTI’s assets portfolios was largely

unchanged as compared to December 2014.The

system’s stock of loans and advances expanded

by 10.0 per cent or $48.6 billion (largely to the

productive sector) to total $533.9 billion for 2015.

This increase compared to slower growth of 6.3 per

cent or $28.7 billion during 2014. The accelerated

credit growth rate was reflected in domestic

currency loans which expanded by 10.5 per cent

or $39.6 billion, relative to $35.6 billion in 2014.

Foreign currency denominated loans increased

by $7.2 billion or US$10.1million in contrast to

contraction of $4.9 billion or US$129.7million in

2014.16 Consequent on a faster growth rate, the

proportion of loans to assets was 44.7 per cent

compared to 44.5 per cent at end 2014 (see Chart

26).

Although incremental investments (including

repurchase transactions) of $26.1 billion (8.1 per

cent to total $349.7 billion) was notably lower than

the increase of $68.2 billion (26.7 per cent) for

the previous year, total holdings as a percentage

of assets declined marginally to 29.3 per cent,

compared to the previous share of 29.7 per cent.

Growth was largely reflected in miscellaneous

overseas securities of $22.1 billion and Government

of Jamaica instruments of $16.7 billion, which

were partially funded by matured repurchase

transactions and BOJ domestic currency securities.

Cash and Bank balances reflected decelerated

growth of 1.7 per cent or $3.2 billion to $195.8

billion, relative to the 3.1 per cent or $5.8 billion

recorded for 2014. Cash and Bank balances

consequently accounted for a reduced 16.4 per

cent of total assets at year-end, compared to

17.7 per cent at end 2014. The outturn for 2015

was largely evident in cash reserve balances with

16 References to US dollar values represent the USD

equivalent of all foreign currencies. Bank of Jamaica Weighted

Average Selling rates utilized: December 2015: US$1:00 =

J$120.4150 and December 2014: US$1= J$114.6607

BOJ of $7.3 billion and placements with other

DTIs of $4.3 billion, which were partially offset by

withdrawals from local and overseas banks.

Deposit expansion of 11.9 per cent or $82.1

billion to $771.9 billion (including foreign exchange

revaluation gains of $16.7 billion) was the highest

reported in ten years and represented the most

significant source of funding for DTIs during

2015. Domestic currency deposits were the major

contributor during the year with inflows of $44.6

billion compared with $11.2 billion in 2014. Foreign

currency deposits increased by $37.5 billion

or US$229.9 million relative to previous growth

of $38.7 billion or US$105.9 million in 2014. All

sub-sectors benefited from new deposit funding,

with commercial banks dominating the system

with inflows of $64.1 billion, followed by building

societies, $15.8 billion and merchant banks, $2.1

billion.

During 2015, borrowings (including repurchase

transactions) contracted by 5.1 per cent or $8.8

billion to $165.4 billion, in contrast to increased

funding of 32.2 per cent or $42.5 billion in 2014.

Net reductions were reported in repurchase

agreements of $47.0 billion (primarily with BOJ)

which were partially offset by new borrowings from

overseas and local institutions of $30.3 billion and

$7.9 billion, respectively.

8.1 8.2 9.6

19.10 17.65 16.40

26.1 29.7 29.3

46.7 44.5 44.7

0102030405060708090

100

2013 2014 2015

Per c

ent

Other Cash & Bank Balances Investments (incl. Reverse Repos) Loans


Bank of Jamaica

Shareholder’s equity provided supplementary

funding to assets, reflecting an increase of 10.0 per

cent or $16.1 billion, (11.3 per cent or $16.4 billion

in 2014). The increase was largely attributable to

the commercial banking sub-sector with increased

profits of $9.8 billion which served to reduce capital

impairments by $2.4 billion.

The system’s foreign currency denominated

asset portfolio grew by 5.8 per cent or US$223.0

million during 2015 compared to 5.9 per cent or

US$215.3 million for 2014. The expansion was

largely reflected in investments of US$188.8

million, sundry assets of US$27.8 million and loan

and advances of US$10.1 million, while there were

withdrawals of US$50.2 million from overseas

placements. Foreign currency liabilities grew by

10.6 per cent or US$375.5 million, outpacing

growth of 2.3 per cent or US$78.8 million in 2014.

The increase in liabilities was largely due to new

deposit inflows and borrowings, resulting in a

narrowing of net long foreign currency exposure of

US$35.1 million relative to the prior year’s position

of US$182.8 million.

3.1.4.2. Liquidity

During 2015, BOJ continued to provide DTIs with

access to liquid funds through the introduction of

a three-month lending facility or the Occasional

Term Repo Operation (OTRO) in the first quarter.

Notwithstanding, impacted by credit demand and

maturities in BOJ domestic currency securities,

average holdings of domestic currency liquid assets

in relation to average domestic currency prescribed

liabilities fell for all sub-sectors, resulting in the

system’s ratio declining to 26.5 per cent from 31.5

per cent in 2014. All entities maintained liquidity

levels above the minimum requirement of 26.0 per

cent at end-2015.

Although the system held higher average balances

of US dollar liquid assets during the year, the ratio

of such assets to average US dollar prescribed

liabilities contracted from 47.8 per cent in 2014 to

46.2 per cent in 2015. This was reflective of the

faster rate of growth in reservable deposits and

other debt obligations.

Institutions complied with the required cash

reserve ratios of 12.0 per cent and 9.0 per cent for

domestic currency and foreign currency prescribed

liabilities, respectively. However, there were a few

instances of breaches emanating from the failure

of licensees to credit cash reserve accounts in a

timely manner. Consequently, applicable penalties

were imposed in accordance with the relevant

statutes.

3.1.4.3. Asset Quality

Non-performing loans (NPLs) declined by 11.6

per cent or $2.9 billion to $22.1 billion during 2015

in contrast to negligible growth of 0.2 per cent or

$0.04 billion during 2014.17 Consequently, asset

quality, as represented by the ratio of NPLs to total

loans, improved to 4.1 per cent, from 5.0 per cent

at end 2014 (see Chart 27). This improvement was

influenced by a combination of repayments, write-

offs and sales of NPLs primarily in the construction

sector.

In the context of reduced NPLs, loan loss provisions

provided increased coverage of NPLs at 106.7

per cent vis-à-vis 101.6 per cent at year-end

2014. This was despite a decline in provisions by

7.3 per cent or $1.9 billion which was in contrast

to an increase of 6.3 per cent or $1.5 billion for

2014. Combined, regulatory capital and provisions

provided increased coverage of NPLs at 686.7 per

cent, up from 574.0 per cent for 2014.

3.1.4.4. Capital

During 2015, total regulatory capital strengthened

by 9.0 per cent or $10.0 billion to total $121.2

17 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

- 47 -

Annual Report 2015


Chart 27: Annual Change in NPLs (3 Months & Over) with Ratio of NPLs to Gross Loan

billion, (growth of 8.8 per cent or $9.0 billion for

2014). Expansion for the year was concentrated

in the commercial banking sub-sector and was

organically generated from realised profits which

supported transfers to statutory reserve funds and

served to reduce capital impairment, at some

licensees.

Faster growth in assets relative to regulatory capital

resulted in stable to lower capital ratios which,

however, remained above minimum requirements.

The primary ratio (regulatory capital: total assets)

held firm at 10.8 per cent, with all licensees

maintaining individual ratios in a range of 8.3 per

cent and 18.3 per cent. The risk-weighted capital

ratio (regulatory capital to risk-weighted assets

and foreign exchange exposures) was computed

at 14.9 per cent for the system, below the 15.8 per

cent at end-2014. All entities reported 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

Pre-tax profits for 2015 stood at $23.8 billion

which represented an increase of 12.8 per cent or

$2.7 billion over results for 2014. This translated

to a Pre-Tax Profit Margin of 20.0 per cent and a

Return on Average Assets (ROAA) of 2.1 per cent,

compared with ratios of 18.5 per cent and 2.0 per

cent, respectively, for 2014.

Despite some softening in interest rates, net

interest income increased by 7.7 per cent or $4.5

billion to $62.6 billion on account of higher loan

income on a larger stock of loans, and reduced

expenses on borrowings given matured repurchase

transactions. The system’s Net Interest Margin

reflected marginal contraction to 6.5 per cent

relative to 6.7 per cent for 2014.

Non-interest income sources contributed $1.9

billion to the improvement in profit performance.

The increase was primarily reflected in fees and

commissions of $2.8 billion, the impact of which

was tempered by reduced gains arising from

dividends and sale of securities amounting to $0.8

billion and from foreign exchange transactions

$0.4 billion impacted by lower revaluation gains

given a slower pace of depreciation during

2015. Growth in non-interest income was offset

by increased sundry expenses of $3.3 billion as

licensees incurred higher fees and charges and

staff expenses.

3.1.5. Credit Unions

3.1.5.1 Proposed Bank of Jamaica (Credit

Unions) Regulations Credit Unions

Regulations

Bank of Jamaica’s prospective assumption of

supervisory oversight for credit unions will involve

passage of two companion pieces of legislation

through Parliament, the Bank of Jamaica (Credit

Unions) Regulations to be issued under the Bank of

Jamaica Act and amendments to the Co-operative

Societies Act. Pending the promulgation of the

Regulations, oversight responsibility for the credit

union sector remains vested in the Department

of Co-operatives and Friendly Societies as the

statutory oversight agency, while the Jamaica

Co-operative Credit Union League continues to

undertake an industry self-regulatory role.

During 2015, the Bank of Jamaica had further

consultations with the credit union sector, which

28.725.0 25.1 22.1

7.0

5.4 5.04.1

012345678

0

5

10

15

20

25

30

35

2012 2013 2014 2015

Pe

r ce

nt

J$ B

illi

ons

Stock of Non Performing Loans Ratio of NPLs to Gross Loans


Bank of Jamaica

culminated in the issue of drafting instructions

for the proposed Regulations by the Minister of

Finance and Planning to the Office of the Chief

Parliamentary Council in December 2015.

The Regulations will provide for a licensing regime

as well as 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.

The Regulations will also detail remedial actions

that can be taken by the Supervisory Authority

with respect to unsafe and unsound practices and

insolvency. Significantly, with the implementation

of a prudential oversight regime, all volunteers,

managers and key employees will be required to be

assessed as fit and proper persons for the roles to

be performed at credit unions. It is also expected

that credit unions will become policy holders under

the Deposit Insurance Scheme administered by the

Jamaica Deposit Insurance Corporation, which will

see credit union members’ savings being insured

up to the prescribed limit.

3.1.5.2 Credit Union Sector Performance

Highlights

Merger activity continued during the year, with the

sector showing further contraction to 34 at end

2015 from 37 constituents at the start of the year,

.18 Despite the contraction, credit unions deployed

their services to members through a combined

network of 89 branches, sub-branches and

agencies, as compared to 87 at the end of 2014.

Reported total assets of $89.0 billion at end-

18 The three (3) mergers finalised during 2015 were. St.

Thomas Co-operative Credit Union Limited with First Heritage

Co-operative Credit Union Limited effective 1 March 2015:

ii. AAMM Co-operative Credit Union Limited with UWI

& Mona Co-operative Credit Union Limited to form Educom

Co-operative Credit Union Limited effective 1 April

2015; and iii. ICD Co-operative Credit Union Limited with

C&WJ Co-operative Credit Union Limited, effective 1

June 2015.

2015, reflected an increase of $6.7 billion or 8.1

per cent above the $82.3 billion reported at end-

2014. Incremental assets were evidenced mainly

in the growth of $3.8 billion or 6.7 per cent in the

loan portfolio, (primarily consumer lending) and

increased placements of $1.3 billion or 13.9 per

cent, (primarily with the League). Asset expansion

was funded largely by a $5.4 billion or 8.7 per

cent growth in the savings fund, which primarily

represented member’s savings which increased by

$4.4 billion (9.9 per cent) to total $49.1 billion (see

Table 39).

Unaudited prudential returns submitted to the Bank

of Jamaica up to 31 December 2015 revealed that

year-to-date surplus for this sector contracted by

$0.3 billion or 24.8 per cent to total $1.0 billion ($1.4

billion for the year 2014). The reduced performance

was reflective of a faster rate of growth in interest

expense and overheads ($0.6 billion or 5.7 per

cent consequent on increased deposits and staff

expenses) as against incremental income ($0.5

billion or 4.5 per cent). The sector’s profitability

Table 39

2013 Change 2014 Change 2015

INDICATORS $BN % $BN % $BN

Total Assets ($BN) 76.6 7.4 82.3 8.1 89.0Total Loans ($BN) 52.4 6.3 55.7 6.7 59.5PDL (>3months) 1.7 12.8 1.9 28.8 2.4Capital Base 9.1 6.7 9.7 4.5 10.1Total Savings Fund ($BN)

58.6 6.4 62.3 8.7 67.7

Members Savings 41.4 7.7 44.6 9.9 49.1Fixed/Term Deposits

17.1 3.4 17.7 5.4 18.7

Borrowings from 1.5 26.4 1.9 -11.5 1.7EARNINGS $BN % $BN % $BN

Total Income 10.2 6.8 10.9 5.7 11.5Interest Income 8.9 6.7 9.5 5.6 10.0Total Expense 9.5 1.6 9.6 7.9 10.4Interest Expense 2.0 3.3 2.1 13.3 2.3Net Profits 0.7 109.5 1.4 -24.8 1.0

RATIOS % % %PDL: Total 3.2 3.3 4.0Loans: Savings Ratio 89.5 89.4 87.9Capital Base: Assets 11.8 11.8 11.4Profit Margin (Net 6.5 13 9ROAA 0.9 1.7 1.2

DEMOPGRAPHIC PROFILE 2013 % 2014 % 2015

Number of Credit Unions (Actual) 38 -2.6 37 -8.1 34

Membership (Actual) 1 003 200 2.4 1 027 592 -2.6 1 000 732

Total number of Deposit Accounts(Actual) 1 976 091 3.4 2 043 146 5.6 2 158 270

COMPARATIVE KEY CREDIT UNION INDICATORSDecember 2013 - 2015

- 49 -

Annual Report 2015


indicators therefore reflected softer outturns as

evidenced by the net profit margin and return on

average asset ratios of 9.0 per cent and 1.2 per

cent respectively (12.7 per cent and 1.7 per cent

for 2014).

The credit union sector accounted for a marginally

lower 6.9 per cent (2014: 7.1 per cent) of the

$1,282.9 billion in assets held by the combined

deposit-taking sector (including credit unions) at

end of 2015.

3.1.6. Credit Reporting

Bank of Jamaica is the designated Supervising

Authority under the Credit Reporting Act (CRA) and

is charged with maintaining a general review of the

practice of credit bureaus in Jamaica. During 2015,

Bank of Jamaica continued its implementation of

the operational and supervisory framework for the

credit reporting system.

Since implementation of the CRA, three credit

bureaus have been licensed by the Minister of

Finance based on recommendations from the

Bank of Jamaica. These are: 1. Creditinfo Jamaica Limited

(licensed March 2012);

2. CRIF NM Credit Assure Limited

(licensed April 2012) and

3. Credit Information Services

Limited (licensed August 2014).

As with the earlier licensed credit bureaus, the most

recent licensee CIS, was granted a twelve month

period after licensing within which to complete

operational arrangements and demonstrate

readiness to issue credit reports under the CRA.

CIS satisfied these post licensing conditions during

the year.

3.1.6.1 Market Activity

There was an increased level of credit reporting

activity reported by the two earlier licensed

credit bureaus that had commenced the issue

of credit reports during 2013. This was reflected

in increases in the number of credit information

providers exchanging credit information with credit

bureaus, and in the number of credit reports issued

(see Table 40).

3.1.6.2. Consumer Complaints

Pursuant to Section 16(1) of the CRA, a consumer

who disputes the accuracy or completeness of

any information disclosed by a credit bureau in

relation to that consumer may make a complaint

in person or in writing to the credit bureau. The

credit bureau shall as soon as is reasonably

practicable, and in any event not later than 14

days after the complaint is made, take steps to

correct or complete the information as the case

may require, in order to ensure the accuracy and

completeness thereof [Section 16(2)(a)]. Where

a consumer is dissatisfied with any step taken by

the credit bureau, the consumer may complain in

writing to the Supervising Authority within 30 days

after receiving the report of his complaint from the

credit bureau [Section 16(3)(a)].

Chart 28: Profile of Assets Held by Deposit Sector (incl Credit Unions) December 2015

Table 40

2014 2015

No. of reports issued during the year 69 939 129 698

No. of signed credit information providers* 53 69

No. of signed credit information providers submitting data 18 19

CREDIT REPORTING ACTIVITYas at 31 December

Credit Union $88.96 Bn

6.9%

Merchant Bank $30.30 Bn

2.4%

Commercial Bank $916.89 Bn

71.5%

Building Society $246.73 Bn

19.2%


Bank of Jamaica

The Bank of Jamaica monitors the credit reporting

market to ensure that consumers’ complaints are

adequately addressed for resolution within the

provisions of the CRA. For 2015, the two credit

bureaus in operation reported having received a

combined total of 410 consumer complaints which

represented 0.3 per cent of total credit reports

issued during the year. There were two cases of

consumer complaints that were escalated to the

Supervising Authority. At year end, one had been

satisfactorily resolved and the other was in process

of investigation.

3.1.6.3. 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)], without the requisite

licence under the Act. In this regard, at year-end

there were three instances of possible breach

which were in process of investigation by the Bank.

3.2. Regulation of Cambios and Remittance

Companies

During 2015, the Bank continued to discharge

its regulatory function in respect of Cambios and

Remittance Service Providers (RSPs), with special

focus on ensuring the effectiveness of licensees’

AML/CFT compliance programs. Notably, the

adequacy of the Bank’s supervisory framework

was assessed by the Caribbean Financial Action

Task Force (CFATF) in 2015 under its 4th Round

Mutual Evaluation Exercise.

The importance of maintaining an effective

regulatory framework was underscored by the

challenges faced by Cambios and RSPs during the

year, in respect of retaining banking services in the

context of de-risking by overseas correspondent

banks. These challenges were manifested in the

closure of foreign and local currency accounts

held by some Cambios and RSPs with commercial

banks. In addition, some of these institutions were

unable to sell foreign currency cash to commercial

banks. Further, deposit-taking institutions (DTIs)

who act as surrender agents, by accepting funds

on behalf of BOJ under the Bank’s Surrender

Requirement, decided against accepting cash

surrenders from cambios. In response, effective 17

August, the Bank granted a 6-month moratorium

on cash surrenders to cambios that were impacted

by the action of DTIs.

The Bank continued to employ a two-pronged

supervisory methodology whereby on-site

inspections were supported and informed by

rigorous in-house monitoring of the operations of

these entities, to assess adherence to the Bank’s

Operating Directions (Operating Directions) and

the Anti-Money Laundering (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. This assessment process informs and

guides the issuance and renewal of licences. In

this regard, 226 persons were assessed in 2015.19

3.2.1 Cambios

During 2015, 3 new cambio licences were issued

while 12 were voluntarily surrendered by the

Operators. One (1) new company entered the

cambio market while six (6) ceased offering cambio

services during the review period. Consequently,

19 Of note, Operators include 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 is defined as persons holding 10.0 per cent

or more of shares of the relevant company.

- 51 -

Annual Report 2015


the number of companies which offer cambio

services was reduced to 61 compared to 66 at

end-2014. The total number of cambio outlets at

end- 2015 was 150, compared to 159 at end-

2014 (see Table 41).

Kingston and St. Andrew continued to account

for the largest concentration of cambio outlets at

end-2015, followed by St. James, St. Catherine

and St. Ann (see Chart 29). Cambios commanded

42.6 per cent of total foreign exchange market

sales in 2015, a decrease of 4.4 pps relative to

2014. This occurred in a context where de-risking

by correspondent banks resulted in some cambios

losing commercial banking services, which

constrained their ability to settle trades.

3.2.2. Remittance Service Providers (RSP)

The number of RSPs (Primary Agents) remained at

eight (8) in 2015.20 The Primary Agents continued to

offer inbound, outbound and intra-island services.

Inbound remittances continued to flow mainly from

four main countries, the USA, UK, Canada and the

Cayman Islands, with the USA remaining the major

source for these inflows in 2015.

One hundred and thirty one (131) new licences

were issued in 2015 thereby authorising

remittance operations at an additional 28 outlets

through a network of branches and sub-agents.

20 Companies licensed in Jamaica to offer remittance

services as agents of remittance companies domiciled

overseas. They are authorised to offer the service in Jamaica

through sub-agents.

Table 41

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

2014 2015

New Locations Licensed 5 3

Locations Closed 14 12

Number of Locations 159 150

Number of Companies 66 61

STATUS OF CAMBIO LICENCESas at 31 December

2014 2015

New Locations Licensed 39 28

Locations Closed 82 27

Number of Locations 401 402

New Licences Issued 69 131

Licences Relinquished/Revoked 95 46

Number of Licences 573 658

Number of Primary Agents 8 8

STATUS OF REMITTANCE LICENCESas at 31 December

Table 42

Chart 30: Geographic Distribution of Remittance Outlets at end-December

Clar = Clarendon, Han = Hanover, Kgn & St And = Kingston & St. Andrew, Man = Manchester, Portl = Portland, St A = St. Ann, St. Cath = St Catherine, St. Eliz = St. Elizabeth, St. Jam = St. James, St M = St. Mary, St. Th = St. Thomas, Trel = Trelawny, West = Westmoreland

0

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Per c

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20142015

Clar = Clarendon, Han = Hanover, Kgn & St And = Kingston & St. Andrew, Man = Manchester, Portl = Portland, St A = St. Ann, St. Cath = St Catherine, St. Eliz = St. Elizabeth, St. Jam = St. James, St M = St. Mary, St. Th = St. Thomas, Trel = Trelawny, West = Westmoreland

0

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2015


Bank of Jamaica

3.3. Financial System Stability Assessment of

DTIs

3.3.1. Overview

DTIs remained robust to hypothetical shocks

conducted by the BOJ during 2015.1,2 In particular,

DTIs were largely resilient to the Bank’s stress tests

during the year, predominantly due to continued

strong capital positions. Stress test results revealed

that the average post-shock capital adequacy

ratios (CARs) for the banking system generally

remained above the 10.0 per cent minimum

benchmark, in response to extreme but plausible

hypothetical credit, foreign exchange, interest

rate and liquidity shocks. In addition, signals from

the BOJ’s macro-financial and micro-prudential

indices remained well below crisis threshold levels.

Against the background of continued improvements

in loan quality, credit risk stress test results showed

that the system was largely resilient to hypothetical

shocks to non-performing loans (NPLs) during the

year. An application of a range of positive shocks to

NPLs between 100.0 per cent to 350.0 per cent at

end-2015, demonstrated that an increase in NPLs

of 307.0 per cent would bring the sector below

the 10.0 per cent prudential minimum CAR. This

result is predominantly influenced by the response

of commercial banks.

After market-related stress tests, DTIs remained

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.

generally resilient to hypothetical market factor

shocks over the review period. Regarding exposure

to foreign exchange rate shocks, DTIs’ net open

position to capital decreased for the period

ending December 2015. Additionally the sector

demonstrated reduced susceptibility to the tested

depreciation and appreciation in the exchange rate.

The financial system also demonstrated reduced

weakness to interest rate shocks as the dollar

value of a basis point (DVBP) to capital base ratio

declined at end-2015 compared to end-2014.

Within the context of the above described stress

tests results, the value of the Bank’s macro-

financial index (MaFI), which comprises 18 key

macroeconomic indicators, improved at end-

2015 relative to end-2014.3 This performance

predominantly reflected lower risk signals from

indicators of volatility and economic prices.

Additionally, the Bank’s micro-prudential index

(MiPI) for DTIs, comprising 21 key financial ratio

indicators, showed improvement at end-2015

compared to end-2014.4 This improvement

3 The macroeconomic indicators are categorized as follows:

12-Month Measures - 12-month growth in CPI, 12-month

growth in GDP, 12-month growth in stock market index,12-

month growth in private sector credit; Fiscal Measures - central

government deficit as a percent of GDP, credit to public

sector as a percent of GDP, National debt as a percent of

GDP, external debt as a percent of 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

as a percent of GDP, M2 as a percent of net international

reserves, money multiplier.

4 The financial ratios are categorized as follows: Balance

Sheet Structure – Capital as a percent of assets, loans as a

percent of capital, deposits as a percent of loans, deposits

as a percent of total assets, liquid assets as a percent of total

assets, deposits & repos as a percent of assets, public sector

loan as a percent of assets, financial inst. loans as a percent of

total loans, investments as a percent of assets; Asset Quality -

non-performing loans as a percent of assets, non-performing

loans as a percent of total loans, reserve for loan losses as a

percent of total assets, loan & sec. loss prov. as a percent of

assets; Profitability - implicit deposit rates, employee salaries

as a percent of assets, non-interest income as a percent of

assets, interest income as a percent of assets, net income as

a percent of assets and Other Indicators - FX liabilities as a

Concurrently, 46 licences representing 27 outlets

were relinquished during the review period. As a

result, the number of licensed outlets increased

to 402 at end-2015 relative to 401 at end-2014

(see Table 42). Kingston & St. Andrew continued

to account the largest concentration of remittance

outlets (see Chart 30).

- 53 -

Annual Report 2015


was due to improvements in the balance sheet

indicators of the MiPI of the DTI sector.

3.3.2. Credit Risk Stress Tests

DTIs’ loan quality as measured by the ratio of NPLs

to total loans improved during 2015. In particular,

the ratio of NPLs to total loans for the DTI sector

decreased to 4.1 per cent at end-2015, relative

to 4.9 per cent at end-2014. The improvement

in loan quality was primarily reflected in NPLs for

the distribution, construction and manufacturing

categories which together accounted for

approximately 18.2 per cent of total loans.

Regarding shocks to NPLs, the DTI sector

remained robust up to a hypothetical 307.0 per

cent increase in NPLs at end-2015; whereby the

CAR of the DTI sector would just breach the 10.0

per cent CAR benchmark. This result reflects an

improvement in resiliency when compared to end-

2014 when an increase of 269.0 per cent in NPLs

would result in CAR of the DTI sector falling just

below the prudential minimum (see Chart 31). This

higher stress point for the post-shock CAR for the

DTI sector at end-2015 was largely due to a lower

NPL at the end-2015.

Results from the application of a range of

hypothetical sectoral shocks to performing loans

showed that at end-2015, the CAR for the DTI

sector was most impacted by shocks to personal

loans.5 Following a hypothetical shock of 25.0

per cent to this loan category, the CAR of the DTI

sector would fall by 5.1 pps to 9.9 per cent at end-

2015, to breach the prudential benchmark of 10.0

per cent. This result represents a deterioration

relative to that which was obtained at end-2014,

when it would take a reduction of at least 28.0 per

cent in performing personal loans for the CAR of

the DTI sector to fall below the prudential minimum

percent of FX assets, FX deposits as a percent of FX assets,

12-month growth in deposits.

5 Mortgage loans are included the personal loan category for

building societies.

(see Chart 32).

3.3.3. Foreign Exchange Risk Stress Test Results

DTIs’ susceptibility to foreign exchange risk

declined for 2015 relative to 2014. Specifically, the

ratio of foreign currency net open position (NOP)

to capital declined sharply to 1.24 per cent at

end-2015 relative to 18.8 per cent at end-2014,

partly reflecting some institutions converting their

foreign currency assets to repay Jamaica Dollar

obligations. Correspondingly, the stress test

results as at end-2015 showed that the CAR of

the DTI sector was unchanged at 15.0 per cent in

response to 50.0 per cent hypothetical depreciation

and appreciation in the exchange rate (see Chart

33).

3.3.4. Interest Rate Risk Stress Tests

DTIs’ continued to demonstrate resilience to

Chart 31: Banking Sector: Impact on CAR from an Increase in NPLs

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Initial CAR 150 200 250 300 350

Cap

ital A

dequ

acy

Rat

io (P

er c

ent)

Hypothetical Shocks to NPL (Per cent)

Post-Shock CAR 2014Post-Shock CAR end-2015Regulatory Minimum

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Initial CAR 10 20 30

Cap

ital A

dequ

acy

Rat

io (P

er c

ent)

Hypothetical Shocks to Personal Performing Loans

Post-Shock CAR- end-2014Post-Shock CAR- end-2015Regulatory Minimum

Chart 32: Banking Sector: Impact on CAR from a Reduction in Personal PLs


Bank of Jamaica

routine interest rate stress tests applied during

2015. In particular, following highest applied set of

hypothetical increases of 1400 bps/400 bps & 350

bps/70 bps in interest rates on domestic/foreign

rate sensitive assets and liabilities, respectively,

the sector-CAR for DTIs was unchanged at 15.0

per cent at end-2015.6 7 This was in line with stress

testing results obtained for the previous year. In

addition to the robust performance of the DTIs to

the contemplated interest rate shocks, the DVBP

to capital base ratio declined to 11.3 per cent at

end-2015 relative to 13.9 per cent at end-2014.

This suggested an improvement in the systems’

ability to absorb interest rate shocks (see Chart

34).8

6 Interest rate 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 and net interest

income assessment. Increases of 100 bps to 400 bps and 15

bps to 70 bps are applied to the domestic and foreign non-

investment components respectively.

7 Re-pricing net gap positions are computed for eacRe-

pricing net gap positions are computed for each re-pricing

bucket. 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.

8 DVBP is the loss in net interest income generated from

shocks to the system’s foreign and domestic securities portfolio

and reported as a percentage of the system’s capital base.

5.0

10.0

15.0

20.0

Initial CAR Shock1=10%

Shock2=20%

Shock3=30%

Shock4=40%

Shock5=50%

Cap

ital A

dequ

acy

Rat

io (P

er c

ent)

Post -Shock CAR- end-2014Post-Shock CAR- end-2015Regulatory Minimum

Chart 33: Banking System Foreign Exchange Risk Stress Test Results

Note: This stress tests involve 10.0 per cent to 50.0 per cent depreciation and appreciation in the Jamaica Dollar vis-à-vis the US dollar. Shocks are applied firstly to the exchange rate between the Jamaica Dollar and the US dollar. The corresponding exchange rates of the Jamaica Dollar vis-à-vis the Euro, the Canadian dollar, and the Pound Sterling were then incorporated based on historical correlations with the selling rate for the US dollar between January and May 2003. The increase in NPLs on foreign currency loans is assumed to be directly related to the proportion of foreign currency loans that are extended to non-foreign currency earners. Additionally, a 100.0 per cent provisioning rate is assumed for loan losses.

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

Initial CAR Shock 11100bps

Shock 21200bps

Shock 31300bps

Shock 41400bps

Cap

ital A

dequ

acy

Rat

io (P

er c

ent) End-2014 End-2015 Regulatory Minimum

Chart 34: Banking System Interest Rate Risk Stress Test Results

Note: Interest rate 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 and net interest income assessment. Increases of 100 bps to 400 bps and 15 bps to 70 bps are applied to the domestic and foreign non-investment components respectively.

3.3.5. Liquidity (Funding) Risk Stress Tests

During 2015, the DTIs remained resilient to a

hypothetical sudden withdrawal of deposits of 60.0

per cent. It would take a reduction of 65.0 per cent

in deposits at end-2015, for the CAR for the overall

DTI sector to breach the statutory benchmark of

10.0 per cent.9 This result reflects a deterioration

relative to that obtained at end-2014 (see Chart

35). At end-2014, a hypothetical reduction of at

least 75.0 per cent in deposits would be necessary

for the CAR of the DTI sector to fall below the

statutory benchmark. The liquid assets to average

prescribed liabilities ratio averaged 27.3 per cent,

on a quarterly basis, for 2015 relative to an average

quarterly ratio of 29.4 per cent for the previous year.

This decrease reflected a weaker liquidity position

of the banking system during 2015. This decline in

liquidity was reflected in all three DTI subsectors.

The liquid assets to average prescribed liabilities

ratio for the commercial banks, building societies

and FIAs declined by 2.3 pps, 2.1 pps and 3.0

pps, respectively, to 31.1 per cent, 14.6 per cent

and 30.9 per cent.

9 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

- 55 -

Annual Report 2015


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

& 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 1.9 pps

per quarter for 2015 relative to the average decline

of 3.9 pps for 2014 (see Chart 36). Additionally, of

importance is that the post-shock CAR of the DTI

sector remained above the prudential minimum

benchmark during 2015 (see Table 43).

3.3.7. Early Warning System (EWS) Results10 The macro-financial index (MaFI) decreased by

2.0 points to 7.0 points at end-2015 relative to

end-2014 and remained well below the 1996-

1998 financial crisis threshold value of 44.0 points

(see Chart 37). This improvement in outturn largely

reflected a decrease in the signal from volatility

indicators and other economic prices. Specifically,

there was an improvement in the signal from the

volatility in exchange rates indicator which showed

no signal at end-2015 relative to 5.0 points at end-

2014. This outturn was, however, partially offset

by a deterioration in signal from fiscal indicators.

In particular, the external debt to GDP indicator

increased in severity to 5.0 points at end-2015

from 2.0 points at end-2014.

The micro-prudential index (MiPIs) for DTIs

decreased to 7.0 points relative to 17.0 points at

end-2014 and remained below the crisis threshold

throughout 2015.11 The decrease in the index for

the DTI sector was largely due to an improvement

in signals from balance sheet structure indicators.

In particular, the capital to assets, deposits to

10 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).

11 Indicators included in the micro-prudential index are

weighted by asset size.

Table 43

Mar Jun Sept Dec Mar Jun Sept Dec

Original CAR (%)

16 16 16.1 15.8 15.7 15.6 15.1 15

Post-shock CAR (%)

10.6 12 12.6 13.1 13.2 13.8 13.5 13.1

Change in CAR (pp.)

-5.3 -4 -3.5 -2.8 -2.5 -1.8 -1.5 -1.8

DTIs QUARTERLY AGGREGATE STRESS TEST RESULTS2014 2015

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Initial CAR 60 65 70 80

Cap

ital

Ad

equ

acy

Rati

o (

Per

cen

t)

Hypothetical Shocks to Liquidity

Post-Shock CAR - Dec-14Post-Shock CAR - Dec-15Regulatory Minimum

Chart 35: Banking System Funding Risk Stress Test Results


Bank of Jamaica

Chart 36: Banking Sector: Impact on CAR following Aggregate Stress Test Scenarios

loans, deposits to assets and financial institutions

loans to total loans improved. However, this

improvement was partially offset by a slight

deterioration in profitability indicators. Specifically,

the interest income to assets indicator increased in

signal severity to 4.0 points at end-2015 relative to

2.0 points at end-2014.

2.0 1.0 1.0 1.02.0 1.0

5.0 5.05.0

2.02.0

9.0

1.0

048

12162024283236404448


Inde

x

Poin

ts

BOJ variablesVolatility indicators & other economic pricesFiscal indicators12-month measures

Chart 37: Macro-Financial Index & Signaled Sub-Components: 2014 – 2015

15.0 12.04.0 5.0 3.0

2.0 5.0

4.0 5.04.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0


Inde

x Po

ints

Balance Sheet StructureAsset QualityProfitabilityOtherCrisis Threshold

Chart 38: Micro-Prudential Index & Signaled Sub-Components for Deposit-Taking Institutions: 2014 – 2015

3.4. Financial Legislation

3.4.1. Amendments to Financial Legislation

3.4.1.1. The Bank of Jamaica Act (amendments

to incorporate provisions on the matter of

Financial Stability)

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. In October 2015 these

amendments to the Bank of Jamaica Act were

passed. These amendments:-

1. Outline the Bank of Jamaica’s 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;incorporating the

development of Holding Company

legislation to allow for more effective

consolidated supervision of financial

groups that include one or more deposit-

taking institutions;

3. Establish the financial stability oversight

powers of the Bank of Jamaica in relation

to financial institutions supervised by the

Bank of Jamaica and those regulated by

the Financial Services Commission as well

as other persons who engage in the offer

of financial services whose operations

are deemed to be of systemic importance;

4. Grant the necessary powers to the Bank of

Jamaica to obtain information from

these persons at 3 above that will allow

for the assessment of risks to the financial

system (including the powers of inspection

and powers to demand information);

5. Give the necessary powers to the Bank

of Jamaica to direct and impose measures

to mitigate and control the risks from these

systemically important financial institutions

and services to the financial system.

Powers include the ability to extend liquidity

where this is deemed necessary in the

circumstances and powers to issue

0.0

5.0

10.0

15.0

20.0

25.0M

ar-1

5

Jun-

15

Sep-

15

Dec

-15

Baseline After shocks Prudential Minimum

Cap

ital a

dequ

acy

ratio

(%)

- 57 -

Annual Report 2015


framework were effected through consequential

amendments to the Bank of Jamaica Act . These

enhancements included framework updates such

as:-

a) Express recognition that the functions

of the Supervisor of banks, financial

holding companies and other specified

financial institutions (“Supervisor”), are

carried out by the Governor of the Bank;

and revision of the appointment mechanism

for the Governor pursuant to the objective

of achieving Supervisory Autonomy for the

Supervisor;

b) Codification of the objectives and mandate

for the supervision of banks, merchant

banks and building societies;

c) Expansion of the regulatory cooperation

parameters to include a wider range of

regulatory counterparts and competent

authorities for regulatory purposes generally

and to facilitate on-going supervision

of financial institutions and financial

groups, to address issues of financial

stability and resolution of financial crises,

as well as to facilitate the investigation of

financial and other crimes; and

d) Expansion of the protections for authorized

officers involved with the supervision of

banks, merchant banks and building

societies.

Financial Regulations

In July 2015, the following Regulations were

affirmed in Parliament:-

(i) The Banking Services (Deposit Taking

Institutions) (Licence Application) Rules,

(ii) The Banking Services (Deposit Taking

Institutions) (Licence Fees) Regulations,

(iii) The Banking Services (Deposit Taking

Institutions) (Hours of Opening)

(iv) The Banking Services (Deposit Taking

Institutions) (Capital Adequacy)

(v) The Banking Services (Establishment of

prescriptive rules, standards and codes

pertinent to the 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 (3) months after

the end of each financial year.

3.4.1.2. The Banking Services Act, 2014 (“BSA”)

The BSA was passed in both Houses of Parliament

in June 2014 and was brought into effect on

September 30, 2015 by Appointed Day Notice.

It repealed the Banking Act (“BA”), the Financial

Institutions Act (“FIA”), the deposit-taking and

related provisions in the Building Societies Act

and the BOJ (Building Societies) Regulations). The

Building Societies Act and the Bank of Jamaica

Act were also consequentially amended.

The enhancements to the regulatory framework

that were effected through the BSA include:

1. Establishing a comprehensive approach to

the treatment of counterparty exposures;

2. More effective implementation of

consolidated supervision with the

incorporation of enabling provisions to

licence and regulate financial holding

companies for financial groups that include

one or more deposit-taking institutions;

3. Incorporation of express corporate

governance mandates for licensees

including the mandate for licensees to

ensure their principals and key employees

are fit and proper persons;

4. Power to issue Codes of Conduct pertaining

to the operation of licensees and a Code

of Conduct on Consumer Related Matters;

5. Specifically addressing illegal deposit-

taking activities and

6. Establishing a regime by which the offer

of banking services can be undertaken

through agents.

Additional enhancements to the regulatory


Bank of Jamaica

Branches) Regulations

(vi) The (Banking Services) (Amalgamation

& Transfers) Regulations

When the Banking Services Act, 2014 was brought

into effect on September 30, 2015, the Regulations

listed below were repealed and replaced by the

Regulations that were promulgated under the

Banking Services Act.

Previous Regulations

The Banking (Licence Application Form)

Regulations, 2011

The Banking (Capital Adequacy) Regulations, 2004

The Banking (Licence Fees) Regulations, 2003

The Banking (Establishment of Branches)

Regulations, 1997

The Banking (Amalgamation & Transfers)

Regulations, 1997

The Banking (Hours of Opening) Regulations, 1992

The Financial Institutions (Licence Application

Form) Regulations, 2011

The Financial Institutions (Capital Adequacy)

Regulations, 2004

The Financial Institutions (Licence Fees)

Regulations, 2003

The Financial Institutions (Amalgamation &

Transfers) Regulations, 1997

The Financial Institutions (Establishment of

Branches) Regulations, 1997

The Building Societies (Licence Fees) Regulations,

1995

Pending Amendments To FIinancial Legislation

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 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 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

draft regulations contain the substantive prudential

requirements to which credit unions will be subject

once the aforesaid regulatory regime comes into

effect.

Pending Amendments To FIinancial Legislation

(Regulations, Rules, Codes of Conduct)

Agent Banking Regulations under the Banking

Services Act, 2014

Section 108 of the Banking Services Act (“BSA”)

contains enabling provisions which facilitate the

offering of certain banking services through agent

operations. These provisions allow the widening of

banking access channels beyond existing deposit

taking institutions’ (“DTIs”) branch networks and

electronic access channels, to include the use

of third-party-owned locations that, will offer

banking services alongside their own products

and services. This widening of the channels of

delivery of banking services, to include non-bank

agents, creates an increased risk to the financial

services sector which has to be met with adequate

regulation of this area. Accordingly regulations will

be developed to operationalize section 108 of the

BSA.

These regulations will, among other things:

i. prescribe the application process and

eligibility requirements for involvement in

agent banking;

ii. outline the responsibilities and obligations

of the appointing deposit taking institution

and its agent;

iii. establish the operating parameters of the

agent banking space; and

iv. address the matter of breaches, offences

and applicable penalties and sanctions.

Drafting instructions to the office of the Chief

- 59 -

Annual Report 2015


Parliamentary Counsel were in development at

end-2015.

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). The Bank

of Jamaica (Credit Unions) Regulations remain a

separate legislative initiative that will be finalized

separately from the regulations being developed

under the Banking Services Act, 2014.

3.4.2. Non-Financial Legislation Passed

In relation to the AML/CFT framework and the

financial system, no legislation was passed in

2015.

- 60 -

4. Financial Market Operations

4.1. Open-Market Operations

4.1.1. Bank of Jamaica Liquidity Management

Operations

During 2015, the Bank continued to conduct

liquidity management operations through regular

offers of its sterilization instruments, 30-day

Certificates of Deposits (CDs) and overnight

deposits. Additional sterilization operations were

effected using special instruments, with tenors

that were longer than those for the regular CDs.

The Bank’s liquidity management operations also

included the provision of liquidity assurance to

the financial system through the offer of 14-day

and overnight repurchase agreements to deposit-

taking institutions. Liquidity provision during 2015

was effected at various spreads above the 30-day

CD which remained the benchmark for signaling

the Bank’s monetary policy stance. In this regard,

the rates offered on these facilities reflected both

the narrowing of the interest rate corridor and the

reduction of the Bank’s policy rate (see Chart 39).2

2 Of note, the rate on the 30-day CD was reduced in the June and September quarters, by 25 bps in each instance, to end the year at 5.25 per cent. The interest rate on overnight deposits was held at 0.25 per cent for the year.

There were net maturities of the instruments offered

in the Bank’s sterilization operations which resulted

in a net liquidity injection of $17 259.1 million. This

injection occurred in all quarters with the exception

of the September quarter. Specifically there were

net maturities on CDs of $3 364.9 million, $8 259.3

million and $8 460.7 million in the March, June

and December quarters, respectively. During the

September quarter there were net placements on

CDs amounting to $2 825.8 million (see Table 44).

The net injection during the year was attributed to

the net redemption on the longer-tenor CDs. In

this regard, there was a net maturity of $11 965.1

million on the longer tenor CDs the impact of which

was partially offset by net issue of $464.6 million

on 30-day CDs (see Table 45 and 46). The net

maturity on these CDs occurred in all quarters, with

the exception of the June quarter, and may reflect

waning investor interest in variable rate instruments

given the sustained decline in interest rates during

the year.

The issuance of longer-tenor CDs comprised

mainly variable rate instruments, amounting to 23

instruments compared with 39 issues during the

previous year. In addition, the Bank issued two

fixed rate US dollar Indexed Notes and allocated

via competitive auctions, two Jamaica Dollar Chart 39: Interest Rates/ Average Yields on Standard Sterlization and Liquidity Provision Instruments 2015

Table 44

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

5-Ja

n19

-Jan

2-Fe

b16

-Feb

2-M

ar16

-Mar

30-M

ar13

-Apr

27-A

pr11

-May

25-M

ay8-

Jun

22-J

un6-

Jul

20-J

ul3-

Aug

17-A

ug31

-Aug

14-S

ep28

-Sep

12-O

ct26

-Oct

9-N

ov23

-Nov

7-D

ec16

-Dec

28-D

ec

Standing Liquidity Facility Weekly 14-day RepoBOJ 30-Day CD Bi-weekly 14-day Repo

Mar-15 Jun-15 Sep-15 Dec-15 TotalOperations in Certificates of DepositNet issues (-) /Net maturities (+) 3 364.9 8 259.3 -2 825.8 8 460.7 17 259.1Repurchase Issue(+) / Repurchase Maturity (-) -17 407.6 -19 788.2 6 638.5 1 379.9 -29 177.4TOTAL OPEN-MARKET OPERATIONS Net Absorption (-) / Net Injection (+) -14 042.7 -11 528.9 3 812.7 9 840.6 -11 918.3Foreign Exchange Transactions Net Sale (-) / Net Purchase(+) 44 464.8 32 085.1 11 648.2 19 531.0 107 729.0Domestic Cash Reserve Net increase (-)/net Decrease (+) - 826.9 -1 290.1 - 554.8 - 879.4 -3 551.2BOJ Operations Net Absorption (-) / Net Injection (+) 29 595.2 19 266.1 14 906.1 28 492.1 92 259.5

BANK OF JAMAICA LIQUIDITY OPERATIONS

- 61 -

Annual Report 2015

Financial Market Operations

fixed rate CDs. The auctioning of sterilization

instruments represents a shift in the conduct of its

liquidity management operations, as the Bank has

become a price-taker for instruments issued with

tenors beyond those of the standard short-term

sterilization instruments. The average yields for the

Jamaica Dollar CDs auctioned in December 2015

were 6.40 per cent and 6.14 per cent relative to

their respective coupons of 6.20 per cent and 6.15

per cent.

During the year, the Central Bank continued

to enhance its liquidity-provision operations to

deposit-taking institutions (DTIs) in response

to intermittent cycles of liquidity shortfall.3

Specifically, the Bank continued to provide short-

3 See QMPR Oct- Dec 2015.

term liquidity through overnight repurchases under

the Standing Liquidity Facility (SLF) and through

14-day repurchases which were issued every

two weeks up to end-September and weekly for

the December quarter.4 In addition, longer-term

liquidity was provided to DTIs through Occasional

Term Repurchase Operations (OTRO), with tenors

ranging between 3-months and 4-months.

During the March 2015 quarter, the BOJ conducted

five operations offering 3-month repurchases to

DTIs to address liquidity concerns arising from

maturing 6-month repurchases issued in 2014.

In this context, maturing 6-month repurchases

amounted to $42.1 billion for the first half of

the year, while a total of $14 667.0 million was

issued in 3-month repurchases (see Table 47).

Consequently, there was a net repayment of

repurchases amounting to $17 407.6 million and

$19 788.2 million during the March and June

quarters, respectively (see Table 44). Other

4 The Standing Liquidity Facility provides overnight liquidity up to an aggregate value of $14.3 billion to DTIs. Each entity has an established limit for accessing liquidity via this medium.

Table 45

Mar-14 Jun-14 Sep-14 Dec-14Number of Instruments Offered 12.0 12.0 10.0 8.0 o/w - Variable Interest Rate 10.0 11.0 10.0 8.0 o/w - US Indexed Note 2.0 1.0 n/a n/aAverage Tenor 427-days 427-days 457-days 548-daysNominal Subscription (J$mn) -17 140.2 -11 722.6 -6 593.9 -13 099.3Maturities (J$mn) 14 725.3 5 004.8 1 775.0 25 386.9

-1.0Quarter: Mar-15 Jun-15 Sep-15 Dec-15

Number of Instruments Offered 10.0 6.0 4.0 7.0

o/w - Variable Interest Rate 8.0 6.0 4.0 5.0

o/w - Fixed Interest Rate CD Auction n/a n/a n/a 2.0

o/w - US Indexed Note 2.0 n/a n/a n/a

Average Tenor 548-days 548-days 548-days 547-days

Nominal Subscription (J$mn) -11 897.9 -6 296.7 -3 119.5 -6 103.0Maturities (J$mn) 17 204.7 3 885.9 6 579.9 11 711.7

STERILIZATION OPERATIONS WITH LONGER-TERM CERTIFICATES OF DEPOSITS 1/

1/ Data includes principal amounts only.

Table 46

Table 47

Year Quarter Take-up (J$ Mn)

Take-up Ratio (% )

Maturity (J$ Mn)

Maturity Ratio (% )

Net Issue(-)/ Net

Maturity(+) (J$ Mn)

Reinvestment Rate (% )

March -50 949.1 21.1 51 158.3 21.3 209.2 99.6June -56 870.1 23.4 50 970.4 21.2 -5 899.7 111.6September -60 587.7 24.9 63 922.2 26.5 3 334.5 94.8December -74 242.7 30.6 74 788.0 31.0 545.3 99.3

Total - 242 649.6 - 240 838.9 -1 810.7 100.8

March -58 938.6 29.4 62 981.2 31.5 4 042.6 93.6June -47 292.2 23.6 48 314.3 24.2 1 022.1 97.9September -46 234.9 23.1 44 976.7 22.5 -1 258.3 102.8December -47 791.0 23.9 43 519.9 21.8 -4 271.1 109.8

Total - 200 256.7 - 199 792.1 - 464.6 100.2

INVESTMENT PROFILE OF BOJ'S 30-DAY CD 1/

2014

2015

1/ Data includes principal amounts only.

Outstanding Balance for Repurchases (J$MN)

end-Mar. 2015

end-Jun. 2015

end-Sept. 2015

end-Dec. 2015

Overnight Repurchases 0.0 1 771.0 0.0 0.0

EFR 0.0 141.0 0.0 0.0

14-day Repurchases 10 200.0 6 500.0 15 300.0 6 800.0

3-month/4-month Repurchases 14 667.0 0.0 0.0 10 149.9

Usage of Liquidity Facilities by DTIs

Mar. 2015 Qtr.

Jun. 2015 Qtr.

Sept. 2015 Qtr.

Dec. 2015 Qtr.

SLF-frequency (%)1/ 4.8 11.3 30.8 32.8

Overnight Repo -size ($mn)2/ 6 883.1 3 552.6 4 135.0 6 252.2

EFR-frequency (%) 1.6 6.5 26.2 17.2

Overnight Repo/ SLF limit (%)3/ 94.0 49.0 57.0 43.0

14-day Alloc/ Bid Ratio (%)4/ 100.0 100.0 100.0 86.2

SUMMARY STATISTICS ON LIQUIDITY PROVISION OPERATIONS FOR DTIs

1/ The frequency of use for the SLF is measured as the number of days liquidity is accessed relative to the number of business days within the period.2/ Measured as the simple average of the liquidity accessed (per day) by DTIs within a quarter. 3/Average liquidity provided relative to the SLF limit within a quarter.4/ Measured as the amount allocated relative to bids received from DTIs within a quarter for each operation. This operation was conducted every two weeks up to Sepetmber, thereafter auctions held weekly for December quarter.

- 62 -Financial Market Operations

Bank of Jamaica

operations to provide longer-term liquidity were

conducted in the December quarter, when the

Bank issued $10 149.0 million in 3-month and

4-month repurchases (see Table 47).

The Bank redesigned the operations governing

the provision of short-term liquidity through 14-

day repurchases. The redesigned framework

was implemented to enhance the efficiency of

the Bank’s liquidity allocation process, whereby

liquidity was provided to the financial system at a

market-determined price, which ultimately, could

facilitate a more effective monetary transmission

process. To this end, weekly repurchase

auctions commenced on 12 October 2015, at

which deposit-taking financial institutions placed

bids for both the interest rate and the amount of

JMD liquidity they wished to access through the

operation. The Bank allocates the amounts starting

from the highest interest rate to the lowest interest

rate, up to the amount that was placed on offer.

Generally, liquidity provision via this medium was

adequate, as evidenced by the allocation to bid

ratio of 86.2 per cent for the December quarter.5

Supplemental liquidity was accessed as needed,

through the overnight facilities with the average

size for overnight repurchases for the December

quarter increasing to $6 252.2 million from $4

135.0 million for the September quarter (see Table

47).

The Bank reduced the spread on liquidity providing

operations on three occasions during 2015. At

end-December, the interest rate spread over the

30-day signal rate was 225 bps for the SLF which

had an interest rate of 7.50 per cent. The EFR was

9.55 per cent at end-2015 reflecting a spread of

430 bps. With the change in the modus operandi

for allocating bids for the 14-day repurchases, the

average yield from the auction on 28 December

2015 was 7.05 per cent (see Chart 39).

5 The change in the allocation method for 14-day repos explains the lower allocation to bid ratio for the December quarter, relative to the March, June and September quarters of 2015.

In total, liquidity management operations

resulted in a net absorption of $11 918.3 million

from the system during the year. The impact of

this absorption however, was offset by the net

purchase of foreign exchange equivalent to $107

729.0 million, to result in a net injection of $92

259.5 million emanating from the Bank’s financial

market operations for the 2015 (see Table 44).

4.1.2. Issuance of Foreign Currency Certificates of

Deposit

During 2015, the Bank continued to issue foreign

currency CDs as a part of the strategy to meet

the foreign reserve objectives. The Bank effected

prepayment operations on shorter tenor CDs

bearing higher coupons as well as issued new

longer dated CDs which facilitated the extension

of the average life of the portfolio relative to the

previous year. Consequently, the Bank issued

33 instruments compared with 62 instruments in

2014. Subscriptions to the US dollar CDs during

the review year amounted to US$277.9 million

and the weighted average tenor of 6.0 years. Of

note for 2014, the subscriptions amounted to

US$1 156.4million with a weighted average

tenor of 4.0 years. Additionally, for 2015,

principal payments on US dollar CDs totaled

US$318.2 million, largely reflecting the exercise

of prepayment option for the nominal amount of

US$284.5 million. As a result, the outstanding

stock of foreign currency CDs at end-2015 was

US$960.8 million relative to US$1 007.5 million as

at end-2014 (see Table 48).6

6 The annual change in the outstanding stock of foreign currency CDs will reflect the variability in the GBP/USD exchange rate used for valuation as at each reporting period.

Mar-15 Jun-15 Sep-15 Dec-15

Number of Instruments Offered 12.0 12.0 3.0 6.0

Average Tenor- (Years) 5.2 5.0 3.0 5.0

Nominal Subscription (US$mn) 116.6 55.4 9.5 96.5

Nominal Outstanding (US$mn) * 953.8 1025.8 981.3 960.8

Mar-14 Jun-14 Sep-14 Dec-14

Nominal Outstanding (US$mn) 1/ 560.1 861.4 970.2 1007.5

OUTSTANDING FOREIGN CURRENCY CERTIFICATES OF DEPOSIT

Revised Outstanding Balance of USD CDs for 2014:

1/ Outstanding CDs denominated in GBP converted to USD at the applicable WASR as at the reporting date.

Table 48

- 63 -

Annual Report 2015


4.1.3. Primary Dealer Performance &

Administration

During 2015, the Primary Dealers (PDs) net

redeemed $5 050.1 million in BOJ instruments in

contrast with a net take up of $42 545.5 million

during 2014. The performance during the review

year reflects a net take up of $3 982.5 million during

the first half of the year, which was more than

offset by the net redemption of $9 032.6 million

during the second half of the year (see Chart 40).

This net redemption was largely due to the overall

performance of the BOJ VR CDs, for which there

was a net redemption of $13 662.0 million during

the second half of the year, in a context where the

Bank re-issued only 9 of the 20 maturing VR CDs.

The PDs’ share of the instruments that were

issued by the BOJ declined marginally in 2015,

accounting for an average of 61.3 per cent of the

total issues relative to 63.3 per cent for 2014 (see

Chart 41). Notably, this decline in the PDs’ share

of total issues is largely explained by the outcome

in the March quarter. Thereafter, the average share

of new issues attributed to PDs was maintained at

approximately 62.1 per cent. Consequent on the

decline in the PDs share of new OMO issues, their

share of the outstanding stock of BOJ instruments

declined to 57.8 per cent by end-2015 from 64.0

per cent at end-2014. The number of PDs was

unchanged at eight for 2015.

A total of seven persons were assessed under the

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

Chart 40: Primary Dealers’ Net Take Up of BOJ Instruments Chart 41: Primary Dealers’ Share of BOJ Instruments Issued

4.2. International Reserves

For 2015, the gross foreign asset (GFA) of the Bank

of Jamaica (BOJ) increased by US$440.8 million

to end the year at US$2 913.8 million (see Table

49). The increase in the foreign assets emanated

mainly from a 5.0 pps increase in the surrender

requirements applicable to purchases under the

Centralised Facility for Foreign Exchange for Public

Sector Entities (PSE Facility) for all licensed foreign

exchange traders. The GFA was also buoyed by

the receipt of proceeds from Government’s bond

issue on the international capital markets which

yielded approximately US$2 billion. Inflows to

the GFA were partly offset by higher Government

debt payments and intervention sales, during the

year. Notably, the gross reserves increased in

all quarters, except for the June quarter, mainly

reflecting the amortization payment of US$262

million on the Government of Jamaica 9.0%

Eurobond in June.

The net international reserves (NIR) increased by

US$435.9 million to US$2 437.0 million at end-

December, given the increase in the GFA, which

was marginally offset by the increase of US$4.9

million in BOJ’s foreign liabilities. As at end-2015,

the gross foreign liabilities were US$476.8 million

compared with US$471.9 million at end-2014 (see

01020304050607080

2014 2015

Per c

ent

Mar Qtr Jun Qtr Sept Qtr Dec Qtr-20000

-15000

-10000

-5000

0

5000

10000

2014 2015

J$ M

illio

n

March Qtr June Qtr September Qtr December Qtrwere 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.


Bank of Jamaica

Table 50).

4.2.1 Inflows

Total foreign exchange inflows increased by

US$807.3 million to US$5 145.6 million in 2015

(see Table 51). The major sources of inflows during

the year were BOJ market purchases and GOJ

foreign currency receipts. GOJ foreign currency

receipts mainly comprised of the inflows from the

GOJ Eurobond offer as well as disbursements from

multilateral agencies.

Total market purchases amounted to US$2 216.2

million, representing 43.0 per cent of total inflows.

Market purchases increased in 2015 by US$569.1

million relative to 2014, primarily reflecting the

impact of the 5.0 pps increase in the surrender

requirements of cambios and authorised dealers

related to the PSE Facility.2 Surrender receipts

2 The surrender requirement for purchases under the PSE-

Opening Gross Foreign Assets (GFA) 2 473.0Inflows 5 145.6

Outflows -4 661.3Adjustment to GFA 1/ -43.4Closing Gross Foreign Assets 2 913.8

1/ Unrealized losses on foreign currencies and other investments.

US$MN

BANK OF JAMAICA GROSS FOREIGN AS SETS

As at 31 December 2015

Table 49

2014Annual Change

Dec. Mar. June Sept. Dec. (US$)

NIR 2 001.1 2 293.7 2 116.5 2 441.9 2 437.0 435.9

Gross Foreign Assets 2 473.0 2 689.7 2 537.3 2 890.5 2 913.8 440.8

Foreign Liabilities 471.9 396.1 420.8 448.6 476.8 4.9

US$MN2015

BANK OF JAMAICANET INTERNATIONAL RESERVES

(End of Period)

Table 50

were also buoyed by the recovery in foreign

exchange market flows, emanating primarily

from tourism receipts and remittance inflows.

Consequently, purchases from earners increased

by approximately 3.3 per cent relative to 2014.3

The impact of the increase in the purchases of

Facility was increased by 5.0 pps on 02 January 2015 to 25 per cent for cambios and authorized dealers.

3 The increase is for USD purchase transactions which accounts for on average 90.0 per cent of the foreign exchange market activity.

2014 2015Change

($)

Bauxite Receipts1/ 15.2 21.4 6.2

Market Purchases 1 647.1 2 216.2 569.1

Surrenders to BOJ 1 282.8 1 910.4 627.7

Authorised Dealers 809.6 1 213.0 403.4

Cambios 473.2 697.4 224.2 Other Purchases2/ 364.3 305.8 -58.5

GOJ Receipts 1 312.1 2 405.4 1 093.3

Bond Flows 873.2 2 064.8 1 191.6

Domestic USD Bond 0.0 0.0 0.0

Eurobond 799.2 1 997.5 1198.3

Domestic USD Loans 74.0 67.3 -6.7 GOJ Multilateral Agency Flows 348.4 274.0 -74.4

IDB 140.0 164.0 24.0

CDB 25.0 0.0 -25.0

IBRD 0.0 85.8 85.8 IMF 3/ 139.7 0.0 -139.7

Grants 43.7 24.2 -19.5

Divestment 0.0 0.0 0.0

Other GOJ 90.6 66.6 -23.9

IMF 138.8 158.4 19.7

Loan Disbursement/Misc. Funds 138.8 158.4 19.7

Investment Income 11.2 8.6 -2.6BOJ Certificates of Deposit 1 156.4 278.0 -878.4Other Receipts4/ 57.5 57.5 0.0

TOTAL CASH FLOWS 4 338.3 5 145.6 807.3

1/ Includes Royalty, Levy and Taxes. Local Costs have been excluded.

3/ IMF loan for Budgetary support.4/ Includes inflows for net prudential reserves.

2/ Includes all trading room purchases, including market intervention and Local Costs.

INFLOWS OF FOREIGN EXCHANGEUS$MN

Table 51

- 65 -

Annual Report 2015


US$627.7 million under the surrender arrangements

was tempered by a decline of US$58.5 million in

Other Purchases.

Foreign currency receipts on behalf of the

Government increased by US$1 093.3 million to

US$2 405.4 million during the review year. The main

source of the increase was the receipt of proceeds

from two Eurobonds issued by the Government

in the September quarter, which amounted to

US$1 997.5 million. In 2015, loan disbursements

from multilateral agencies declined by US$74.4

million, as there were no disbursements by the

IMF for budgetary support. During the year,

the BOJ reduced the issues of foreign currency

denominated CDs, resulting in a decline of

US$878.4 million from this source of inflows.

4.2.2. Outflows

Foreign currency outflows totalled US$4 661.3

million in 2015, reflecting an increase of

US$1 012.6 million relative to 2014 (see Table 52).

Payments relating to GOJ transactions of

US$2 830.3 million for 2015 were US$1 198.6

million higher relative to 2014. The higher outflows

during 2015 were largely a result of GOJ payment

in the amount of US$1 500.0 million to Petróleos

de Venezuela S.A (PDVSA), under a debt buy-

back agreement. During 2015, the BOJ continued

to reduce its foreign currency liabilities to domestic

residents by effecting payments amounting to

US$352.3 million on US dollar CDs. The payments

for these instruments comprised scheduled interest

and maturity payments as well as prepayments

totalling US$284.5 million, for eligible instruments

in the March, September and December quarters.

In that regard, payments on US dollar CDs during

2015 were US$155.1 million higher than payments

in 2014.

For the review year, market sales by the BOJ

comprising intervention and sales under the PSE

Facility remained relatively flat. Intervention sales

were higher by US$584.5 million, as the Bank

responded to the net demand for foreign exchange

particularly during the June and September quarters

(see Foreign Exchange section). This was largely

offset by a decline in sales of US$580.4 million

under the PSE Facility in the context of lower oil

prices.

4.2.3. Financial Transactions with the International

Monetary Fund

The Bank continued to receive quarterly

disbursements under the 48-month Extended

Fund Facility with disbursements totalling

SDR113.3 million (US$158.1 million), during

2015. Repayments made to the IMF during 2015

totalled SDR95.6 million (US$134.8 million) (see

Table 53). Consequently, net disbursements from

the IMF amounted to SDR17.7 million (US$23.3

million) during 2015.

Change

2014 2015 (US$)

GOJ Payments 1 631.8 2 830.3 1 198.6

Debt 1 527.3 1 149.0 -378.2

Principal 1 062.1 683.1 -379.0

Interest 465.1 465.9 0.8

Other Payments 104.5 181.3 76.8

Debt Buy-back by PDVSA - 1 500.0 1 500.0

Market Sales 1 300.5 1 304.6 4.1

Intervention 261.2 845.7 584.5

Public Sector Facility 1 039.3 458.9 -580.4

IMF 414.9 136.5 -278.5

Principal 405.8 134.8 -271.0

Interest 9.2 1.7 -7.5

BOJ Foreign Currency Certificates of Deposit 242.4 352.3 110.0

Other Payments1/ 59.2 37.6 -21.6

TOTAL CASH OUTFLOWS 3 648.8 4 661.3 1 012.6

OUTFLOWS OF FOREIGN EXCHANGEUS$MN

1/ Includes Central Bank payments for notes and coins.

Table 52


Bank of Jamaica

Date SDR USD1/ Equiv. SDR USD1/ Equiv.

March Qtr 28.3 39.2 67.7 95.6

June Qtr 28.3 39.8 15.9 22.3

September Qtr 28.3 39.7 8.0 11.2

December Qtr 28.3 39.3 4.0 5.6

TOTAL 113.3 158.1 95.6 134.81/ Based on the prevailing SDR =US$ exchange rate.

MNDISBURSEMENTS REPURCHASES

SDR DISBURSEMENTS AND REPURCHASES/REPAYMENTS CALENDAR YEAR 2015

Table 53

4.3. Reserve Management

At 31 December 2015, the Gross Foreign Assets

(Reserves) held by the Bank of Jamaica was

US$2 913.8 million, US$440.8 million higher than

the US$2 473.0 million held as at 31 December

2014. Throughout the year, the Reserves 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.

Over the review period there were no changes to

the objectives of the reserve management function

as defined by the Board of Directors. The Reserves

continued to be managed with a bias towards

capital preservation and liquidity maintenance, with

income maximization as a secondary objective.

Portfolio Distribution

No new type of investment instruments was added

to the portfolio in 2015, hence the asset class

profile throughout the year was similar to that of

2014. The portfolio composition was dominated

by placements in money market instruments,

primarily to facilitate liquidity provisions for

recurrent debt payments. Bond acquisitions

were confined to placements in Securities of

Sovereigns, Supranational Entities and Agencies of

Governments (SSAs) instruments with credit ratings

of Aa1/AA+ or above. Money market investments

also remained confined to placements in P-2/A-1

and Aa1/AA+ or above rated financial institutions.

Table 54 details the composition of the portfolio at

31 December 2015 with comparative data for 31

December 2014. Of note, there was a US$599.3

million increase in Money Market holdings, a

direct result of the increase in the Reserves. The

increased Reserves was primarily funded by the

acquisition of proceeds from the Government of

Jamaica Eurobond Issue (US$1 997.5 million)

and net purchases under the Public Sector Entity

(PSE) Facility (US$1 077.2 million). Bond Holdings

contracted by US$141.4 million, due to bonds

maturing and called throughout the year. These

bonds were not replaced due to weak market

conditions and the proceeds were reallocated to

short term holdings in anticipation of an imminent

increase in the Federal funds rate.

To mitigate the foreign currency risk, the portfolio

was managed to maintain a bias towards US dollar

denominated investments. In this regard, 85.6

per cent of the portfolio, excluding the Allocation

of Special Drawing Rights was held in US dollar

denominated securities at the end of the year.

4.3.2. Investment Strategy

The planned key investment strategies for 2015

were:

i. To diversify the placements with alternative

counterparties.

Despite the improvement in U.S. economy in 2015

the planned strategy to diversify the placements with

alternative counterparties did not materialize. This

was due to the fact that there was no improvement

Table 54

Placements

US$MN % US$MN %

Money Market Investments/ Balances 1 655.1 66.9 2 254.4 77.4 Bond Holdings 207.2 8.4 65.8 2.3 External Fund 341.5 13.8 343.24 11.8

Total Funds Invested 2 203.8 89.1 2 663.5 91.4

Allocation of Special Drawing Rights 269.2 10.9 250.4 8.6TOTAL 2 473.0 100 2 913.9 100

DISTRIBUTION OF FOREIGN ASSETSas at 31 December

20152014

- 67 -

Annual Report 2015


in the credit risk of the Bank’s approved institutions

throughout the year to the standard specified by

the Investment Policy Statement (IPS); and

ii. To reduce the portfolio’s duration by

purchasing instruments with shorter tenors

This was aimed at reducing the Bank’s exposure to

market risk as well as ensuring adequate liquidity

was available to meet the projected recurrent debt

obligations. As a result, investments with the Bank

for International Settlements (BIS) were laddered

to ensure that weekly maturities were available

to satisfy any potential demand. However the

capital market investments were reduced due to

bonds maturing and being called, reducing the

overall portfolio duration. The monthly projections

highlighted the liquidity needs of the Bank. This

was the main basis of the investment decision

throughout the year as provision was made to

ensure liquidity was available to meet the projected

debt payments. As the year progressed, the

expected outflow of funds did not materialize. In

fact, the reverse occurred and there was a net

inflow of funds at the end of the year.

Portfolio Performance

Average income earning assets for the year was

US$2 588.0 million, which was US$889.0 million or

52.3 per cent above budget and US$411.0 million

or 18.9 per cent higher than in 2014 (see Table

Table 55

55). Portfolio cash income of US$9.0 million was

US$1.7 million or 15.9 per cent lower than in 2014.

The average yield on the portfolio was 0.35 per

cent per annum in 2015, 15 basis points less than

the yield in 2014. This reflected in the impact of

the predominant investment in short-term money

market investments to mitigate liquidity risk.

PlacementsEarnings % of EarningsUS$MN Earnings US$MN

Money Market Investments 2.4 22.4 2.9 32.2 Bond Holdings 6.4 59.8 3.4 37.8 External Funds 1.9 17.8 2.7 30.0Total 10.7 100 9.0 100

Rate of Return (%) 0. 50 0. 35

For the Years Ended 31 December 2014 & 2015FOREIGN INVESTMENT INCOME

20152014% of

Earnings

Average Income Earning Assets 2 5882 177

- 68 -

5. Payment System Oversight

as the development of the regional integration of

financial market infrastructures in the Caribbean.

5.2. Retail Payment Systems Developments

5.2.1. Guidelines for Electronic Retail Payment

Services

The Principles for Financial Market Infrastructures

(PFMIs) methodology was used as the guideline for

the off-site assessment of the JamClear®-CSD

and JamClear®-RTGS system. The PFMI is an

international standard for payment and settlement

systems promulgated by the International

Organization for Securities Commission

(IOSCO) and the Committee for Payment and

Market Infrastructure (CPMI) out of the Bank for

International Settlement (BIS) to identify risks in

areas specific to:

a) the general organization;

b) credit and liquidity risk management;

c) settlement;

d) central securities depositories and

exchange of value settlement systems;

e) default management;

f) general business and operational risk

management;

g) access;

h) efficiency; and

i) transparency.

The off-site assessment forms a part of the

requirement for an annual assessment programme

and will assist in determining the state of

compliance of the JamClear® Systems with

international standards. This assessment will be

conducted for other privately owned and operated

payment and settlement systems in 2016.

5.1. Overview

Payment system oversight in 2015 continued

to be diligently tailored towards ensuring safety,

efficiency and reliability of the country’s payment

and settlement system infrastructure. In this

regard, to mitigate payment system risks, the

payment system oversight team conducted off-

site assessments of the JamClear® Systems,

owned and operated by the Bank of Jamaica

(Bank), that is, the JamClear® - RTGS, the real-

time gross settlement system and the central

securities depository - JamClear®-CSD. These

systems designated as systemically important

payment systems are required to be assessed

in accordance with the Principles for Financial

Market Infrastructures (PFMIs). The risk mitigation

strategy leveraged on the Automated Clearing

House (ACH) by the Bank was also assiduously

monitored during the review period. In addition,

keen oversight was also given to other retail

payment systems including Multilink, Qnet and the

proprietary systems of the commercial banks.

The Guidelines for Electronic Retail Payment

Services (ERPS) published on 01 February 2013

continued to provide the benchmark for enabling

electronic retail payment development. By end-

2015 the 13 applications received for the delivery

of electronic retail payment services were at various

stages of assessment, inclusive of 4 entities being

granted approval to conduct pilots of their ERPS.

Over the review period, the Bank continued

its steadfast commitment to facilitating other

local and regional initiatives, inclusive of the

implementation of a trust arrangement to replace

the retail repurchase agreement (retail repo)

operations of securities dealers and the lead

role being undertaken by the Bank in enabling

the National Financial Inclusion Strategy, as well

- 69 -

Annual Report 2015

Payment Systems Oversight

that risks were mitigated. This was done via new

modifications through quality assurance checks,

measurements against international standards and

continued regulatory cooperation with the Financial

Securities Commission (FSC).

5.2.5. Financial Inclusion Strategy

The issue of financial inclusion is being addressed

at a national level. The Governor of Bank of

Jamaica was asked by the Minister of Finance to

chair a multi-agency steering committee to guide

the formulation of a National Financial Inclusion

Strategy.

The core objective set forth in the National

Financial Inclusion Strategy currently being

developed for Jamaica is for the country to achieve

an inclusive financial system in which every adult

has access to and is able to make full use of a

range of adequate, quality and affordable financial

services. Bank of Jamaica is responsible for

coordinating the development of the Strategy as

well as leading the team tasked with enhancing

the retail payments system and related legislation.

The Bank also provides technical assistance to the

other working groups created to operationalize the

pillars identified within the Strategy.

5.2.6. Regional Integration of Financial Market

Infrastructures

Bank of Jamaica is significantly involved in the

Regional Payment System Integration Project

through the Deputy Governor with responsibility

for the payment system, who is Vice-Chair of the

Working Group on Payment System issuers of

Latin America and the Caribbean (WGPS-LAC).

During 2015 the Bank has been involved in the

process of developing a regional vision for regional

financial market infrastructures, the identification of

common drivers and institutional and operational

arrangements, among other things.

5.2.2. Automated Clearing House (ACH) Value

Threshold

Bank of Jamaica has achieved the objective of

minimizing net settlement risk posed to the Bank

by ACH operations while maintaining the viability

of the clearing house. In the last quarter of 2015

an assessment of the ACH value threshold through

the National Payments Council (NPC) of the Bank

was undertaken. In addition, a recommendation

was made for the commencement in May 2016 of

the implementation of phase four the final stage,

of the programme to lower the value threshold to

$1.0 million from $5.0 million. The lowering of the

value threshold to $1.0 million in phase four would

require commercial banks to migrate 100 per

cent of transaction values equal to or greater than

$1.0 million from the ACH to alternate payment

mechanisms such as JamClear®-RTGS.

5.2.3. Application for Authorization of

Electronic Retail Payment Services

(ERPS)

The Bank continued to develop the retail payment

infrastructure which entailed on-going assessments

of new payment alternatives by payment service

providers under the Guidelines for ERPS. By

end-2015, 13 applications were received for the

delivery of ERPS. These were at various stages

of assessment. By end-2015, 2 entities were

granted authorization to offer selected ERPS and

8 entities submitted applications for approval of

proof of concept and pilot. Four applications were

withdrawn for various reasons. One entity was

granted both authorization to conduct phase 1

of the ERPS and approval to conduct a pilot for

phase 2.

5.2.4 Trust Arrangement for Retail Repurchase

Agreement (Retail Repo)

The Government oversaw a transition of the retail

repo operations of securities dealers to a trust-

based framework, which reduced the systemic risks

in the system. The Payment System Department

supported the implementation of the new trust

arrangement for the JamClear Systems by ensuring

- 70 -Payment Systems Oversight

Bank of Jamaica

5.3. Payment Systems Activities

5.3.1. JamClear Systems 5.3.1.1. JamClear-RTGS

The total payments processed through JamClear-

RTGS in 2015 stood at 340 545 transactions for

an aggregate value of $15.79 trillion, representing

increases of 16 per cent (or 47 039) and 8 per cent

(or J$1.2 trillion) in volume and value, respectively,

relative to 2014 (see Chart 42). The increase in

total payment volumes was attributed to growth

of 47 989 in payments made by participants on

behalf of households and corporate clients. The

higher payment value was largely attributed to

increases of $387.95 billion and $348.73 billion in

payment values between participating institutions

(inter-bank payments) and securities settlement

transactions initiated from JamClear-CSD,

respectively.

For 2015, the total USD transaction values

processed in JamClear-RTGS declined by 35.9

per cent to US$2.99 billion.

5.3.2. Retail Payment Systems and Instruments

There was an overall increase in the usage of retail

payment systems over the review period.

5.3.2.1 Payment Instruments and Channels

As at end-2015, the total number of debit cards in

circulation amounted to 2.8 million, reflecting an

increase of 8.3 per cent relative to 2014. Credit

cards in circulation totalled 227 001 representing

an increase of 1.7 per cent when compared to

2014.

ABM and POS terminals remained the primary

channels for the execution of electronic retail

payment transactions. For 2015, the total ABMs

installed increased by 13 terminals to 526.

Similarly, there was an increase in POS terminals

to 24 425 from 22 140 in 2014.

5.3.3. Cheque Clearing Activities

5.3.3.1. Domestic Cheques

In 2015, 6.8 million cheque payments for an

aggregate value of $0.98 trillion were processed

through the ACH. This reflected a marginal

decline of 2.9 per cent in volume as the value

of payments was unchanged when compared to

2014. The average value of each cheque payment

processed in the ACH increased by 3.0 per cent to

$143 556.00

Cheques processed by the commercial banks

proprietary system totalled 8.4 million with a value

of $0.99 trillion representing declines of 13.7

per cent and 17.6 per cent, respectively, when

compared to 2014. Similarly, the average value

of proprietary cheques processed by commercial

banks declined marginally by 4.5 per cent to

$116 706.00.

5.3.3.2. Selected Foreign Currency Cheques

Total foreign currency cheques cleared manually

through the BOJ Clearing House reflected a

marginal reduction of 0.1 per cent in value when

compared to 2014 (see Table 56). Cheques

cleared were denominated in four major currencies

namely USD, GBP, CAD and Euro. In 2015,

cheques denominated in USD amounted to

US$2 163 million which was 98.3 per cent of the

total foreign currency cheques cleared for a total

value of US$2 200 million.

Chart 42: JamClear-RTGS Volumes and J$ Values 2010 - 2015

02,0004,0006,0008,00010,00012,00014,00016,00018,000

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2010 2011 2012 2013 2014 2015

J$ V

alue

s (B

illio

ns)

Vol

umes

Volume Value J$(Bn)

- 71 -

Annual Report 2015

Payment Systems Oversight

5.3.4. Electronic Payment Activities

For the review period, the total volume of retail

payments processed in Multilink, ACH and

the proprietary systems of commercial banks

amounted to 125.5 million transactions valued at

$3.1 trillion. A comparative review of the total retail

payment volumes and values processed indicated

that total transaction volume increased by 7.0 per

cent while values were marginally lower (1.0 per

cent) than the corresponding period in 2014. The

increase in retail payment volumes was attributed

to the increasing usage of electronic retail

payment instruments and terminals, such as debit

cards and direct credits. Conversely, the decline

in non‐cash retail payment value for the review

period was due primarily to the decline in cheque

values resulting from the impact of the ACH Value

Threshold. A disaggregation of the data indicated

that debit cards were the dominant retail payment

instruments in terms of volumes while cheques

dominated in terms of values.

5.3.4.1. ACH – Direct Credits and Debits

Direct Credits processed through the ACH in 2015

accounted for 2.1 million transactions valued at

$176.9 billion, reflecting a 17.0 per cent and 22.8

per cent increase in volume and value, respectively.

The growth in direct credit transactions was due to

the continued usage of the ACH by the Government

to process payments for ministries, departments

and agencies due to the implementation of

the Centralized Treasury Management System

(CTMS). Direct Debits processed through the ACH

in 2015 represented 442 963 payments valued at

$9.0 billion, reflecting a decline of 2.9 per cent in

volume and an increase of 9.6 per cent in value.

5.3.4.2. Multilink – ABM and POS

The Multilink network which processes Automated

Banking Machine (ABM) and Point of Sale (POS)

transactions, recorded 22.0 million debit card

transactions valued at $127.4 billion in 2015

reflecting increases of 28.4 per cent and 29.2 per

cent in volume and value, respectively, relative to

2014. Transactions processed in ABM terminals

through the Multilink network, totalled 11.5 million

valued at $73.0 billion reflecting an increase of

5.6 per cent and 10.5 per cent in volume and

value, respectively, relative to 2014. Transactions

processed on POS terminals increased in volume

and value by 68.0 per cent and 67.4 per cent,

respectively, to 10.5 million transactions valued at

Table 56

(Millions) 2012 2013 2014 2015

USD 1 889.0 1 929.0 2 160.0 2 163.7CDN 12.7 11.3 12.8 23.5GBP 34.3 28.4 28 11EURO 9.6 4.7 2.4 2.4

Total in USD 1 945.6 1 973.4 2 203.2 2 200.3

VALUE OF FOREIGN CURRENCY CHEQUES CLEARED

Chart 43 Multilink ABM and POS Transactions by Volume

7.26.0 5.5

6.2

10.59.8 10.1 9.910.9 11.5

02468

101214

2011 2012 2013 2014 2015

Volume (Millions) POS Volume ABM Volume

32.428.3 27.7

32.5

54.452.7 56.2 57.166.1

73.0

01020304050607080

2011 2012 2013 2014 2015

J$ (Billions)

POS Value ABM Value

Chart 44 Multilink ABM and POS Transactions by Value

- 72 -Payment Systems Oversight

Bank of Jamaica

$54.4 billion relative to 2014 (see Charts 43 and

44).

5.3.5. Proprietary Systems – Commercial Banks

5.3.5.1. Debit Cards

The proprietary systems of the commercial banks

represent systems owned and operated by these

institutions for settling payments. These systems

settled debit card transactions totaling 71.4 million

valued at $654.2 billion in 2015. Debit card

transactions processed on the proprietary system

of the commercial banks reflected an increase of

11.8 per cent and 26.3 per cent in volume and

value, respectively, relative to 2014.

5.3.5.2 . Credit Cards

Commercial banks reported a reduction of 13.5

per cent in volume and an increase of 10.6

per cent in value, respectively, for credit card

transactions in 2015 relative to 2014. This reflected

total transactions of 14.7 million valued at $212.6

billion.

5.3.6. Bill Payment Activities

The total bill payment transactions reported for

2015 was 17.0 million valued at $227.7 billion. This

reflected an increase of 1.7 per cent and 1.1 per

cent in volume and value, respectively, relative to

2014. The dominant payment method for making

bill payments was cash which accounted for 59.9

per cent of the total bill payments processed, while

debit cards accounted for 48.3 per cent of total

value.

- 73 -

6. Banking & Depository Services

banks, were also settled in the ACH. In October

2015 (with the acquisition of a commercial bank

license) the Jamaica National Building Society

(JNBS) commenced settlement of its Multilink Net

Settlement obligations on their own account at the

BOJ whereas previously, these transactions were

settled on a commercial bank account held at the

BOJ.

6.2. Electronic Securities Depository

(JamClear®-CSD)

At end-2015, the number of participants in

JamClear®-CSD remained at 39, following

the registration of one new participant and the

voluntary de-registration of one secondary dealer.

The participants in the depository at the end of the

review period comprised all six commercial banks,

two merchant banks, eight primary dealers, twenty-

two secondary dealers and one Trustee; a the new

participant category, which was established to

facilitate the transition of retail repo transactions to

a trust-based framework.1

The JamClear®-CSD continued to facilitate a

wide range of transactions including Pledges,

Entitlement Proceeds and Repurchase Agreements

for participants and clients. For 2015, a total of

121145 transactions were processed in JamClear®-

CSD for both BOJ and GOJ instruments,

representing a 19 per cent decrease relative to

the 149 801 transactions processed in 2014.

Repurchase Agreements had the highest utilization

over the review period accounting for 27.2 per cent

of the total volumes traded. Entitlement Proceeds

and Pledges accounted for 24.7 per cent and 23.8

per cent, respectively (see Table 56).

1 The BOJ and the GOJ remained the only issuers of securities. At end-2015, there were 30 014 beneficial owner accounts in JamClear®-CSD, an increase of 1

275 compared to end-2014.

6.1. Banking Services

The Bank continued to provide a range of banking

services to its customers during 2015. In this

regard, the Bank operated the JamClear®-

RTGS and provided administrative support to

the Automated Clearing House (ACH), which is

owned and operated by the commercial banks.

Both systems are Systemically Important Payment

Systems (SIPS) in Jamaica.

The number of participants in the JamClear®-

RTGS increased by one to 22 participants, with the

introduction of a new participant category Trustee.

The Trustee category was created to facilitate

transactions related to retail repurchase activities

under the new Trust arrangement. Notably, 17

sub-accounts for Securities Dealers were added

under this category in 2015.

During the year, the Bank continued to provide

oversight to ensure the efficient operation of the ACH

and to effect the timely settlement of net clearing

balances on the accounts of the commercial banks

held at the BOJ. The Bank also acted 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

credits and debits. Similarly, cheques drawn on

the BOJ which were negotiated by the commercial

Table 56JAMCLEAR-CSD TRANSACTIONS TYPES

by Volume 2014 -2015

Transaction Type Volume 2014 % of Vol Volume 2015 % of Vol

Bill Payment 458.0 0.3 446.0 0.4

Delivery Versus Payment 56.0 0.0 148.0 0.1

Entitlement Proceeds 35 146.0 23.5 29 977.0 24.7

Free Of Payment 15 469.0 10.3 12 428.0 10.3

Initial placement/ Reopening 5 721.0 3.8 4 520.0 3.7

Pledges 54 189.0 36.2 28 892.0 23.8

Repurchase Agreement 29 274.0 19.5 33 006.0 27.2

Taxation 9 488.0 6.3 11 72.08 9.7

149 801.0 100 121 145.0 100

- 74 -Banking & Depository Services

Bank of Jamaica

In 2015, total nominal values traded were $12.9

trillion and US$12.5 billion, reflecting respective

declines of 6.0 per cent and 25.0 per cent when

compared to 2014. Repurchase Agreements

accounted for the highest overall values for both

Jamaica Dollar and US dollar transactions during

the review period (see Charts 45 and 46).

The JamClear®-CSD processed an average of

483 securities trades each day, compared to

a daily average of 597 trades in 2014. Jamaica

Dollar securities decreased by approximately $20.5

billion (2.0 per cent), while the US dollar nominal

value decreased by approximately US$135 million

(8.0 per cent) (see Charts 47 and 48). The value of

securities held in JamClear®-CSD as at end-2015

was $836.8 billion and US$ 1.5 billion compared

to $857.4 billion and US$1.6 billion at end-2014.

6.3. Auto Repo Facility

The Bank provided intraday liquidity to participants

through the Auto Repo Facility. The facility was

accessed 3 017 times by 12 participants during

the review year, reflecting a decrease of 0.7 per

cent in usage relative to 2014. The average value

Chart 45: JamClear - CSD Annual JMD Values

Chart 46 JamClear - CSD USD Values

Chart 47: Outstanding JMD Securities - Nominal Values

Chart 48: Outstanding USD Securities - Nominal Values

BP = Bill Payment, DVP = Delivery vs Payment, EP = Entitlement Proceeds, FOP = Free of Payment, IP/R = Intitial Payment/Replacements, PL = Pledges, Repo = Repurchase Agreement, Tax = Taxation

BP = Bill Payment, DVP = Delivery vs Payment, EP = Entitlement Proceeds, FOP = Free of Payment, IP/R = Intitial Payment/Replacements, PL = Pledges, Repo = Repurchase Agreement, Tax = Taxation

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

BP DVP EP FOP IP/R PL Repo Tax

J$ B

illio

ns

2014 2015

0

1

2

3

4

5

6

7

8

DVP EP FOP IP/R PL Repo Tax

US$

Bill

ions

2014 2015

830835840845850855860865870875

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

J$ B

illio

ns

2014 2015

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Jan Feb Mar AprMay Jun Jul Aug Sep Oct Nov Dec

US$

Bill

ions

2014 2015

- 75 -

Annual Report 2015

Banking & Depository Services

Chart 49: Comparison of Daily Average Liquidity Utilized 2014 & 2015

0.02.04.06.08.0

10.012.014.016.018.020.0

2014

2015

2014

2015

2014

2015

2014

2015

2014

2015

2014

2015

2014

2015

2014

2015

2014

2015

2014

2015

2014

2015

2014

2015

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

Bill

ions

Dealer Bank

of intraday liquidity increased over the period, with

the highest utilization occurring in October 2015

(see Chart 49).

- 76 -

7. Currency Operations

7.1. Currency in Circulation

The value of banknotes in circulation increased by

12.4 per cent to $80.8 billion at end-2015, relative

to end-2014 (see Chart 50). The $5000, $1000 and

$500 notes accounted for 14.2 per cent, 69.8 per

cent and 10.6 per cent, respectively, of the total

value of notes in active circulation at end-2015.

These compared with 8.1 per cent, 72.6 per cent

and 13.4 per cent, respectively, for the previous

year. The significant increase in the circulation

of the $5000 note was largely influenced by its

introduction in some of the automated banking

machines island wide.

At end-2015, the value of coins in circulation was

$4.5 billion, representing a 12.4 per cent increase

relative to end-2014 (see Chart 51). The $20 coin

accounted for 42.0 per cent of the total value

of coins in circulation, while the $10, $5 and $1

coins represented 23.5 per cent, 15.1 per cent

and 17.2 per cent, respectively. These compare

to 41.4 per cent, 23.3 per cent, 14.8 per cent and

17.9 per cent for the $20, $10, $5 and $1 coins,

respectively, at end-2014.

7.2. Currency Issue

The total value of banknotes issued for 2015

amounted to $311.6 billion, 12.1 per cent above

the previous year’s figure (see Table 57). The $1000

continued to account for the largest proportion of

the value of notes issued, representing 76.6 per

cent, relative to 77.3 per cent in 2014. With the

exception of the $5000 note other denominations

recorded declines in their share of the value of total

notes issued. The $5000 denomination increased

by 3.0 pps to 5.7 per cent compared to 2014.

The total value of coins issued during 2015 was

$756.0 million, 11.7 per cent above the total value

issued for 2014 (see Table 58). The $20 coin

accounted for 51.6 per cent of the total value of

coins issued for 2015 relative to 52.8 per cent for

2014.

7.3. Currency Redemption

Banknotes redeemed during 2015 were valued

at $302.7 billion, 10.8 per cent above the figure

for 2014 (see Table 59). The $1000 and $500

banknotes accounted for 77.4 per cent and 15.1

per cent, respectively, of the value of banknotes

redeemed for 2015 relative to 77.2 per cent and

Chart 50: Total Value of Banknotes in Circulation Chart 51: Total Value of Decimal Coins in Circulation

- 77 -

Annual Report 2015

Currency Operations

Table 59

processed, 83.0 per cent were deemed fit for re-

circulation, a slight increase of 1.5 pps relative

to 2014. Banknotes deemed unfit to re-enter

circulation as well as counterfeit notes were

destroyed.

The Bank continued to reap the benefits of

placing most banknote denominations on more

durable substrates as reflected the increase in

the average life of banknotes. Notably for 2015,

the Average Circulation Life (ACL) $50 note was

19.1 months relative to 11.3 months for 2014

(see Table 61). The ACL of the $1000, $500

and $100 notes increased to 20.0, 15.3 and 8.5

months, respectively, compared to 17.0, 7.5 and

7.9 months for 2014. In this regard, there was an

increase in processing requirements during the

year, to facilitate a greater reliance on reissuable

notes for the public, resulting in cost savings to the

Bank in respect of the purchase of new banknotes.

7.5. Counterfeit Detection

The total number of counterfeit notes detected

during 2015 was 3 493 pieces representing a value

of $3.2 million compared to 3 170 pieces valued

at $2.6 million in 2014. This was equivalent to 27

counterfeit notes per one million genuine notes in

16.2 per cent, respectively, in 2014.

Coins redeemed in 2015 were valued at $255.8

million, representing an increase of 19.1 per cent

relative to the figure for 2014 (see Table 60). The

$20, $10 and $5 coins accounted for 61.5 per cent,

26.2 per cent and 10.3 per cent respectively, of

the total value of coins redeemed for 2015. These

proportions were relative to 59.3 per cent, 28.2

per cent and 10.7 per cent, respectively, in 2014.

7.4. Banknote Processing

For 2015, 464.1 million notes valued at $310.5

billion were processed by the Bank compared to

399.4 million pieces valued at $267.7 billion for

the previous year. Of the total number of notes

Table 57

Table 58

Value % S hare Value % S hare$5,000 7.4 2.7 17.8 5.7 139.5

$1,000 214.9 77.3 238.6 76.6 11.0

$500 45.2 16.2 44.6 14.3 - 1.3

$100 9.0 3.2 9.0 2.9 - 0.1

$50 1.6 0.6 1.6 0.5 0.0

Total 278.1 100.0 311.6 100.0 12.1

COMPARISON OF DECIMAL NOTES ISSUEDYear ended 31 December

JA$ Billion

2014 2015% Change

Value

Value % S hare Value % S hare$20 357.3 52.8 390.1 51.6 9.2

$10 188.9 27.9 189.6 25.1 0.4

$5 68.2 10.1 111.2 14.7 63.1

$1 60.9 9.0 63.7 8.4 4.5

$0.25 1.2 0.2 1.0 0.1 - 17.1$0.10 0.6 0.1 0.4 0.1 - 25.6$0.01 0.0 0.0 0.0 0.0 0.0

Total 677.1 100.0 756.0 100.0 11.7

COMPARISON OF DECIMAL COINS ISSUEDYear ended 31 December

JA$ Million

2014 2015% Change

Value

Value % S hare Value % S hare$5,000 7.5 2.8 12.2 4.0 62.3

$1,000 211.1 77.2 234.4 77.4 11.0

$500 44.2 16.2 45.7 15.1 3.3

$100 8.9 3.3 8.9 2.9 - 0.3

$50 1.6 0.6 1.6 0.5 1.7

$20 0.0 0.0 0.0 0.0 - 86.3

$10 0.0 0.0 0.0 0.0 - 61.9

$5 0.0 0.0 0.0 0.0 - 40.0

$2 0.0 0.0 0.0 0.0 48.0

$1 0.0 0.0 0.0 0.0 - 13.1

Total 273.3 100.0 302.7 100.0 10.8

COMPARISON OF DECIMAL NOTES REDEEMEDYear ended 31 December

JA$ Billion

2014 2015 % Change Value

- 78 -Currency Operations

Bank of Jamaica

active circulation in 2015, relative to 26 pieces per

million genuine notes in 2014.

Table 60

Value % S hare Value % S hare$20 187.4 59.3 157.4 61.5 - 16.0

$10 89.3 28.2 66.9 26.2 - 25.1

$5 33.9 10.7 26.2 10.3 - 22.5

$1 5.3 1.7 4.9 1.9 - 6.1

$0.50 0.0 0.0 0.0 0.0 42.3

$0.25 0.2 0.1 0.2 0.1 18.7

$0.20 0.0 0.0 0.0 0.0 - 26.7

$0.10 0.1 0.0 0.1 0.0 9.4

$0.05 0.0 0.0 0.0 0.0 - 37.5

$0.01 0.0 0.0 0.0 0.0 159.4

Total 316.1 100.0 255.8 100.0 - 19.1

2014 2015 % Change Value

COMPARISON OF DECIMAL COINS REDEEMEDYear ended 31 December

JA$ Million

2014 2015 % Change$5,000 27.8 27.4 - 1.7

$1,000 17.0 20.0 17.8

$500 7.5 15.3 103.6

$100 7.9 8.5 7.1

$50 11.3 19.1 69.3

Average Circulation Life (ACL)Year ended 31 December

Months

Table 61

- 79 -

8. Administration

8.1 Administration

8.1.1 Overview

During 2015, the Bank experienced challenges in

attracting and retaining staff as it continued to lose

critical skill sets to the local and overseas labour

markets. Several strategies were implemented

to address these and other staffing issues. They

included steps to modernize the Human Resources

Management function and the implementation of

strategies aimed at improving responsiveness

human resource related matters with greater

efficiency and effectiveness.

8.1.2 Organization Development

The process of aligning people, processes and

technology through the Bank’s organizational

transformation programme continued with the

objective of enhancing operational efficiency

and effectiveness. Comprehensive organizational

reviews were undertaken in several core areas of

the Bank’s operations to improve effectiveness

in corporate governance, banking supervision

and financial system stability. These reviews

led to increased focus on the implementation

of the approved recommendations which have

been impacted by expanded or new mandates

or required reorganization to enhance efficiency

and effectiveness. With the passage in 2015 of

legislation such as the Banking Services Act (BSA)

and amendments to the Bank of Jamaica Act

for the discharge of financial system oversight,

the Bank strengthened its existing corporate

governance framework to support committees

established through statute. In the area of banking

supervision, the Bank embarked on a modernization

programme for enhancement of the supervisory

infrastructure. The programme involved the revision

of its supervisory methodology, identification of a

robust technological infrastructure and a revision

of the organizational structure to support the

achievement of prescribed objectives under the

new BSA and other legislation.

8.1.3 Succession Management Programme (SMP)

Implementation of the Bank’s Succession

Management Programme continued and included

a revision to the Succession Management Policy

which focused on identifying and mitigating the

loss of critical knowledge and skills associated with

positions at risk within the Bank. These positions

should not remain vacant for an extended period

of time. During the year, the process of identifying

suitable candidates for inclusion in the Succession

Management Programme progressed.

8.1.4 Training and Development

During 2015, the Bank focused on developing

its human resources through targeted training

interventions aimed at strengthening the capacity

of the staff to respond effectively to new,

changing and expanded mandates. Additionally,

the Bank reviewed its internal training function

towards enhancing efficiency in its operations

and implemented the Electronic Nomination and

Confirmation (e-Train) system which automated

the training nomination process. Initiatives under

the Bank’s training, Vision 2015 - Creating a

New Generation of Central Bankers remained

a priority. To this end, the assessment of skills

and competency gaps were identified and specific

training and development interventions were

designed to build technical, managerial and soft

skills. Emphasis was also placed on leveraging

the use of e-learning programmes including

Financial Stability Institute (FSI) Connect (Bank for

International Settlement) and Intuition (World Bank)

to enhance the training experience. The Bank also

hosted six in-country training programmes with

participants drawn from across the Region and

Latin America. For 2015, 147 training programmes

- 80 -Administration

Bank of Jamaica

were executed benefiting for approximately 80 per

cent of the Bank’s staff.1

8.1.5. Staffing

At 31 December 2015, the Bank’s staff complement

was 552 comprising 474 permanent employees

and 78 employees on fixed-term contracts. The

rate of staff turnover for the 12-month period was

7.8 per cent compared to 4.6 per cent for 2014.

8.1.6 Employee Relations

The employee relations environment remained

stable during the period, notwithstanding

challenges associated with wage restraints for

the Public Sector. The negotiations for improved

wages, benefits and conditions of service for

the 2015-2017 contract period commenced.

Significant progress was made in the discussions,

however some items were yet to be agreed.

The Bank engaged the services of a consulting

firm to conduct a Work Environment and Employee

Satisfaction Survey to measure the level of job

satisfaction and engagement of staff, among

other issues. The management of the Bank met

with the staff to discuss the findings of the survey

and indicated a number of initiatives to address

the issues identified by the survey.

8.1.7 Occupational Safety & Health (OSH)

The institution continued to strengthen its OSH

programme which included annual air quality and

semi-annual water quality tests, noise level tests,

comprehensive safety and health inspections

and the enforcement of safety guidelines. It also

included initiatives to improve the general work

1 The programmes included Macro-Prudential Policy and Framework -Caribbean Regional Technical Assistance Centre (CARTAC), Problem Bank Supervision & Early Intervention (Financial Stability Institute/Caribbean Group of Banking Supervisors), Market Conduct Supervision (Toronto Centre), Egmont Anti-Money Laundering (AML)/Counter Financing Terrorism (Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)), Capacity Development for Payment System Oversight Powers and Statistical Disclosure Framework, Centre for Latin American Monetary Studies (CEMLA)*check and the Building a Continuous Risk Assessment Model (MIS Training Institute).

environment. The OSH education and awareness

programme was intensified. There was also greater

participation in the Wellness Programme.

8.1.8 Pension Administration

At the end of 2015, membership of the pension

scheme was 1 035 comprising 470 active members,

313 active pensioners, 223 deferred pensioners

and 29 beneficiaries (24 spouses and 5 dependent

children). Of the 470 active members, 273 or

58 percent were vested. A total of 42 persons

attained pensionable status during the year, 14

staff members and 28 deferred pensioners.

Arrangements were finalized for the registration

of the Pension Scheme with the Financial Service

Commission (FSC).

8.1.9 Energy & Environmental Management

The Bank continued to achieve positive results

in its Environment and Energy Management

programmes.

There was a reduction in the quantity of paper

used as well as ink used in printing. The volume

of water consumed on the Bank’s main building

was also reduced with the completion of the first

phase of the conservation project to replace the

existing faucets with automatic units as well as

retrofitting urinals and water closets with automatic

flush valves.

The Energy Management Programme resulted in a

decrease of 4.5 per cent in energy usage in 2015

relative to 2014. This was the sixth consecutive

year of energy reduction since the programme

began. The total consumption for 2015 was

3 697 536 kWh compared to 3 872 229 kWh for

2014, a reduction of 174 693 kWh over the period.

The 2015 consumption was also 34.9 per cent

below the base year (2009) consumption.

8.1.10 Plant and Physical Infrastructure

There were significant improvements to the plant

and physical infrastructure of the Bank with the

- 81 -

Annual Report 2015

Administration

completion of a number of capital projects.

Initiatives which contributed to the improved

efficiency and reliability of the plant included

upgrades to the air-conditioning systems,

installation of an Air Curtain on the main concourse,

upgrades of the potable water system and an

electrical systems upgrade. The structural repairs

and sealing of the windows on the tower building

were substantially advanced and scheduled for

completion in 2016.

- 82 -

9. Governance

9.1. Overview

Under 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 overseeing 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. The Bank also has statutory

responsibility for Jamaica's international reserves

and oversight of Jamaica’s payment, clearing and

settlement systems under the Payment Clearing

and Settlement Act (2010).

9.2. Board Membership

9.2.1. Membership

The Bank’s Board is comprised of the Governor,

the Senior Deputy Governor, the Financial Secretary

and six independent directors appointed by the

Minister of Finance for a three-year renewable

term. The Governor, the Senior Deputy Governor

and the Financial Secretary are ex officio members

of the Board. At 31 December 2015 the members

of the Board of Directors were Governor Brian

Wynter (Chairman), Senior Deputy Governor John

Robinson, Financial Secretary Devon Rowe, Mr.

Christopher Bicknell, Dr. Christine Clarke, Mr. Gary

Hendrickson, Ms. Janice Holness, the Honourable

Dr. Vincent Lawrence and Mr. Dennis Morrison.

9.2.2. Responsibility

The Board has general responsibility for the conduct

of the affairs of the Bank. All matters of importance

outside the functions of daily management are

submitted to the Board. Additionally, the Board

on the recommendation of the Governor appoints

the auditors, attorneys, currency agents and other

agents of the Bank, as well as Bank officials. In

2015, 11 meetings were held. Notably, the Bank’s

Board is required by law to meet at least ten times

annually. In addition, a one-day retreat was held

in the second quarter of 2015 to review and discuss

proposals for improving the corporate governance

framework of the Bank.

9.3. Committee Meetings

The Board has three standing committees: the

Audit Committee, the Budget Committee and the

Human Resource Development (HRD) Committee.

These committees have terms of reference

outlining their respective responsibilities.

The Audit Committee, chaired by Dr. Christine

Clarke, provides independent oversight of the

financial reporting process and internal controls

of the organization. The Committee is also

responsible for overseeing the relationship with

the Bank’s external auditors. In 2015 the Audit

Committee held three meetings, satisfying the

minimum stipulation for meetings per year.

The Budget Committee, chaired by Mr. Gary

Hendrickson, is responsible for reviewing and

analysing the Capital and Recurrent budgets of the

Bank. The committee may also meet, at the request

of the Board, to review the outturn against budget.

This committee met once in 2015, satisfying the

minimum requirement.

The Human Resource Development Committee is

chaired by Mr. Dennis Morrison. The committee

has the responsibility to review and analyse

information and make recommendations to the

Board on matters affecting staff, including the

terms and conditions of employment, benefits

and wage adjustments. Three meetings were held

during the year.

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Annual Report 2015

Governance

9.4. Executive Compensation

The Bank’s Executive Management comprises the

Governor, the Senior Deputy Governor, and two

Deputy Governors. These officers were 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 2015 is described

below:-

Salary Range of Executive Management

$9 777 241.00 to 18 023 335.00

Allowances - Deputy Governors

$1 033 032.00

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. The Deputy Governors are

members of the non-contributory pension scheme

sponsored by the Bank. The Governor is paid a

gratuity in lieu of pension benefits.

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 motor vehicles.

Non-executive Directors of the Board 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.

- 84 -

10. Community Outreach

10.1. Overview

Bank of Jamaica continues to be committed to

fulfilling its corporate social responsibility through

its community outreach programmes which support

the arts and education.

10.2. Support for Education

10.2.1. Summer Work Experience Programme (BOJ-

SWEP)

The Bank continued its contribution to the

educational development of students by offering

practical work experience through BOJ-SWEP.

A total of 645 applications were received and of

the 79 students selected, 60 students were at

the postgraduate and undergraduate levels while

19 were at the secondary level. This programme

exposes students to a practical, professional and

challenging work environment while offering an

opportunity to make a meaningful contribution to

the operation of the Bank.

The Bank also offered internships to 10 students

from the University of the West Indies (UWI)

and the University of Technology (UTECH) and

partnered with the Caribbean Regional Technical

Assistance Centre (CARTAC) in accommodating a

student under CARTAC sponsorship. The interns

gained work experience in economics, law, and

library and information science.

10.2.2. Schools’ Education Programme

Throughout 2015, over 6 000 students from 150

institutions visited the Bank for lectures and to view

public areas including the Bank’s Money Musuem.

The Bank also partnered with the Financial

Services Commission (FSC) and provided lunches

to youth taking part in the FSC Junior Achievement

programme.

10.2.3. Revision Seminars in Economics

CAPE level students of economics attended the

annual seminars, facilitated by staff economists,

which exposed students to the role and functions

of the Central Bank and practical applications of

monetary theory. Approximately 300 students

from 22 schools participated each day of the two-

day event.

10.2.4. G. Arthur Brown Scholarship

The G Arthur Brown Scholarship is offered annually

to a student who is pursuing a Master of Science

in Economics at UWI. Miss Rochelle Johnson was

the recipient of the scholarship for 2015. The

scholarship will be for 2 years and coverage began

in September 2015.

10.2.5. St. Michael’s Primary School

The Bank supported St. Michael’s Primary School

through sponsorship of the summer school

programme, Boys’ and Girls’ Day events and the

printing of school materials. Members of the

academic and ancillary staff were also presented

with Christmas gift baskets.

10.2.6. Money Museum

The museum attracted about 7 000 visitors in

2015 and educators continued to acknowledge the

relevance of the exhibits. This was in the context

where the interest in money continued to be strong,

particularly for school age children.

10.2.7. Exhibition

On 5 August 2015, Bank of Jamaica launched

an exhibition under the theme “Redevelopment

of Downtown, Kingston”. The exhibition featured

Downtown past, present and future. Viewers

were treated to a brief but fascinating history of

Downtown, aspects of its commercial, architectural,

and social life, as well as to recent additions to

- 85 -

Annual Report 2015

Community Outreach

the Downtown landscape and the vision for the

future. The exhibition ran for one month and was

relocated to the Urban Development Corporation

where it was again exhibited for another month.

10.3. Support for the Visual and Performing Arts

10.3 1. Visual Arts

The Bank added works from established and

emerging artists to its collection in 2015, thereby

continuing its support of the local art community.

Works of Art were also acquired from the Mustard

Seed Communities’ ceramic exhibition hosted

annually by the Bank.

10.3 2. Lunch Hour Concerts

These monthly concerts hosted at the Bank feature

all aspects of the performing arts and contribute

to the improvement of the quality and variety of

cultural offerings in the downtown Kingston area.

10.3 3. University Singers in Concert

There continued to be overwhelming public

response to this annual event hosted by the Bank

each December in the historic University Chapel.

Hundreds of supporters attend to be delighted by

“An Evening with The University Singers”.

- 86 -

11. Bank of Jamaica’s Strategic Objectives 2016-2018

11.1. Overview

During 2015, changes in legislation such as the

enactment of the Banking Services Act and

the amendment of the Bank of Jamaica Act

strengthened the Bank’s oversight of the financial

sector. These far reaching legislative changes

together with the Bank’s initiative to improve

operational efficiency and effectiveness required

appropriate institutional arrangements to ensure

that the Bank has the capacity to effectively

meet its current and future needs. Against this

background, during 2015 the Bank revamped its

strategic planning process towards repositioning

itself and charting a new vision for the next three

years, 2016 to 2018.

11.2. Strategic Objectives

The new strategic plan will be executed under

the theme “One Bank, One Vision, One Mission”.

The theme capitalizes on the Bank’s institutional

excellence while recognizing the need for greater

cooperation among divisions and preserving

the positive aspects of the Bank’s culture. The

strategic plan is underpinned by three broad

strategic goals which are supported by eleven

strategic imperatives, that is, the critical success

factors that must be addressed for the strategic

goals to be achieved. Strategic imperatives,

which are measurable, will define what has to be

achieved within a given timeframe so as to achieve

the agreed objectives and goals under the strategic

plan.

These strategic objectives for 2016 to 2018 are:

1. Improving Operational Efficiency and

Effectiveness:

i. Modernisation of the Human

Resource Function

ii. Enhancement of the Governance

Framework

iii. Enhancement of the

Communication Function

iv. Modernisation of the Budget and

Administration Function

2. Strengthening Capacity for New, Changing

and Expanded Mandates:

v. Operationalisation of the Banking

Services Act (BSA)

vi. Strengthening Macro-prudential

Oversight

vii. Strengthening the Monetary Policy

Framework

viii. Strengthening the Credit Union

Framework

3. Supporting Shared National Responsibilities:

ix. Guiding the Development of the

National Financial Inclusion Strategy

x. Supporting Economic Growth

xi. Leading the process for the Special

Data Dissemination Standard (SDDS)

11.3. Core Values to support the Strategic Plan

Objectives

The attainment of the strategic goals and theme

will also hinge upon the adherance of staff to seven

core values. These are fairness & equity, teamwork,

confidentiality, excellence, transparency, respect

and honesty & integrity.

- 87 -

12. Calendar of Monetary Policy Developments

INTEREST RATES 1

2015/01/09 The Bank of Jamaica offered five instruments: (i) BOJ VR-CD 2016H is for an unlimited amount. The tenor of this instrument is 364-days. The instrument re-prices 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 will therefore be the three month GOJ Treasury Bill rate of 6.96 per cent plus 0.25 percentage point. (ii) BOJ VR-CD 2017A is for an unlimited amount. The tenor of this instrument is 2- years. The initial coupon for the first three months will be 7.75 per cent. Thereafter, the instrument re-prices quarterly at 0.50 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period. (iii) BOJ FR USD-CD 2019P is for an unlimited amount. The tenor of this instrument is 4-years and offers a fixed coupon of 3.75 percent per annum, which is 2.28 percentage points above the current rate of 1.47 percent on 5-year US Treasury. The coupon is paid semiannually. (iv) BOJ FR USD-CD 2020A is for an unlimited amount. The tenor of this instrument is 5-years and offers a fixed coupon of 4.50 percent per annum, which is 3.03 percentage points above the current rate of 1.47 percent on 5-year US Treasury. The coupon is paid semiannually. (v) BOJ FR USD-CD 2022A is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 5.25 percent per annum, which is 3.49 percentage points above the current rate of 1.76 percent on 7-year US Treasury. The coupon is paid semiannually.

2015/02/06 The Bank of Jamaica offered one instrument:

(i) BOJ FR US-Dollar Indexed Note 2016 for an unlimited amount. The instrument, which has a tenor of 365-days, pays a coupon of 3.25 per cent per annum. The initial conversion exchange rate is US$1:00=J$115.2636, which is the BOJ 10-day moving average buying exchange rate applicable on Monday, 02 February 2015. For each quarterly interest payment and at maturity, the applicable exchange rate will be 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 will be made in Jamaica Dollars.

Interest rate applicable to Bank of Jamaica’s 30-day Open Market Instruments remained the same at 5.75 per cent.

- 88 -Calendar of Monetary Policy Developments

Bank of Jamaica

INTEREST RATES 2

2015/02/26 The Bank of Jamaica offered five instruments: (i) BOJ VR-CD 2016K is for an unlimited amount. The tenor of this instrument is 365-days. The instrument re-prices 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 will therefore be the three month GOJ Treasury Bill rate of 6.88 per cent plus 0.25 percentage point. (ii) BOJ VR-CD 2017C is for an unlimited amount. The tenor of this instrument is 2-years. The initial coupon for the first three months will be 7.50 per cent. Thereafter, the instrument re-prices quarterly at 0.50 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period. (iii) BOJ FR USD-CD 2018S is for an unlimited amount. The tenor of this instrument is 3-years and offers a fixed coupon of 3.50 percent per annum, which is 2.52 percentage points above the current rate of 0.98 percent on 3-year US Treasury. The coupon is paid semiannually. (iv) BOJ FR USD-CD 2020C is for an unlimited amount. The tenor of this instrument is 5-years and offers a fixed coupon of 4.50 percent per annum, which is 3.03 percentage points above the current rate of 1.47 percent on 5-year US Treasury. The coupon is paid semiannually. (v) BOJ FR USD-CD 2022C is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 5.05 percent per annum, which is 3.27 percentage points above the current rate of 1.78 percent on 7-year US Treasury. The coupon is paid semiannually.

2015/03/20 The Bank of Jamaica offered five instruments:

(i) BOJ VR-CD 2016L is for an unlimited amount. The tenor of this instrument is 364-days. The instrument re-prices 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 will therefore be the three month GOJ Treasury Bill rate of 6.73 per cent plus 0.25 percentage point. (ii) BOJ VR-CD 2017D is for an unlimited amount. The tenor of this instrument is 2-years. The initial coupon for the first three months will be 7.35 per cent. Thereafter, the instrument re-prices quarterly at 0.50 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period. (iii) BOJ FR USD-CD 2018T is for an unlimited amount. The tenor of this instrument is 3-years and offers a fixed coupon of 3.30 percent per annum,

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Annual Report 2015

Calendar of Monetary Policy Developments

INTEREST RATES 3

which is 2.35 percentage points the current rate of 0.95 percent on 3-year US Treasury. The coupon is paid semiannually. (iv) BOJ FR USD-CD 2020D is for an unlimited amount. The tenor of this instrument is 5-years and offers a fixed coupon of 4.20 percent per annum, which is 2.78 percentage points above the current rate of 1.42 percent on 5-year US Treasury. The coupon is paid semiannually. (v) BOJ FR USD-CD 2022D is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 4.65 percent per annum, which is 2.92 percentage points above the current rate of 1.73 percent on 7-year US Treasury. The coupon is paid semiannually.

2015/04/14 The Bank of Jamaica offered three instruments:

(i) BOJ FR USD-CD 2018U is for an unlimited amount. The tenor of this instrument is 3-years and offers a fixed coupon of 3.25 percent per annum, which is 2.36 percentage points above the current rate of 0.89 percent on 3-year US Treasury. The coupon is paid semiannually. (ii) BOJ FR USD-CD 2020E is for an unlimited amount. The tenor of this instrument is 5-years and offers a fixed coupon of 4.20 percent per annum, which is 2.80 percentage points above the current rate of 1.40 percent on 5-year US Treasury. The coupon is paid semiannually. (ii) BOJ FR USD-CD 2022E is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 4.65 percent per annum, which is 2.92 percentage points above the current rate of 1.73 percent on 7-year US Treasury. The coupon is paid semiannually.

2015/04/17 The Bank of Jamaica reduced the signal interest rate, the rate payable on its

30-day Certificate of Deposit (CD) by 25 basis points to 5.50 per cent from 5.75 per cent. This translated to lower interest rates by the similar magnitude on its lending operations. The interest rate on the Standing Liquidity Facility (SLF), Bimonthly Repo Operations (BRO) and Excess Funds Rate (EFR) declined to 9.25 per cent, 8.75 per cent and 11.30 per cent, respectively. In this regard, the spreads over the signal rate for the SLF, BRO and EFR were unchanged at 375bps, 325bps and 580bps, respectively.

2015/04/28 The Bank of Jamaica offered two instruments: (i) BOJ VR-CD 2016M is for an unlimited amount. The tenor of this instrument is 365-days. The instrument re-prices 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 will therefore be the three month GOJ Treasury Bill rate of 6.61 per cent plus 0.25 percentage point.


Bank of Jamaica

INTEREST RATES 4

(ii) BOJ VR-CD 2017E is for an unlimited amount. The tenor of this instrument is 2- years. The initial coupon for the first three months will be 7.25 per cent. Thereafter, the Instrument re-prices quarterly at 0.50 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period.

2015/05/07 The Bank of Jamaica offered three instruments: (i) BOJ FR USD-CD 2018V is for an unlimited amount. The tenor of this instrument is 3-years and offers a fixed coupon of 3.15 percent per annum, which is 2.15 percentage points above the current rate of 1.00 percent on 3-year US Treasury. The coupon is paid semiannually. (ii) BOJ FR USD-CD 2020F is for an unlimited amount. The tenor of this instrument is5-years and offers a fixed coupon of 4.20 percent per annum, which is 2.66 percentage points above the current rate of 1.54 percent on 5-year US Treasury. The coupon is paid semiannually. (iii) BOJ FR USD-CD 2022F is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 4.75 percent per annum, which is 2.83 percentage points above the current rate of 1.92 percent on 7-year US Treasury. The coupon is paid semi-annually.

2015/05/26 The Bank of Jamaica implemented a 50 bps reduction in the spread over its

signal rate (the interest rate on the 30-day Certificate of Deposit). The spread on the Standing Liquidity Facility (SLF), Bimonthly Repo Operations (BRO) and Excess Funds Rate (EFR) declined to 325bps, 275bps and 530bps, respectively, with the corresponding interest rates of 8.75 per cent, 8.25 per cent, 10.80 per cent.


(i) BOJ VR-CD 2016N is for an unlimited amount. The tenor of this instrument is 365-days. The instrument re-prices 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 will therefore be the three month GOJ Treasury Bill rate of 6.57 per cent plus 0.25 percentage point. (ii) BOJ VR-CD 2017F is for an unlimited amount. The tenor of this instrument is 2-years. The initial coupon for the first three months will be 7.25 per cent. Thereafter, the instrument re-prices quarterly at 0.50 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period. (iii) BOJ FR USD-CD 2018W is for an unlimited amount. The tenor of this instrument is 3-years and offers a fixed coupon of 3.00 percent per annum,

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Annual Report 2015


INTEREST RATES 5

which is 2.05 percentage points above the current rate of 0.95 percent on 3-year US Treasury. The coupon is paid semiannually. (iv) BOJ FR USD-CD 2020G is for an unlimited amount. The tenor of this instrument is 5-years and offers a fixed coupon of 4.10 percent per annum, which is 2.57 percentage points above the current rate of 1.53 percent on 5-year US Treasury. The coupon is paid semiannually. (v) BOJ FR USD-CD 2022G is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 4.65 percent per annum, which is 2.73 percentage points above the current rate of 1.92 percent on 7-year US Treasury. The coupon is paid semi-annually.


(i) BOJ VR-CD 2016P is for an unlimited amount. The tenor of this instrument is 365-days. The instrument re-prices 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 will therefore be the three month GOJ Treasury Bill rate of 6.48 per cent plus 0.25 percentage point. (ii) BOJ VR-CD 2017G is for an unlimited amount. The tenor of this instrument is 2-years. The initial coupon for the first three months will be 7.25 per cent. Thereafter, the instrument re-prices quarterly at 0.50 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period. (iii) BOJ FR USD-CD 2018X is for an unlimited amount. The tenor of this instrument is 3-years and offers a fixed coupon of 3.00 percent per annum, which is 2.01 percentage points above the current rate of 0.99 percent on 3-year US Treasury. The coupon is paid semiannually. (iv) BOJ FR USD-CD 2020H is for an unlimited amount. The tenor of this instrument is 5-years and offers a fixed coupon of 4.10 percent per annum, which is 2.51 percentage points above the current rate of 1.59 percent on 5-year US Treasury. The coupon is paid semiannually.

(v) BOJ FR USD-CD 2022H is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 4.70 percent per annum, which is 2.71 percentage points above the current rate of 1.99 percent on 7-year US Treasury. The coupon is paid semi-annually.

2015/07/20 The Bank of Jamaica offered two instruments:

(i) BOJ VR-CD 2016Q is for an unlimited amount. The tenor of this instrument is 365-days. The initial coupon for the first three months will be


Bank of Jamaica

INTEREST RATES 6

6.50 per cent. Thereafter, the instrument re-prices quarterly at 0.25 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period. (ii) BOJ VR-CD 2017H is for an unlimited amount. The tenor of this instrument is 2-years. The initial coupon for the first three months will be 7.00 per cent. Thereafter, the instrument re-prices quarterly at 0.50 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period.

2015/08/13 The Bank of Jamaica offered three instruments:

(i) BOJ FR USD-CD 2018Y is for an unlimited amount. The tenor of this instrument is 3-years and offers a fixed coupon of 2.60 percent per annum, which is 1.51 percentage points above the current rate of 1.09 percent on 3-year US Treasury. The coupon is paid semiannually. (ii) BOJ FR USD-CD 2020J is for an unlimited amount. The tenor of this instrument is 5-years and offers a fixed coupon of 3.65 percent per annum, which is 2.03 percentage points above the current rate of 1.62 percent on 5-year US Treasury. The coupon is paid semiannually. (iii) BOJ FR USD-CD 2022J is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 4.30 percent per annum, which is 2.32 percentage points above the current

2015/08/18 The Bank of Jamaica reduced the signal interest rate, the rate payable on its 30-day Certificate of Deposit (CD) by 25 basis points to 5.25 per cent from 5.50 per cent. This translated to lower interest rates by the similar magnitude on its lending operations. The interest rate on the Standing Liquidity Facility (SLF), Bimonthly Repo Operations (BRO) and Excess Funds Rate (EFR) declined to 8.50 per cent, 8.00 per cent and 10.55 per cent, respectively. In this regard, the spreads over the signal rate for the SLF, BRO and EFR were unchanged at 325bps, 275bps and 530bps, respectively.

2015/08/27 The Bank of Jamaica implemented a 50 bps reduction in the spread over its

signal rate (the interest rate on the 30-day Certificate of Deposit). The spread on the Standing Liquidity Facility (SLF), Bimonthly Repo Operations (BRO) and Excess Funds Rate (EFR) declined to 275bps, 225bps and 480bps, respectively, with the corresponding interest rates of 8.00 per cent, 7.50 per cent, 10.05 per cent.


(i) BOJ FR USD-CD 2018Z is for an unlimited amount. The tenor of this instrument is 3-years and offers a fixed coupon of 2.40 percent per annum,

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Annual Report 2015


INTEREST RATES 7

which is 1.55 percentage points above the current rate of 0.85 percent on 3-year US Treasury. The coupon is paid semiannually. (ii) BOJ FR USD-CD 2020K is for an unlimited amount. The tenor of this instrument is 5-years and offers a fixed coupon of 3.40 percent per annum, which is 2.11 percentage points above the current rate of 1.29 percent on 5-year US Treasury. The coupon is paid semiannually. (iii) BOJ FR USD-CD 2022K is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 4.10 percent per annum, which is 2.43 percentage points above the current rate of 1.67 percent on 7-year US Treasury. The coupon is paid semiannually. (iv) BOJ VR-CD 2016S is for an unlimited amount. The tenor of this instrument is 365-days. The initial coupon for the first three months will be 6.20 per cent. Thereafter, the instrument re-prices quarterly at 0.25 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period. (v) BOJ VR-CD 2017K is for an unlimited amount. The tenor of this instrument is 2-years. The initial coupon for the first three months will be 6.70 per cent. Thereafter, the instrument re-prices quarterly at 0.50 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period.

2015/10/12 Weekly repurchase auctions commenced at which deposit-taking financial institutions place bids for both the interest rate and the amount of JMD liquidity they wished to access through the operation. Once the auction period elapses, the Bank allocates the amounts starting from the highest interest rate to the lowest interest rate, up to the amount that was placed on offer.

2015/10/12 The BOJ offered to provide Jamaica Dollar liquidity amounting to $10,000,000,000.00 to DTIs through its 14- day Repurchase operation. The amount offered was allocated through a competitive price auction. Following the auction, the weighted average yield was 7.26 per cent.

2015/10/16 The BOJ offered to provide Jamaica Dollar liquidity amounting to

$2,500,000,000.00 to DTIs through its 14- day Repurchase operation. The amount offered was allocated through a competitive price auction. Following the auction, the weighted average yield was 7.55 per cent.




Bank of Jamaica

INTEREST RATES 8



2015/11/03 The Bank of Jamaica offered five instruments: (i) BOJ FR USD-CD 2018AA is for an unlimited amount. The tenor of this instrument is 3-years and offers a fixed coupon of 2.40 percent per annum, which is 1.35 percentage points above the current rate of 1.05 percent on 3-year US Treasury. The coupon is paid semiannually. (ii) BOJ FR USD-CD 2020L is for an unlimited amount. The tenor of this instrument is 5-years and offers a fixed coupon of 3.40 percent per annum, which is 1.87 percentage points above the current rate of 1.53 percent on 5-year US Treasury. The coupon is paid semiannually. (iii) BOJ FR USD-CD 2022L is for an unlimited amount. The tenor of this instrument is7-years and offers a fixed coupon of 4.10 percent per annum, which is 2.20 percentage points above the current rate of 1.90 percent on 7-year US Treasury. The coupon is paid semiannually. (iv) BOJ VR-CD 2016T is for an unlimited amount. The tenor of this instrument is 365- days. The initial coupon for the first three months will be 6.13 per cent. Thereafter, the instrument re-prices quarterly at 0.25 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period. (vi) BOJ VR-CD 2017L is for an unlimited amount. The tenor of this instrument is 2- years. The initial coupon for the first three months will be 6.65 per cent. Thereafter, the instrument re-prices quarterly at 0.50 percentage point above the three month GOJ Treasury Bill rate existing at the start of each re-pricing period.




2015/11/23 The BOJ offered to provide Jamaica Dollar liquidity amounting to $1,000,000,000.00 to DTIs through its 14- day Repurchase operation.

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Annual Report 2015


INTEREST RATES 9

The amount offered was allocated through a competitive price auction. Following the auction, the weighted average yield was 8.15 per cent.


The Bank offered Occasional Term Repos (OTRO) of tenors 3 and 4 months between November and December 2015, to mature between 11 and 26 February 2016. These offers were aimed at smoothing the anticipated impact on Jamaica Dollar liquidity emanating from the NDX bond maturities in February 2016. Under the terms of these OTROs were that DTIs make placements on the Bank’s USD CDs with minimum tenor of two years and access Jamaica Dollar liquidity through repurchases. At total of $10.3 billion was allocated under this facility.



2015/12/10 BOJ 6.20% FR JMD-CD 2016 amounting to $1,000,000,000.00 was

allocated through a competitive price auction. The first installment of interest will become due and payable on 14 March 2016. Thereafter, the quarterly interest payment becomes due on 14 June 2016, 14 September 2016 and at maturity on 13 December 2016. Following the auction, the weighted average yield was 6.47 per cent.




$5,000,000,000.00 to DTIs through its 13- day Repurchase operation. The bids amounted to $1,600,000,000.00 and was allocated through a competitive price auction. Following the auction, the weighted average yield was 7.64 per cent.

2015/12/18 BOJ 6.15% FR JMD-CD 2016A amounting to $1,000,000,000.00 was allocated through a competitive price auction. The first installment of interest will become due and payable on 22 March 2016. Thereafter, the quarterly interest payment becomes due on 22 June 2016, 22 September 2016 and at maturity on 21 December 2016. Following the auction, the weighted average yield was 6.13 per cent.


Bank of Jamaica

INTEREST RATES 10


$6,000,000,000.00 to DTIs through its 14- day Repurchase operation. The bids amounted to $2,200,000,000.00 and was allocated through a competitive price auction. Following the auction, the weighted average yield was 7.40 per cent.


- i -

Auditors’ Report

- ii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

- iii -

Annual Report 2015

Final Accounts for Year Ended 31 December 2015

2 BANK OF JAMAICA Statement of Financial Position December 31, 2015

The accompanying notes form an integral part of the financial statements.

Notes 2015 2014 J$'000 J$'000 ASSETS Foreign assets: Notes and coins 104,223 56,485 Cash and cash equivalents 4 204,035,103 80,228,459 Interest in funds managed by agents 5 40,637,501 36,527,000 Investment securities 6 75,355,616 135,466,725 International Monetary Fund - Holding of Special Drawing Rights 30,038,907 30,775,081 Bilateral accounts - 12,467

Total foreign assets 350,171,350 283,066,217

Local assets: Notes and coins 114,069 126,216 Resale agreements 7 16,949,931 43,596,017 Investment securities 8 123,867,430 122,755,485 International Monetary Fund – Quota subscription 9 5,174,650 5,155,279 Due from Government and Government Agencies 10 38,969,674 36,480,762 Property, plant and equipment 11 4,584,508 3,278,403 Intangible asset 12 45,784 12,145 Employee benefits asset 13(a) 5,035,500 5,478,300 Other 14 2,983,401 5,714,415

Total local assets 197,724,947 222,597,022

Total assets 547,896,297 505,663,239

- iv -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

3 BANK OF JAMAICA Statement of Financial Position (continued) December 31, 2015


Notes 2015 2014 J$'000 J$'000 LIABILITIES, CAPITAL AND RESERVES Liabilities: Notes and coins in circulation 15 84,251,184 74,942,545 Deposits and other demand liabilities 16 244,055,332 201,405,947 Open market liabilities 17 161,309,109 173,000,319 International Monetary Fund - Allocation of Special Drawing Rights 18 43,499,182 43,336,352 Foreign liabilities 27 276,293 Employee benefits obligation 13(b) 1,520,100 1,130,800 Bilateral accounts 70,595 - Other 19 3,507,666 2,672,012

Total liabilities 538,213,195 496,764,268 Capital and reserves: Share capital 20 4,000 4,000 General reserve fund 21 20,000 20,000 Special stabilisation account 22 1,135,011 1,009,867 Other reserves 23 8,524,091 7,865,104

Total capital and reserves 9,683,102 8,898,971

Total liabilities, capital and reserves 547,896,297 505,663,239 The financial statements on pages 2 to 49 were approved for issue by the Board of Directors on February 24, 2016 and signed on its behalf by: Governor Brian Wynter Deputy Governor Livingstone Morrison Financial Controller Angela Foote

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Annual Report 2015


4

BANK OF JAMAICA Statement of Profit or Loss and Other Comprehensive Income Year ended December 31, 2015

* After reclassification to accord with the current year’s presentation. The accompanying notes form an integral part of the financial statements.

Notes 2015 2014 J$'000 J$'000 Operating income: Interest 24 15,149,568 15,711,290 Foreign exchange gain, net 25 207,969 - Other 150,518 150,695

Total operating income 15,508,055 15,861,985 Operating expenses: Interest on deposits and open market liabilities 26 10,876,060 9,334,202

Interest on IMF loan 628,530 953,689 Staff costs 27 2,611,129 2,510,554 * Currency expenses 1,134,796 1,126,765 Depreciation and amortisation 394,906 337,635 Other property expenses 471,041 487,954 * Foreign exchange loss, net 25 - 117,962 Other operating expenses 28 934,132 713,093 *

Total operating expenses 17,050,594 15,581,854

Operating (loss)/profit ( 1,542,539) 280,131 Other income/(expenses): Pension, medical and life insurance 13 165,600 140,600 Gain on remeasurement of staff loans 35,109 12,749 Loss on disposal of securities designated as available-for-sale ( 16,030) ( 2,498) Gain on disposal of property, plant and equipment 19,618 8,071

(Loss)/profit for the year before transfer to pension equalisation reserve ( 1,338,242) 439,053 Transfer to pension equalisation reserve 23(c) ( 314,100) ( 270,500) (Loss)/profit for the year transferred to general reserve fund 10(b) ( 1,652,342) 168,553 Other comprehensive income: Items that will never be reclassified to profit or loss Gain on revaluation of land and building 1,302,329 - Remeasurement of pension asset and obligation, net 13 ( 1,108,200) ( 318,300)

Item that is or will be reclassified to profit or loss: Change in fair value of available-for-sale securities 62,958 1,113,988

Total other comprehensive income for the year 257,087 795,688 Total comprehensive (loss)/income for the year ( 1,395,255) 964,241

- vi -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

5

BANK OF JAMAICA Statement of Changes in Capital and Reserves Year ended December 31, 2015


General Special Share reserve stabilisation Other capital fund account reserves Total J$'000 J$'000 J$'000 J$'000 J$'000 (Note 20) (Note 21) (Note 22) (Note 23) Balances at December 31, 2013 4,000 20,000 919,523 6,706,716 7,650,239

Total comprehensive income for the year: Profit for the year - 168,553 - - 168,553 Other comprehensive income: Realised change in fair value of available- for-sale securities 77,672 77,672 Unrealised change in fair value of available- for-sale securities - - - 1,036,316 1,036,316

- - - 1,113,988 1,113,988 Remeasurement of pension asset and obligation, net - - - ( 318,300) ( 318,300)

Total other comprehensive income - - - 795,688 795,688

Total comprehensive income - 168,553 - 795,688 964,241

Other changes in reserves: Profit due to consolidated fund (note 10) - ( 168,553) - - ( 168,553) Transfer from coins in circulation - - 90,344 - 90,344 Transfer of surplus on defined benefit pension scheme - - - 362,700 362,700

- ( 168,553) 90,344 362,700 284,491

Balances at December 31, 2014 4,000 20,000 1,009,867 7,865,104 8,898,971

Total comprehensive income for the year: Loss for the year - ( 1,652,342) - - ( 1,652,342) Other comprehensive income: Realised change in fair value of available- for-sale securities - - - 229,165 229,165 Unrealised change in fair value of available- for-sale securities - - - ( 166,207) ( 166,207)

- - - 62,958 62,958 Gain on revaluation of land and building - - - 1,302,329 1,302,329 Remeasurement of pension asset and obligation - - - ( 1,108,200) ( 1,108,200)

Total other comprehensive income - - - 257,087 257,087

Total comprehensive loss - ( 1,652,342) - 257,087 ( 1,395,255)

Other changes in reserves: Due from consolidated fund for loss (note 10) - 1,652,342 - - 1,652,342 Transfer from coins in circulation - - 125,144 - 125,144 Transfer of surplus on defined benefits pension scheme - - - 401,900 401,900

- 1,652,342 125,144 401,900 2,179,386

Balances at December 31, 2015 4,000 20,000 1,135,011 8,524,091 9,683,102

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Annual Report 2015


6

BANK OF JAMAICA Statement of Cash Flows Year ended December 31, 2015


Notes 2015 2014 J$'000 J$'000 Cash flows from operating activities:

(Loss)/profit for the year ( 1,338,142) 439,053 Adjustments for:

Depreciation – property, plant and equipment 11 370,129 320,533 Amortisation – intangible asset 12 24,777 17,102 Gain on disposal of property, plant and equipment ( 19,618) ( 7,669) Employee benefits, net 125,800 ( 119,600) Unrealised exchange gain ( 3,770,555) ( 2,766,277) Unrealised exchange gain on International Monetary Fund Quota Subscription 9 ( 19,371) ( 74,669) Unrealised exchange loss on International Monetary

Fund - Allocation of SDR's 162,830 627,458 Interest income 24 ( 15,149,568) ( 15,711,290) Interest expense 26 10,876,060 9,334,202 Operating loss before changes in other assets and

other liabilities ( 8,737,658) ( 7,941,157) Other assets 2,867,489 ( 2,853,451) Other liabilities 349,821 ( 3,304,161) Due from Government and Government Agencies ( 1,099,794) 462,691 Interest received 14,962,117 16,694,485 Interest paid ( 10,310,490) ( 11,046,697)

Net cash used by operating activities ( 1,968,515) ( 7,988,290)

Cash flows from investing activities: International Monetary Fund - Holding of Special Drawing Rights 736,174 614,788 Interest in funds managed by agents ( 2,244,090) ( 20,368,108) Foreign currency denominated investments 62,579,355 ( 22,444,129) Local currency denominated investments ( 1,185,674) ( 23,850,141) Resale agreements 26,646,086 ( 32,096,017) Additions to property, plant and equipment 11 ( 409,896) ( 313,947) Additions to intangible asset 12 ( 58,416) ( 26,568) Proceeds from disposal of property, plant and equipment 55,609 35,641

Net cash provided/(used) by investing activities 86,119,148 ( 98,448,481)

Cash flows from financing activities: Notes and coins in circulation 9,433,783 5,214,684 Deposits and other demand liabilities 38,577,524 25,289,453 Open market liabilities ( 11,691,210) 113,002,255 Foreign liabilities ( 289,927) 276,246

Net cash provided by financing activities 36,030,170 143,782,638

Net increase in cash and cash equivalents 120,180,803 37,345,867 Cash and cash equivalents at beginning of year 80,411,160 40,551,128 Effect of exchange rate fluctuation on cash held 3,661,432 2,514,165

Cash and cash equivalents at end of year 204,253,395 80,411,160

Cash and cash equivalents at December 31 comprise: Foreign cash and cash equivalents 4 204,035,103 80,228,459 Foreign notes and coins 104,223 56,485 Local notes and coins 114,069 126,216

204,253,395 80,411,160

- viii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

7

BANK OF JAMAICA Notes to the Financial Statements Year ended December 31, 2015

1. Identification

Bank of Jamaica (hereafter “the Bank”) was established under the Bank of Jamaica Act (hereafter “the Act”) which was most recently amended on October 29, 2015, to establish the Bank’s statutory responsibility for financial stability. The amendment came into effect on October 30, 2015 by Appointed Day Notice. 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, re vised and am ended standards and i nterpretations that became ef fective during the year

Certain new, revised and amended standards and interpretations came into effect during the current financial year. The Bank has adopted those which are relevant to its operations, but their adoption did not result in any changes to amounts recognised or disclosed in these financial statements.

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. (i) IFRS 9, Financial Instruments, which is effective for annual reporting periods

beginning on or after January 1, 2018, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial assets and liabilities, including a new expected credit loss model for calculating impairment of financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. Although the permissible measurement bases for financial assets - amortised cost, fair value through other comprehensive income (FVOCI) and fair value though profit or loss (FVTPL) - are similar to IAS 39, the criteria for classification into the appropriate measurement category are significantly different. IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model, which means that a loss event will no longer need to occur before an impairment allowance is recognised.

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Annual Report 2015


8


2. Basis of preparation (continued)

(a) Statement of compliance (continued)

New, re vised and am ended standards and i nterpretations that are not yet effective (continued)

(ii) IAS 1, Presentation of Financial Statements, has been amended, effective for annual

reporting periods beginning on or after January 1, 2016, to clarify or state the following:

- specific single disclosures that are not material do not have to be presented even

if they are minimum requirements of a standard;

- the order of notes to the financial statements is not prescribed;

- line items on the statement of financial position and the statement of profit or loss and other comprehensive income (OCI) should be disaggregated if this provides helpful information to users. Line items can be aggregated if they are not material;

- specific criteria are now provided for presenting subtotals on the statement of financial position and in the statement of profit or loss and OCI, with additional reconciliation requirements for the statement of profit or loss and OCI;

- the presentation in the statement of OCI of items of OCI arising from joint ventures and associates accounted for using the equity method follows the IAS 1 approach of splitting items that may, or that will never, be reclassified to profit or loss.

(iii) IFRS 7, Financial Instruments: Disclosures, effective for annual reporting periods

beginning on or after July 1, 2016, has been amended to clarify when servicing arrangements are in the scope of its disclosure requirements on continuing involvement in transferred assets in cases when they are derecognised in their entirety. A servicer is deemed to have continuing involvement if it has an interest in the future performance of the transferred asset.

(iv) IFRS 15, Revenue from Contracts with Customers, is effective for annual reporting

periods beginning on or after January 1, 2017. It replaces IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfer of Assets from Customers, and SIC-31, Revenue - Barter Transactions Involving Advertising Services.

The new standard applies to contracts with customers. However, it does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs. It also does not apply if two entities in the same line of business exchange non-monetary assets to facilitate sales to other parties. Furthermore, if a contract with a customer is partly in the scope of another IFRS, then the guidance on separation and measurement contained in the other IFRS takes precedence.

- x -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

9



(a) Statement of compliance (continued)

New, revised and amended standards and i nterpretations that are not yet ef fective (continued)

(v) Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of

Depreciation and Amortisation, are effective for annual reporting periods beginning on or after January 1, 2016.

The amendment to IAS 16, Property, Plant and Equipment, explicitly states that

revenue-based methods of depreciation cannot be used. This is because such methods reflect factors other than the consumption of economic benefits embodied in the assets.

The amendment to IAS 38, Intangible Assets, introduces a rebuttable

presumption that the use of revenue-based amortisation methods is inappropriate for intangible assets.

(vi) Improvements to IFRS, 2012-2014 cycle, contain amendments to certain standards

and interpretations and are effective for accounting periods beginning on or after January 1, 2016. The main amendment applicable to the Bank is to IAS 19, Employee Benefits. It clarifies that high-quality corporate bonds or government bonds used in determining the discount rate should be issued in the same currency in which the benefits are to be paid. Consequently, the depth of the market for high-quality corporate bonds should be assessed at the currency level and not the country level.

(vii) IFRS 16, Leases, which is effective for annual reporting periods beginning on or

after January 1, 2019, eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Entities will be required to bring all major leases on-balance sheet, recognising new assets and liabilities. The on-balance sheet liability will attract interest; the total lease expense will be higher in the early years of a lease even if a lease has fixed regular cash rentals. Optional lessee exemption will apply to short- term leases and for low-value items with value of US$5,000 or less.

Lessor accounting remains similar to current practice as the lessor will continue to classify leases as finance and operating leases. Finance lease accounting will be based on IAS 17 lease accounting, with recognition of net investment in lease comprising lease receivable and residual asset. Operating lease accounting will be based on IAS 17 operating lease accounting.

Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers is also adopted.

The Bank is assessing the impact that the new standards and interpretations, and the applicable amendments will have on its financial statements when they become effective.

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Annual Report 2015


10



(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 equipment are included at fair value; and

(ii) the defined benefit asset is recognised 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) Estimation uncertainty and judgements

The preparation of financial statements in conformity with IFRSs requires the use of accounting estimates, based on assumptions. It also frequently requires management to exercise its judgement in the process of applying IFRSs and the Bank’s accounting policies. These estimates and judgements affect the reported amounts of, and disclosures relating to assets, liabilities, income, expenses, contingent assets and contingent liabilities.

Estimates, and the assumptions underlying them, are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from the estimates.

(i) Judgements

For the purpose of these financial statements, prepared in accordance with IFRS, judgement refers to the informed identification and analysis of reasonable alternatives, considering all relevant facts and circumstances, and the well-reasoned, objective and unbiased choice of the alternative that is most consistent with the agreed principles set out in IFRS.

The determination of whether a security may be classified as ‘loans and receivables’ or ‘held to maturity’ (note 6) or whether a security’s fair value may be classified as ‘Level 1’ in the fair value hierarchy (note 32) requires judgement as to whether or not a market is active.

(ii) Key sources of estimation uncertainty

Financial statement amounts that have been significantly affected by estimates, and/or which could be changed significantly in the next financial year as a result of a change in the estimate, are as follows:

(1) 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.

- xii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

11


2. Basis of preparation (continued) (d) Estimation uncertainty and judgements (continued)

(ii) Key sources of estimation uncertainty (continued)

(1) Pension and other post-retirement benefits (continued)

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-tenure 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.

(2) Fair values of financial instruments

There are no quoted market prices for a significant portion of the Bank’s financial instruments. Accordingly, fair values of such 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 on the basis of indicative prices submitted 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 at may be different from the actual price of the instrument in an actual arm’s length transaction (see notes 8 and 32).

(3) Fair value of property, plant and equipment

Market values of the Bank’s non-financial assets are not readily determinable. The fair value of property, plant and equipment is therefore determined by property valuers, as set out in note 11, using largely unobservable inputs, making it a level 3 fair value.

3. Significant accounting policies

(a) Financial instruments – Classification, recognition and de-recognition, and measurement A financial instrument is any contract that gives rise to a financial asset of one entity and a

financial liability or equity instrument of another entity. In these financial statements:

Financial assets have been determined to comprise cash and cash-equivalents, interest in funds managed by agents, investment securities, IMF – holding of special drawing rights, bilateral accounts, resale agreements, IMF – quota subscription, due from Government and Government agencies and staff and ex-staff loans.

Financial liabilities comprise deposits and other demand liabilities, open market liabilities, IMF – allocation of special drawing rights, foreign liabilities and bilateral accounts and payables.

Financial instruments are classified, recognised and measured in accordance with the substance of the terms of the contracts as set out herein.

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3. Significant accounting policies (continued) (a) Financial instruments – Classification, recognition and de-recognition, and measurement

(continued) (i) Classification of financial instruments The Bank classifies non-derivative financial assets into the following categories: Loans and receivables: Securities acquired and loans granted with fixed or

determinable payments and which are not quoted in an active market, are classified as loans and receivables. The Bank’s financial instruments included in this classification are resale agreements, local and foreign currency denominated 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.

Held-to-maturity: Securities with fixed or determinable payments and fixed

maturities that the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity. The Bank’s financial instruments included in this classification are the Government of Jamaica-issued fixed rate accreting notes.

Available-for-sale: Investments are classified as available-for-sale, because they are

designated as such or are not classified in any of the other categories. The Bank’s financial instruments included in this classification are securities with quoted prices in an active market or for which the fair values are otherwise determinable and interest in funds managed by agents.

Management determines the appropriate classification of investments at the time of

purchase, taking account of the purpose for which the investments were purchased.

The Bank classifies non-derivative financial liabilities into the other financial liabilities category.

(ii) Recognition and derecognition - Non-derivative financial assets and financial

liabilities The Bank recognises a financial instrument when it becomes a party to the contractual terms of the instrument. The Bank initially recognises loans and receivables and debt securities on the date when they are originated. All other financial assets and financial liabilities are initially recognised on the trade date. The Bank derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains all or substantially all the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained by the Bank is recognised as a separate asset or liability.

- xiv -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

13


3. Significant accounting policies (continued)

(a) Financial instruments – Classification, recognition and de-recognition, and measurement (continued) (ii) Recognition and derecognition - Non-derivative financial assets and financial

liabilities (continued)

The Bank derecognises a financial liability when its contractual obligations expire or are discharged or cancelled.

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Bank has the legal right to offset the amounts and intends either to settle them on a net basis, or to realise the assets and settle the liabilities simultaneously.

(iii) Measurement - Non-derivative financial assets

Loans and receivables: On initial recognition these are measured at fair value, plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost, using the effective interest method, less impairment losses. Premiums and discounts are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.

Where securities classified as loans and receivables become quoted in an active market, such securities will not be reclassified as available-for-sale securities. An active market is one where quoted prices are readily and regularly available from an exchange dealer, broker or other agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

Held-to-maturity instruments: On initial recognition these are measured at fair value, plus any directly attributable transaction costs. Premiums and discounts are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument. Subsequent to initial recognition, they are measured at amortised cost, using the effective interest method, less impairment losses. Any sale or reclassification of a significant amount of held-to-maturity investments that is not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Bank from classifying investment securities as held-to-maturity for the financial year in which sale or reclassification occurs and the following two financial years.

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(a) Financial instruments – Classification, recognition and de-recognition, and measurement (continued)

(iii) Measurement - Non-derivative financial assets (continued)

Available-for-sale instruments: On initial recognition, these are measured at fair

value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value, with unrealised gains and losses arising from changes in fair value treated as follows:

Changes in the fair value of monetary securities denominated in a foreign

currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income. Changes in the fair value of securities classified as available-for-sale are recognised in other comprehensive income.

When securities classified as available-for-sale are sold or impaired, and

therefore derecognised, the accumulated fair value adjustments accumulated in other comprehensive income are reclassified to profit or loss.

(iv) Specific items

(1) Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents

comprise short-term highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term commitments (these investments include short-term deposits where the maturities do not exceed three months from the acquisition date). Cash and cash equivalents are measured at cost.

(2) 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. (3) Other assets Other assets are stated at amortised cost, less impairment losses. (4) Other liabilities Other liabilities are stated at amortised cost.

- xvi -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

15



(b) 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 dollar 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.

(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 carried at fair value.

Cost

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.

Fair value

The fair value of freehold land and buildings is the price that would be received to sell them in an orderly transaction between market participants at the valuation date. Such fair value is determined by an external, independent valuer, with appropriate recognised professional qualification and recent experience in the location and category of land and buildings being valued. The Bank’s policy is to obtain an independent professional valuation of all its land and buildings every five years. Management’s assessment of significant movement in fair value is done for the intervening years and adjustment made to valuation, as necessary.

(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.

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3. Significant accounting policies (continued) (c) Property, plant and equipment (continued)

(ii) Depreciation (continued) Land, works of art and museum coins are not depreciated.

The estimated useful lives are as follows:

Buildings 10 – 20 years Leasehold property Shorter of lease term and useful life Furniture, plant and equipment 10 years Computer equipment 5 years Motor vehicles 5 years

The depreciation methods, useful lives and residual values are reassessed at each reporting 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. 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 in (ii) and (iii) below.

- xviii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

17



(f) Employee benefits (continued)

(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 of the pension benefits the Bank is committed to providing is the total of (1)

the net obligation under the plan, and (2) the cost of administration of the plan – both of which costs are borne by the Bank. 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.

Remeasurements of the net defined benefit asset, which comprise actuarial gains and losses and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The Bank determines the net interest income on the net defined benefit asset for the period by applying the discount rate used to measure the defined benefit asset at the beginning of the annual period to the net defined benefit asset, taking into account any changes in the net defined benefit asset during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised 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.

- xix -

Annual Report 2015


18



(f) Employee benefits (continued)

(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 benefits 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 at (ii) above. The calculation is performed by a qualified actuary using the projected unit credit method. Remeasurements of the defined obligation as well as net interest expense is recognised in the same manner as described at (ii) above for the defined-benefit pension plan.

(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 for any asset, the asset’s recoverable amount is estimated. 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.

- xx -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

19



(h) Impairment (continued)

(ii) Reversals of impairment (continued) 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 is 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 no impairment loss had been recognised.

(i) Intangible asset:

Intangible asset represents software and is measured at cost less accumulated amortised and impairment losses. The asset is amortised 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) Revenue recognition:

Revenue is income that arises in the course of the ordinary activities of the Bank. Accordingly, revenue comprises interest income and foreign exchange gains from holding foreign currency denominated financial assets. (i) Interest income

Interest income is recognised in profit or loss 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 discounts on treasury bills and other discounted instruments, net of amortisation of premiums on instruments bought at a premium.

(ii) Foreign exchange gains

Foreign exchange gains are recognized as set out in note 3(b). 4. Cash and cash equivalents

2015 2014 J$'000 J$'000

Current accounts and money at call with foreign banks 203,104,900 79,136,453 Current accounts with local banks 930,203 1,092,006

204,035,103 80,228,459

- xxi -

Annual Report 2015


20


5. Interest in funds managed by agents

This represents investments managed by Crown Agents Investment Management Limited (“CAIML”), and the International Bank for Reconstruction and Development (IBRD) on behalf of the Bank. The portfolio consists of investments in government bonds, treasury bills, corporate bonds and cash denominated in United States dollars.

6. Foreign currency denominated investments

2015 2014 J$'000 J$'000

Available-for-sale securities: USD Bonds issued primarily by specialised financial corporations 7,885,439 23,666,695

Loans and receivables: Short-term deposits with foreign banks 67,470,177 111,800,030

75,355,616 135,466,725 7. Resale agreements

The Bank, as one of its options in pursuing its monetary policy objectives, enters into various resale agreements with financial institutions. Under these agreements, the Bank purchases Government of Jamaica (“GOJ”) securities and agrees to resell them to the respective counter-parties on specified dates and at specified prices. These are accounted for as short-term collateralised lending [note 3(a)(iv)(2)]. 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, 2015, securities held had a fair value of $22,603,980,000 (2014: $59,234,112,000).

8. Local currency denominated investments

2015 2014 J$'000 J$'000

Available-for-sale securities: Jamaica Government Securities: Variable rate benchmark investments 34,746,985 34,741,835 Fixed rate benchmark investments 12,320,829 12,396,780

47,067,814 47,138,615 Held to maturity investments: Jamaica Government Securities: Fixed rate accreting notes (“FRANs”) [See note re National Debt Exchange (“NDX”) below] 76,799,616 75,616,870

123,867,430 122,755,485

As part of the NDX, 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.

- xxii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

21


8. Local currency denominated investments (continued) 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 made on August 15, 2013;

(iii) Accretion for the additional J$20 of principal value commenced 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 was not included in the offer document)

9. 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. The Jamaica dollar amounts in the table below are computed using the SDR: J$ rate at December 31. 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.

2015 2014 SDR'000 J$'000 J$'000

Amount subscribed by the Government of Jamaica (substituted by securities) 242,375 40,295,765 40,144,928

Amount subscribed by the Bank 31,125 5,174,650 5,155,279

Total quota 273,500 45,470,415 45,300,207 2015 2014 SDR'000 J$'000 J$'000 Amount subscribed by the Bank (net of reserve tranche of J$Nil): At beginning of year 31,125 5,155,279 5,080,610

Effect of exchange rate fluctuation ** - 19,371 74,669

At end of year 31,125 5,174,650 5,155,279

** The exchange rate at the reporting date is set out at note 16(d)(iii).

- xxiii -

Annual Report 2015


22


10. Due from Government and Government Agencies

2015 Movements during the year At At beginning Advances/ (Settlement)/ end of of year losses profit year J$'000 J$'000 J$'000 J$'000

Withholding tax refund due [see note (c) below] 6,269,909 1,529,968 ( 655,347) 7,144,530

Accrued interest on Government securities 3,574,082 3,536,031 (3,574,082) 3,536,031 Net loss receivable from Consolidated Fund [see (b) below] 26,636,771 1,652,342 - 28,289,113

36,480,762 6,718,341 (4,229,429) 38,969,674

2014 Movements during the year At At beginning Advances/ (Settlement)/ end of of year losses profit year J$'000 J$'000 J$'000 J$'000

Withholding tax refund due [see note (c) below] 4,761,783 1,508,126 - 6,269,909

Accrued interest on Government securities 5,647,260 3,574,082 (5,647,260) 3,574,082 Net loss receivable from/(profit payable

to) Consolidated Fund [see (b) below] 26,879,694 - ( 242,923)* 26,636,771

37,288,737 5,082,208 (5,890,183) 36,480,762

(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 2014, the Bank extended credit to the Government by way of temporary advances of $14.6 billion which was repaid during that year. There was no advance given in 2015.

(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.

* The movement for the year comprises the following:

2015 2014

(Loss)/profit for the year (1,652,342) 168,553 Settlement by GOJ of a portion of the losses accumulated up to December 31, 2012 - 74,370

(1,652,342) 242,923

- xxiv -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

23


10. 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 as an advance on payment of income tax which may be due. However, as the Bank is exempt from income tax, 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:

2015 2014 J$'000 J$'000

1-6 months 815,089 927,614 6-12 months 634,307 586,193 1-5 years 5,490,709 4,540,388 Over 5 years 204,425 215,714

7,144,530 6,269,909

The amount is expected to be recovered in accordance with the Government of Jamaica’s programme for the elimination of withholding tax arrears.

11. Property, plant and equipment Freehold Furniture, land and Leasehold plant and Motor buildings property equipment vehicles Total J$'000 J$'000 J$'000 J$'000 J$'000 Cost or valuation: December 31, 2013 3,073,917 60,849 1,677,709 372,080 5,184,555 Additions 84,219 19,499 113,046 97,183 313,947 Disposals/write-offs - - - ( 82,474) ( 82,474)

December 31, 2014 3,158,136 80,348 1,790,755 386,789 5,416,028 Additions 82,961 125 204,654 122,156 409,896 Revaluation 573,326 - - - 573,326 Disposals/write-offs - - - (121,485) ( 121,485)

December 31, 2015 3,814,423 80,473 1,995,409 387,460 6,277,765

Depreciation: December 31, 2013 490,860 16,593 1,220,224 143,917 1,871,594 Charge for the year 124,814 8,028 113,976 73,715 320,533 Eliminated on disposals - - - ( 54,502) ( 54,502)

December 31, 2014 615,674 24,621 1,334,200 163,130 2,137,625 Charge for the year 157,856 8,041 131,148 73,084 370,129 Eliminated on disposals - - - ( 85,494) ( 85,494) Revaluation ( 729,003) - - - ( 729,003)

December 31, 2015 44,527 32,662 1,465,348 150,720 1,693,257

Net book values: December 31, 2015 3,769,896 47,811 530,061 236,740 4,584,508

December 31, 2014 2,542,462 55,727 456,555 223,659 3,278,403

December 31, 2013 2,583,057 44,256 457,485 228,163 3,312,961

- xxv -

Annual Report 2015


24


11. Property, plant and equipment (continued) An independent valuer provides the fair value of the land and buildings when requested by the

Bank, which is expected to be every five years (or more frequently if the Bank has compelling reasons to believe the fair value has changed materially in the intervening years) [note 3(c)(i)].

A revaluation was performed in November 2015 by C. D. Alexander Company Realty Limited, Real Estate Broker, Appraiser and Auctioneer.

The surplus arising on revaluation, inclusive of depreciation no longer required, is included in property revaluation reserve [note 23(b)]. The valuations were done using the depreciated replacement cost approach, and management accepted these as reasonable estimates of 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 and the effect of each of them on the value determined, are summarised below:

Valuation techniques Significant

unobservable inputs Inter-relationship bet ween key un observable i nputs 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 or worse.

- xxvi -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

25


12. Intangible asset Computer software 2015 2014 $'000 $'000 Cost: At the beginning of year 485,838 459,270 Addition 58,416 26,568

At end of year 544,254 485,838 Amortisation: At the beginning of year 473,693 456,591

Charge for the year 24,777 17,102

At end of year 498,470 473,693

Net book values 45,784 12,145 13. Employee benefits

The Bank operates non-contributory defined benefit pension, medical, and life insurance schemes for 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:

2015 2014 $'000 $'000

Present value of funded obligations ( 9,309,900) ( 8,233,100) Fair value of plan assets 14,345,400 13,711,400

Recognised asset 5,035,500 5,478,300

- xxvii -

Annual Report 2015


26


13. Employee benefits (continued) (a) Pension asset recognised (continued):

(i) Movements in the present value of defined benefit obligations

2015 2014 J$'000 J$'000

Balance at beginning of year 8,233,100 7,283,400 Benefits paid ( 465,900) ( 356,900) Service and interest costs 970,500 921,200 Remeasurement loss on obligation included in other comprehensive income [note 13(a)(iv)] 572,200 385,400

Balance at end of year 9,309,900 8,233,100

(ii) Movements in plan assets

2015 2014 J$'000 J$'000

Fair value of plan assets at beginning of year 13,711,400 12,676,900 Contributions paid 87,800 92,200 Interest income on plan assets 1,284,600 1,191,700 Benefits paid ( 465,900) ( 356,900) Remeasurement (loss)/gain on assets include in other comprehensive income [note 13(a)(iv)] ( 272,500) 107,500

Fair value of plan assets at end of year 14,345,400 13,711,400

Plan assets consist of the following:

Government of Jamaica securities 11,938,700 11,881,900 Bank of Jamaica certificates of deposit 2,141,600 1,561,800 Real estate 130,800 130,800 Other 134,300 136,900

14,345,400 13,711,400 (iii) Credit recognised in profit or loss

2015 2014 J$'000 J$'000

Current service costs 192,200 180,400 Past service cost - 48,700 Interest on obligations 778,300 692,100 Interest income on assets (1,284,600) (1,191,700)

( 314,100) ( 270,500)

- xxviii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

27


13. Employee benefits (continued) (a) Pension asset recognised (continued):

(iv) Items in other comprehensive income

2015 2014 J$'000 J$'000

Remeasurement loss on obligation:

Change in financial assumptions 914,600 207,200 Changes in demographic assumptions - 440,800 Experience adjustment (342,400) (262,600)

572,200 385,400 Remeasurement loss/(gain) on assets 272,500 (107,500)

844,700 277,900

(v) Principal actuarial assumptions at the reporting date (expressed as weighted averages)

2015 2014 % %

Discount rate 8.5 9.5 Future pension increases 2.50 2.75 Future salary increases 6 6

(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 percentage Actuarial assumption point increase point decrease J$'000 J$'000

Discount rate (1,206,400) 1,524,000 Assumed rate of salary escalation 369,000 ( 329,300) Future rate of pension 1,108,200 ( 917,100)

- xxix -

Annual Report 2015


28


13. Employee benefits (continued)

(b) Obligations for post-retirement life insurance and medical benefits:

(i) Liability recognised in statement of financial position

2015 2014 J$'000 J$'000

Balance at beginning of year 1,130,800 979,900 Interest cost 110,000 95,400 Current service cost 38,500 34,500 Benefits paid ( 22,700) ( 19,400) Remeasurement loss on obligation, included in other comprehensive income [see (iii)] 263,500 40,400

Balance at end of year 1,520,100 1,130,800

(ii) Expense recognised in profit or loss: 2015 2014 J$'000 J$'000

Current service costs 38,500 34,500 Interest on obligations 110,000 95,400

148,500 129,900

(iii) Items in other comprehensive income

2015 2014 J$'000 J$'000

Change in financial assumptions 126,800 - Change in demographic assumptions - 91,700 Experience adjustment 136,700 (51,300)

Remeasurement loss on obligation 263,500 40,400 (iv) Principal actuarial assumptions at the reporting date (expressed as weighted

averages):

2015 2014 % %

Discount rate 8.50 9.50 Medical claims growth 7.00 7.50

Assumptions regarding future mortality are based on the GAM 94 [2014: GAM (94)] mortality table for pensioners (British mortality tables), but with each age rated down by five (2014: five) years.

- xxx -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

29


13. Employee benefits (continued)

(c) At the reporting date, changes to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by amounts shown below:

One One percentage percentage point increase point decrease J$'000 J$'000

Assumed medical cost trend rate and rate of salary escalation 322,300 (245,700) Discount rate (247,100) 324,300

(d) The estimated pension contributions expected to be paid into the plan during the next financial year amounts to J$119,290,000 (2014: J$152,800,000). See note 13(a)(ii) for actual contributions paid during the current and previous years.

14. Other assets 2015 2014 J$'000 J$'000

Staff loans 1,752,149 1,867,861 Inventory of unissued notes and coins 1,262,811 1,733,402 Items in process of collection - 6,291 Ex-staff loans 118,225 121,569 SDR equalisation provision [note 16(d)] - 1,406,480 Accrued interest receivable other than on GOJ securities 183,259 1,064,237 Other 299,806 182,772

3,616,250 6,382,612 Less:

Remeasurement of staff loans ( 621,244) ( 656,592) Impairment allowance - ex-staff loans ( 11,605) ( 11,605)

2,983,401 5,714,415 15. Notes and coins in circulation

2015 2014 J$'000 J$'000

Notes 80,846,150 71,912,944 Coins 3,405,034 3,029,601 84,251,184 74,942,545

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 Jamaica is a member; or (c) Special Drawing Rights. Specified assets held by the Bank, as at December 31, 2015, were 3.86 (2014: 3.76) times the value of notes and coins in circulation at that date.

- xxxi -

Annual Report 2015


30


15. 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 22).

16. Deposits and other demand liabilities

(a) Deposits and other demand liabilities comprise the following: 2015 2014 J$'000 J$'000

Government and Government agencies 107,068,998 72,419,355 Commercial banks and specified financial institutions 80,662,174 73,518,720 International Monetary Fund [see (d) below] 53,275,962 52,907,663 Others 3,048,198 2,560,209

244,055,332 201,405,947

Jamaica dollar equivalent of foreign currency deposits 186,147,360 153,846,898 Jamaica dollar deposits 57,907,972 47,559,049

244,055,332 201,405,947

(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 $66,270,894,000 (2014: $58,403,302,000).

(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 IMF balance consists of the following loans: 2015 2014 2015 2014 SDR'000 SDR'000 J$'000 J$'000

2010 Standby agreement 3,987 99,612 646,340 16,949,664 2013 Extended fund facility 323,870 210,590 52,510,660 35,833,152

Total draw-downs 327,857 310,202 53,157,000 52,782,816 Other IMF amounts 734 734 118,962 124,847

Total IMF liability 328,591 310,936 53,275,962 52,907,663

- xxxii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

31


16. Deposits and other demand liabilities (continued)

(d) IMF related information (continued)

(ii) The following reconciliation shows the total IMF liability converted at the SDR to J$ exchange rates prevailing at April 30 and December 31

2015 2014 J$'000 J$'000 At the December 31 SDR rate:

Amount at which the loan is carried by the Bank 54,629,540 51,500,823 Effect of exchange rate depreciation between April 30 and December 31 (notes 14, 19) ( 1,353,578) 1,406,840

At the April 30 SDR rate: Amount at which the loan is carried by

the IMF [per (a) above] 53,275,962 52,907,663

(iii) The following table shows the rate of exchange of J$1 for SDR at April 30 and December 31

2015 2014

April 30 J$1 = 0.0061677 0.00587696 December 31 J$1 = 0.0060149 0.00603750 As at February 24, 2016, the date of approval of these financial statements, the exchange rate was J$1 = SDR 0.0059393.

(iv) The balance on the Extended Fund Facility reflected in these financial statements does

not include the amount of SDR149.9 million which was disbursed to the Government of Jamaica for fiscal support in 2014. There was no disbursement to Government for fiscal support during 2015.

17. 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. One mechanism for doing this is 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.

18. 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. SDRs 2015 2014 '000 J$'000 J$'000 At beginning of year 261,644 43,336,352 42,708,894 Effect of exchange rate fluctuation - 162,830 627,458

At end of year 261,644 43,499,182 43,336,352

- xxxiii -

Annual Report 2015


32


19. Other liabilities 2015 2014 J$'000 J$'000 Interest payable 1,758,272 2,323,843 SDR equalisation provision [note 16(d)] 1,353,578 - Staff and staff-related expenses 294,336 274,936 Overdrafts 2,485 2,486

Other 98,995 70,747 3,507,666 2,672,012 20. 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.

21. 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.

22. Special stabilisation account

The special stabilisation account is maintained at 25% of the gross amount of coins in circulation as a reserve against coins that are unlikely to be redeemed (note 15).

23. Other reserves

This represents the following: 2015 2014 J$'000 J$'000 Securities revaluation reserve [see (a)] 322,151 259,193 Property revaluation reserve [see (b)] 3,623,740 2,321,411 Pension equalisation reserve [see (c)] 5,035,500 5,478,300 * Employee benefit obligation reserve ( 457,300) ( 193,800)* 8,524,091 7,865,104

* After reclassification to conform to current year presentation.

- xxxiv -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

33


23. Other reserves (continued) (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 11). (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.

24. Interest income

(a) Interest income as earned on the securities and in the amounts shown:

2015 2014 J$'000 J$'000

Loans and receivables: Cash and cash equivalents 128,127 34,524 Funds managed by agents 121,083 155,621 Investment securities 507,104 334,787 Resale agreements 1,636,298 2,646,896 Other 96,025 143,933

Available-for-sale: Investment securities 3,831,908 3,755,396

Held to maturity: Investment securities 8,829,023 8,640,133

15,149,568 15,711,290 (b) Analysed as follows:

Government of Jamaica (note 29) 12,301,327 11,724,372 Other sources 2,848,241 3,986,918

15,149,568 15,711,290 25. Foreign exchange gain/(loss), net

2015 2014 J$'000 J$'000

Net gains on translation and settlement of foreign currency assets and liabilities, other than on IMF deposit liabilities 131,397 1,724,118

Losses on translation and settlement of IMF deposit liabilities (241,308) (1,762,313) Realised exchange gains/(losses) on purchases and sales of

foreign currencies 317,880 ( 79,767) 207,969 ( 117,962)

- xxxv -

Annual Report 2015


34


26. Interest on deposit and open market liabilities

2015 2014 J$'000 J$'000

Certificates of deposit - Open market liabilities 8,713,708 7,619,844 Deposits: - Government and Government agencies (note 29) 1,438,799 1,108,409 - Commercial banks and specified financial institutions 682,565 571,156 - Other 40,988 34,793

10,876,060 9,334,202 27. Staff numbers and costs

2015 2014

Number of employees at the end of the year Full-time 474 480 Contract 78 87

The related costs for these employees were as follows:

2015 2014 J$'000 J$'000

Salaries and wages 1,951,013 1,871,678 * Statutory payroll contributions 132,920 137,592 Uniforms 28,679 23,275 Staff development 55,453 60,378 Subsidy on canteen operations 77,935 72,584 * Other staff costs 365,129 345,047 *

2,611,129 2,510,554 28. Other operating expenses Operating expenses include the following charges:

2015 2014 J$'000 J$'000 Communication 28,799 34,909 Travelling and motor vehicle expenses 63,090 67,370 * Commission paid to commercial banks 440,066 287,778 Auditor’s remuneration 12,854 12,360 Other administrative expenses 389,323 310,676 *

934,132 713,093

* After reclassification to accord with current year’s presentation.

- xxxvi -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

35


29. Related parties

(a) Definition of related party

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:

(1) has control or joint control over the Bank;

(2) has significant influence over the Bank; or

(3) 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:

(1) 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).

(2) The entity is a post-employment benefit plan for the benefit of employees of either the Bank or an entity related to the Bank.

(3) The entity is controlled, or jointly controlled, by a person identified in (i).

(4) A person identified in (i)(1) has significant influence over the Bank or is a member of the key management personnel of the Bank.

(5) The entity, or any member of a group of which it is a part, provides key management personnel services to 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.

(b) Identity of related parties

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 10 and 16).

(c) Related party amounts

(i) The statement of financial position includes balances, arising in the ordinary course of business, with related parties, other than those disclosed at note 10 and 16 as follows:

2015 2014 J$'000 J$'000

Loans: Executive management (included in staff loans, note 14) 64,538 88,101 Open market liabilities: Pension fund 2,141,612 1,561,806 The executive management team consists of ten (10) persons.

- xxxvii -

Annual Report 2015


36


29. Related parties (continued)

(c) Related party amounts (continued)

(i) (Continued) 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.

(ii) The statement of profit or loss and other comprehensive income includes income

earned from/expenses incurred in transactions with related parties, in the ordinary course of business, as follows:

2015 2014 J$'000 J$'000

Interest expense: Government and Government agencies (note 26) 1,438,799 1,108,409 Pension scheme 126,512 95,259 Executive management and pension scheme (current accounts) 3,048 1,973

Interest income: Government of Jamaica [note 24(b)] 12,301,327 11,724,372 Executive management 2,017 2,675

Pension contribution: Pension scheme 106,329 111,712

Executive management compensation is as follows: 2015 2014 J$'000 J$'000 Emoluments, included in staff costs (note 27) 128,236 142,364 30. Commitments At the reporting date, the Bank had:

(a) Capital commitments as follows:

2015 2014 J$'000 J$'000 Authorised and contracted 364,809 32,669 Authorised but not contracted 148,480 281,730

513,289 314,399

- xxxviii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

37


30. Commitments (continued)

(b) Operating lease commitments, payable as follows:

2015 2014 J$'000 J$'000 Within one year 10,412 10,412 Within 1-5 years 37,680 37,680 Over 5 years 52,751 60,287

100,843 108,379 31. Contingent liabilities

At the reporting date, 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.

32. Fair value of financial instruments

The Bank’s accounting policies on measurement and disclosure require the measurement of fair values for financial assets and financial liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When measuring fair value of an asset or liability, where a quoted market price is available, fair value is computed by the Bank using the quoted bid price at the reporting date, without any deduction for transaction costs or other adjustments. Where a quoted market price is not available, fair value is computed using alternative techniques making use of available input data; the Bank uses observable data as far as possible. Fair values are categorised into different levels in a three-level fair value hierarchy, based on the degree to which the inputs used in the valuation techniques are observable. Fair value hierarchy: The different levels in the hierarchy have been defined as follows:

Level 1: Financial assets and financial liabilities that are measured by reference to published quotes in an active market. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm's length basis. Level 2: Financial assets and financial liabilities that are measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions, and for which pricing is obtained via pricing services, but where prices have not been determined in an active market. This includes financial assets with fair values based on broker quotes, investments in funds with fair values obtained via fund managers, and assets that are valued using a model whereby the majority of assumptions are market observable.

- xxxix -

Annual Report 2015


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32. Fair value of financial instruments (continued)

Fair value hierarchy: The different levels in the hierarchy have been defined as follows (continued): Level 3: Financial assets and financial liabilities that are measured using non-market observable inputs. This means that fair values are determined in whole or in part using a valuation technique (model) based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. 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 fair value of the amount due from Government and Government Agencies has not been estimated, as there is no practical means of estimating its fair value. The fair value of certain short-term financial instruments was determined to approximate their carrying value and are not disclosed in the table below: (a) Securities carried at fair value

2015 Level 1 Level 2 Level 3 Total J$'000 J$'000 J$'000 J$'000

Available-for-sale financial assets USD Bonds issued primarily by

specialised financial corporations 7,885,439 - - 7,885,439 Government of Jamaica securities - 47,067,814 - 47,067,814 Securities included in funds managed by agents - Sovereign bonds - 34,558,766 - 34,558,766 - Corporate bonds - 6,078,735 - 6,078,735

7,885,439 87,705,315 - 95,590,754 2014 Level 1 Level 2 Level 3 Total J$'000 J$'000 J$'000 J$'000

Available-for-sale financial assets

USD Bonds issued primarily by specialised financial corporations 23,666,695 - - 23,666,695 Government of Jamaica securities - 47,138,615 - 47,138,615 Securities included in funds managed by agents - Sovereign bonds - 33,107,363 - 33,107,363 - Corporate bonds - 3,390,145 - 3,390,145

23,666,695 83,636,123 - 107,302,818

- xl -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

39


32. Fair value of financial instruments (continued)

(b) Securities not carried at fair value Carrying

value Fair value 2015 2015 Level 1 Level 2 Level 3 Total J$'000 J$'000 J$'000 J$'000 J$'000

Held-to-maturity financial assets: Government of Jamaica securities (FRANs) 76,799,616 - 78,284,725 - 78,284,725

Carrying

value Fair value 2014 2014 Level 1 Level 2 Level 3 Total J$'000 J$'000 J$'000 J$'000 J$'000

Held-to-maturity financial assets: Government of Jamaica securities (FRANs) 75,616,870 - 77,070,861 - 77,070,861

(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 the fair values of which are classified as Level 2. Type of security Valuation techniques GOJ J$ securities Obtain bid yield from yield curve provided by

a recognised 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.

* The adjusted yields fall in the ranges set out below:

2015 2014 Government of Jamaica local securities:

Variable rate benchmark investments 5.50 – 5.72 5.35 – 6.36 Fixed rate benchmark investments 5.51 – 11.08 5.91 – 11.13

- xli -

Annual Report 2015


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33. Financial risk management (continued)

(a) Introduction and overview

The Bank has exposure to the following risks from its use of financial instruments: credit risk liquidity risk market risk

The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. It has established four committees for this purpose: (i) Investment Committee - which is responsible for providing oversight on the

conversion of investment strategy into performance, portfolio construction and risk modelling for the Bank’s Foreign Reserves;

(ii) Credit Committee - which is responsible for evaluating and approving applications for staff loans.

(iii) Risk Management Committee (RMC) - which is responsible for assisting the

Management Committee in its oversight and management of key risks, including strategic, reputational, financial and operational risks, in relation to the Bank’s operations. The RMC oversees the establishment of guidelines, policies and processes for monitoring and mitigating risks, while promoting the development and administration of the corporate risk management framework.

The above-listed three committees report to the Committee of Administration, which, in turn, reports to the Management Committee on a weekly basis. The Management Committee reports on a monthly basis to the Board of Directors;

(iv) Audit Committee – which 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.

The nature of the risks and manner in which they are measured and managed are as set out below.

(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, resale agreements, cash and cash equivalents, interest in funds managed by agents and other assets.

- xlii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

41



(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 on the foreign currency investment portfolio is managed by restricting the holdings of investments substantially to USD Bonds issued primarily by specialised financial corporations, other highly rated sovereign securities, Jamaica Government USD securities 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.

Resale agreements

Credit risk is managed by requiring institutions to deposit with the Bank or its agents, designated securities sufficient to collateralise the amounts advanced under the resale agreements. The minimum collateral value of securities accepted is set at defined percentage of market value.

Cash and cash equivalents

Cash and cash equivalents are held in financial institutions which management regards as strong. The strength of these financial institutions is continually reviewed by the Investment Committee. In addition, there are procedures in place to manage potential concentration.

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 2015


42




(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, 2015 and 2014.

(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 is uncollectible. This determination is usually made after considering information such as changes in the borrower’s financial position, or that proceeds from collateral will not 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 all counterparties 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 to financial institutions.

There has been no change to the nature of the Bank’s exposure to credit risk or the manner in which it measures and manages the risk.

- xliv -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

43




(vii) Exposure to credit risk (continued)

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:

2015 2014 J$'000 J$'000 Caribbean 146,863,919 169,880,012 North America 285,526,484 175,088,288 Europe 68,402,600 113,239,394 Other 437,783 418,518

Total financial assets 501,230,786 458,626,212

(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 requires 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 foreign payments by Government of

Jamaica. 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 2015


44



(c) Liquidity risk (continued) The following table presents the undiscounted contractual maturities of financial liabilities: 2015

Within 1 1 to 3 3 to 12 1 to 5 Contractual Carrying Month months months years cash flow amount J$'000 J$'000 J$'000 J$'000 J$'000 J$'000

Deposits and other demand liabilities 176,909,909 29,112,989 34,801,518 67,450,127 308,274,543 244,055,332 Open market liabilities 19,850,565 18,186,468 14,520,737 131,518,671 184,076,441 161,309,109 Foreign liabilities 27 - - - 27 27 Other 3,507,666 - - - 3,507,666 3,507,666 Commitments 867 67,008 455,825 90,432 614,132 -

200,269,034 47,366,465 49,778,080 199,059,230 496,472,809 408,872,134 2014

Within 1 1 to 3 3 to 12 1 to 5 Contractual Carrying Month months months years cash flow amount J$'000 J$'000 J$'000 J$'000 J$'000 J$'000

Deposits and other demand liabilities 155,931,218 29,004,200 34,969,771 15,083,198 234,988,387 201,405,947 Open market liabilities 38,326,017 10,780,647 134,668,891 7,709,250 191,484,805 173,000,319 Foreign liabilities 276,293 - - - 276,293 276,293 Other 2,672,012 - - - 2,672,012 2,672,012 Commitments 867 38,017 83,829 300,065 422,778 -

197,206,407 39,822,864 169,722,491 23,092,513 429,844,275 377,354,571 (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 risk exposures 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 risk or the manner in which it measures and manages 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 2015

Bank of Jamaica

45



(d) Market risk (continued)

(i) Currency risk (continued)

2015 USD EUR GBP Other Total $'000 $'000 $'000 $'000 $'000

Foreign currency assets: Notes and coins - for local sale 9,820 10,164 7,083 5,395 32,462 - for repatriation 43,632 3,177 11,506 45,908 104,223

Cash and cash equivalents 201,819,520 539,493 372,092 1,303,998 204,035,103 Interest in funds managed by agents 40,637,501 - - - 40,637,501

Interest receivable on BHAs 40,480 - 7,166 7,981 55,627 Items in the process of collection - - - - - Investment securities 75,355,616 - - - 75,355,616

IMF- Holding of special drawing rights - - - 30,038,907 30,038,907

IMF - Quota subscription - - - 5,174,650 5,174,650

317,906,569 552,834 397,847 36,576,839 355,434,089

Foreign currency liabilities: Open market liabilities 101,791,295 - - - 101,791,295

Deposits - current accounts 114,644,108 36,272 2,084,552 528,895 117,293,827 Deposits - IMF - - - 53,275,962 53,275,962 IMF - Allocation of special

drawing rights - - - 43,499,182 43,499,182 Foreign liabilities 27 - - - 27

Interest payable 1,263,333 - 128,067 114,118 1,505,518 Bilateral accounts - - - 70,595 70,595

217,698,763 36,272 2,212,619 97,488,752 317,436,406

Net foreign currency assets/ (liabilities) 100,207,806 516,562 (1,814,772) (60,911,913) 37,997,683

- xlvii -

Annual Report 2015


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(i) Currency risk (continued)

2014 USD EUR GBP Other Total $'000 $'000 $'000 $'000 $'000

Foreign currency assets: Notes and coins - for local sale 6,187 11,770 10,188 2,269 30,414 - for repatriation 37,462 271 4,929 13,823 56,485

Cash and cash equivalents 77,472,730 625,861 752,387 1,377,481 80,228,459 Interest in funds managed by agents 36,527,000 - - - 36,527,000

Interest receivable on BHAs 99,096 - 12,388 24,016 135,500 Items in the process of collection 96 - - 25 121 Investment securities 135,466,725 - - 135,466,725

IMF- Holding of special drawing rights - - - 30,775,081 30,775,081

IMF - Quota subscription - - - 5,155,280 5,155,280

Bilateral accounts - - - 12,467 12,467

249,609,296 637,902 779,892 37,360,442 288,387,532

Foreign currency liabilities: Open market liabilities 111,722,714 - - - 111,722,714

Deposits - current accounts 98,227,460 53,859 546,876 2,111,038 100,939,233 Deposits - IMF 52,907,663 - - - 52,907,663 IMF - Allocation of special

drawing rights - - - 43,336,352 43,336,352 Foreign liabilities 276,293 - - - 276,293

Interest payable 1,417,999 - 127,428 - 1,545,427

264,552,129 53,859 674,304 45,447,390 310,727,682 Net foreign currency assets/

(liabilities) ( 14,942,833) 584,043 105,588 ( 8,086,948) ( 22,340,150)

Exchange rates at December 31:

2015 2014

USD1 to JMD 119.98 114.32 GBP1 to JMD 176.83 178.26 CDN1 to JMD 86.40 98.70 EUR1 to JMD 130.33 138.34

At February 24, 2016, the date of approval of these financial statements, the exchange rates were US1 to J$121.4853, UK1 to J$ 169.2594, CDN1 to J$ 88.1478 and EUR1 to J$133.9011.

The exchange rate for SDR to J$ is shown in note 16(d)(iii).

Sensitivity to exchange rate movements

A 8 percent (2014: 10 percent) devaluation of the Jamaica Dollar against currencies which expose the Bank to risk at December 31 would have decreased loss by $7,972,932,000 (2014: reduce profit by $1,493,462,000) while a 1 percent (2014: 0.5 percent) revaluation would have increased loss by $952,967,000 (2014: increase profit by $96,738,000). The analysis assumes that all other variables, in particular, interest rates, remain constant, and has been performed on the same basis as for 2014.

- xlviii -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

47




(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.

2015 Weighted Within Three to Over Payable Non-rate average 3 months 12 months 12 months after notice sensitive Total interest J$'000 J$'000 J$'000 J$'000 J$'000 J$'000 % Assets Notes and coins - - - - 218,292 218,292 - Cash and cash equivalents - - - - 204,035,103 204,035,103 - Interest in funds managed by agents - - - 40,637,501 - 40,637,501 1.06 Foreign currency denominated investments 67,470,177 - 7,885,439 - - 75,355,616 1.76 International Monetary Fund - - Holding of Special Drawing Rights - - - 30,038,907 30,038,907 - Resale agreements 16,949,931 - - - - 16,949,931 6.47 Local currency denominated investments 7,954,394 - 115,913,036 - - 123,867,430 9.00 International Monetary Fund – Quota Subscription - - - - 5,174,650 5,174,650 - Due from Government and Government Agencies - - - - 38,969,674 38,969,674 - Other assets - - - - 2,983,401 2,983,401 -

Total financial assets 92,374,502 - 123,798,475 40,637,501 281,420,027 538,230,505 - Liabilities Notes and coins in circulation - - - - 84,251,184 84,251,184 - Deposits and other demand liabilities: Jamaica dollar equivalent of foreign currency deposits 159,271,435 - - 26,875,925 - 186,147,360 0.36 Jamaica dollar deposits 16,938,934 - - 40,969,038 - 57,907,972 0.90 Open market liabilities 36,880,873 10,438,545 113,989,691 - - 161,309,109 4.92 International Monetary Fund –

Allocation of Special Drawing Rights - - - - 43,499,182 43,499,182 -

Foreign liabilities - - - - 27 27 - Bilateral accounts 70,595 70,595

Other liabilities - - - - 3,507,666 3,507,666 -

Total financial liabilities 213,091,242 10,438,545 113,989,691 67,844,963 131,328,654 536,693,095 - Total interest rate sensitivity gap (120,716,740) ( 10,438,545) 9,808,784 ( 27,207,462) 150,091,373 1,537,410 -

Cumulative gap (120,716,740) (131,155,285) (121,346,501) (148,553,963) 1,537,410 - -

- xlix -

Annual Report 2015


48




(ii) Interest rate risk (continued): 2014 Weighted Within Three to Over Payable Non-rate average 3 months 12 months 12 months after notice sensitive Total interest J$'000 J$'000 J$'000 J$'000 J$'000 J$'000 % Assets Notes and coins - - - - 182,701 182,701 - Cash and cash equivalents - - - - 80,228,459 80,228,459 - Interest in funds managed by agents - - - 36,527,000 - 36,527,000 0.67 Foreign currency denominated investments - 3,037,110 132,429,615 - - 135,466,725 1.88 International Monetary Fund - Holding of Special Drawing Rights - - - - 30,775,081 30,775,081 - Resale agreements 40,856,264 2,739,753 - - - 43,596,017 6.59 Local currency denominated investments - 1,055 122,754,430 - - 122,755,485 9.11 International Monetary Fund – Quota Subscription - - - - 5,155,279 5,155,279 - Due from Government and Government Agencies - - - - 36,480,762 36,480,762 - Other assets - - - - 5,714,415 5,714,415 - Bilateral accounts - - - - 12,467 12,467 -

Total financial assets 40,856,264 5,777,918 255,184,045 36,527,000 158,549,164 496,894,391 - Liabilities Notes and coins in circulation - - - - 74,942,545 74,942,545 - Deposits and other demand liabilities: Jamaica dollar equivalent of foreign currency deposits 130,008,580 - - 23,838,318 - 153,846,898 0.15 Jamaica dollar deposits 11,188,335 - - 36,370,714 - 47,559,049 0.74 Open market liabilities 43,303,475 26,145,448 99,212,751 4,338,645 - 173,000,319 5.31 International Monetary Fund –

Allocation of Special Drawing Rights - - - - 43,336,352 43,336,352 -

Foreign liabilities - - - - 276,293 276,293 - Other liabilities - - - - 2,672,012 2,672,012 -

Total financial liabilities 184,500,390 26,145,448 99,212,751 64,547,677 121,227,202 495,633,468 - Total interest rate sensitivity gap (143,644,126) ( 20,367,530) 155,971,294 (28,020,677) 37,321,962 1,260,923 -

Cumulative gap (143,644,126) (164,011,656) ( 8,040,362) (36,061,039) 1,260,923 - -

- l -Final Accounts for Year Ended 31 December 2015

Bank of Jamaica

49




(ii) Interest rate risk (continued): Sensitivity to interest rate movement An increase of 100 (2014: 250) basis points and a decrease of 150 (2014:100) basis points in interest rates for Jamaica dollar financial instruments and an increase of 100 (2014: 20), and a decrease of 50 (2014: 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 2014.

Increase Decrease Effect on Effect on Effect on Effect profit/loss reserves profit/loss on reserves

J$'000 J$'000 J$'000 J$'000 2015

Fixed rate financial instruments - (3,553,452) - 3,526,316 Variable rate financial instruments 347,131 ( 31,508) (520,697) 46,636

347,131 (3,584,960) (520,697) 3,572,952

2014

Fixed rate financial instruments - (3,792,513) - 4,202,485 Variable rate financial instruments 867,819 ( 72,949) (347,128) 37,452

867,819 (3,865,462) (347,128) 4,239,937 (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; however, such a resolution would have to be approved by the House of Representatives of Jamaica. The Bank’s annual 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.

- lii -Appendicies

Bank of Jamaica

- liii -

Annual Report 2015

Appendicies

�

Weight 2015 2015 2015 2014 YOY

in CPI Basket

Per cent Inflation

%Wgt Inflation

%Share Inflation

Per cent Inflation

%pt Chg Inflation

01 FOOD & NON-ALCOHOLIC BEVERAGES 37.45 8.7 3.3 104.1 10.1 -1.37 01.1 Food 35.10 9.0 3.2 100.8 10.2 -1.21 Bread and Cereals 6.10 2.3 0.1 4.4 7.3 -5.08 Meat 7.66 2.5 0.2 6.2 7.5 -5.01 Fish and Seafood 5.33 4.4 0.2 7.6 7.6 -3.15 Milk, Cheese and Eggs 3.11 3.2 0.1 3.2 12.5 -9.26 Oils and Fats 1.64 3.9 0.1 2.0 8.1 -4.19 Fruit 1.14 8.0 0.1 2.9 13.3 -5.23 Vegetables and Starchy Foods 6.85 27.0 1.8 59.1 16.7 10.29 Vegetables 4.64 33.5 1.6 49.7 17.4 16.15 Starchy Foods 2.21 10.0 0.2 7.1 15.3 -5.26 Sugar, Jam, Honey, Chocolate and Confectionery 1.72 3.2 0.1 1.8 6.4 -3.16 Food Products n.e.c. 1.55 6.2 0.1 3.1 8.1 -1.88 01.2 Non-Alcoholic Beverages 2.35 3.6 0.1 2.7 7.9 -4.28 Coffee, Tea and Cocoa 0.66 3.3 0.0 0.7 8.6 -5.36 Mineral Waters, Soft Drinks, Fruit and Vegetable Juices 1.69 3.8 0.1 2.0 7.6 -3.81 02 ALCOHOLIC BEVERAGES & TOBACCO 1.38 5.4 0.1 2.4 5.7 -0.33 03 CLOTHING & FOOTWEAR 3.33 4.4 0.1 4.7 5.0 -0.55 03.1 Clothing 2.12 5.1 0.1 3.4 4.4 0.68 03.2 Footwear 1.22 3.4 0.0 1.3 5.8 -2.46 04 HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS 12.76 -8.3 -1.1 -34.0 -2.0 -6.33 04.1 Rentals for Housing 3.52 1.1 0.0 1.2 1.2 -0.08 04.3 Maintenance and Repair of Dwelling 0.80 9.9 0.1 2.5 5.0 4.85 04.4 Water Supply and Miscellaneous Services Related to the

Dwelling 1.32 -0.7 0.0 -0.3 -1.1 0.45 04.5 Electricity, Gas and Other Fuels 7.12 -16.5 -1.2 -37.6 -4.3 -12.20 05 FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE

HOUSEHOLD MAINTENANCE 4.93 3.1 0.2 4.8 8.4 -5.36 05.1 Furniture and Furnishings (inc. Floor Coverings) 0.69 2.9 0.0 0.6 4.3 -1.42 05.2 Household Textiles 0.32 2.9 0.0 0.3 4.1 -1.23 05.3 Household Appliances 0.56 4.5 0.0 0.8 7.8 -3.34 05.4 Glassware, Tableware and Household Utensils 0.05 2.9 0.0 0.0 4.5 -1.57 05.5 Tools and Equipment for House and Garden 0.15 4.1 0.0 0.2 4.8 -0.73 05.6 Goods and Services for Routine Household Maintenance 3.16 2.8 0.1 2.9 10.2 -7.36 06 HEALTH 3.29 2.0 0.1 2.1 3.5 -1.41 06.1 Medical Products, Appliances and Equipment 1.22 2.6 0.0 1.0 3.8 -1.26 06.2 Health Services 2.07 1.7 0.0 1.1 3.2 -1.52 07 TRANSPORT 12.82 -4.0 -0.5 -16.6 4.6 -8.60 08 COMMUNICATION 3.99 0.0 0.0 0.0 0.0 -0.04 09 RECREATION & CULTURE 3.36 2.6 0.1 2.8 5.1 -2.48 10 EDUCATION 2.14 5.5 0.1 3.8 3.9 1.55 11 RESTAURANTS & ACCOMMODATION SERVICES 6.19 4.7 0.3 9.2 4.5 0.19 12 MISCELLANEOUS GOODS & SERVICES 8.37 6.2 0.5 16.6 6.8 -0.64

ALL DIVISIONS 100.0 3.7 3.1 100.0 6.4 -2.70

- liv -Appendicies

Bank of Jamaica

Inflation % Inflation (yoy %point change) GKMA OUC RUA GKMA OUC RUA

01 FOOD & NON-ALCOHOLIC BEVERAGES 13.2 8.1 5.4 -0.1 -1.8 -2.3 01.1 Food 13.6 8.3 5.5 0.2 -1.8 -2.2 Bread and Cereals 3.4 2.1 1.8 -4.2 -5.0 -5.6 Meat 3.5 3.5 1.4 -5.7 -2.7 -5.4 Fish and Seafood 4.3 3.1 5.1 -2.7 -3.5 -3.3 Milk, Cheese and Eggs 2.8 3.7 3.3 -10.5 -10.8 -7.7 Oils and Fats 5.4 2.8 3.4 -3.9 -4.4 -4.3 Fruit 8.5 6.8 8.1 -7.2 -4.5 -2.0 Vegetables and Starchy Foods 35.8 24.3 17.0 12.0 5.9 9.3 Vegetables 43.3 30.3 20.3 20.3 12.2 11.2 Starchy Foods 12.1 9.5 8.2 -14.5 -9.5 4.1 Sugar, Jam, Honey, Chocolate and Confectionery 4.6 3.1 2.5 -4.1 -2.0 -3.1 Food Products n.e.c. 6.7 5.9 6.1 -2.9 -0.9 -1.6 01.2 Non-Alcoholic Beverages 3.5 4.5 3.2 -6.8 -1.4 -4.1 Coffee, Tea and Cocoa 3.4 4.6 2.7 -7.6 -1.9 -5.5 Mineral Waters, Soft Drinks, Fruit and Vegetable Juices 3.6 4.5 3.5 -6.4 -1.3 -3.3 02 ALCOHOLIC BEVERAGES & TOBACCO 4.2 4.8 6.3 -1.1 -2.2 0.9 03 CLOTHING & FOOTWEAR 2.4 5.2 5.4 -2.3 -0.8 0.6 03.1 Clothing 3.1 6.4 5.6 -1.1 0.2 1.9 03.2 Footwear 1.5 2.7 4.9 -3.9 -2.7 -1.4 04 HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS -6.3 -8.1 -10.6 -4.6 -6.3 -8.1 04.1 Rentals for Housing 1.0 1.3 1.2 0.1 -0.3 -0.4 04.3 Maintenance and Repair of Dwelling 11.2 9.8 9.1 5.8 4.1 4.6 04.4 Water Supply and Miscellaneous Services Related to the

Dwelling -0.7 -0.7 -0.7 0.4 0.4 0.4 04.5 Electricity, Gas and Other Fuels -17.0 -16.7 -16.2 -12.2 -12.4 -12.1 05 FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE

HOUSEHOLD MAINTENANCE 2.8 3.2 3.3 -6.7 -6.1 -3.8 05.1 Furniture and Furnishings (inc. Floor Coverings) 3.0 2.8 2.9 -1.8 -1.3 -1.2 05.2 Household Textiles 1.6 5.9 1.9 -3.5 1.5 -1.2 05.3 Household Appliances 2.9 5.1 5.5 -3.2 -3.6 -3.3 05.4 Glassware, Tableware and Household Utensils 1.2 4.7 3.6 -2.9 -1.4 -0.6 05.5 Tools and Equipment for House and Garden 2.5 4.4 4.4 -5.6 -0.9 0.1 05.6 Goods and Services for Routine Household Maintenance 2.8 2.6 3.0 -8.8 -8.5 -5.4 06 HEALTH 1.3 2.3 2.3 -2.1 -1.5 -1.1 06.1 Medical Products, Appliances and Equipment 2.0 2.4 3.0 -2.4 -1.8 -0.4 06.2 Health Services 0.8 2.2 1.9 -1.8 -1.3 -1.5 07 TRANSPORT -10.1 -1.1 -0.7 -23.1 -1.7 -1.2 08 COMMUNICATION 0.0 0.0 0.0 0.0 0.0 0.0 09 RECREATION & CULTURE 2.4 2.4 2.9 -2.7 -3.1 -2.1 10 EDUCATION 3.0 7.6 7.7 -1.1 3.7 3.9 11 RESTAURANTS & ACCOMMODATION SERVICES 4.7 4.5 4.7 0.6 -0.2 0.0 12 MISCELLANEOUS GOODS & SERVICES 6.5 6.6 5.8 0.3 0.6 -1.9 ALL DIVISIONS 5.0 3.6 2.6 -3.6 -2.1 -2.3

- lv -

Annual Report 2015

Appendicies

Dec

-15

Dec

-14

Dec

-13

Dec

-15

Dec

-14

Dec

-13

Dec

-15

Dec

-14

Dec

-13

Dec

-15

Dec

-14

Dec

-13

Num

ber o

f ins

titut

ions

in o

pera

tion

66

72

22

33

311

1112

J$M

N1 To

tal A

sset

s (in

cl. c

ontin

gent

acc

ount

s)91

6 88

682

9 63

474

0 96

830

367

31 0

0525

376

246

727

230

289

211

550

1 19

3 98

01

090

928

97 7

894

2 Tota

l Ass

ets

(exc

l. co

ntin

gent

acc

ount

s)89

6 87

881

5 25

572

6 88

930

298

30 9

6525

314

246

724

230

286

211

550

1 17

3 90

01

076

506

963

753

Cas

h &

Ban

k B

alan

ces

175

538

172

114

156

634

3 08

12

234

1 71

817

165

18 2

1228

380

195

784

192

560

186

732

Inve

stm

ents

[inc

l. Se

curit

ies

Purc

h.] (

net o

f pro

v.)

238

921

21 0

371

168

783

13 6

2318

785

15 8

2597

153

94 4

4470

777

349

697

323

600

255

385

Tota

l Loa

ns (g

ross

)41

4 15

138

0 84

336

2 11

612

690

9 25

47

093

117

199

107

174

97 3

7754

4 04

049

7 27

146

6 58

6To

tal L

oans

(net

of I

FRS

pro

v.) a

405

244

370

507

353

663

12 6

399

207

7 05

111

6 00

810

5 55

295

856

533

891

485

266

456

570

Tota

l Dep

osits

587

790

523

657

487

472

16 0

7613

936

11 1

1816

8 02

315

2 22

514

1 35

377

1 88

968

9 81

863

9 94

3B

orro

win

gs (i

ncl.

repo

s)12

6 87

312

8 29

498

274

7 18

910

321

8 37

231

377

35 6

3925

133

165

439

174

254

131

779

Non

-Per

form

ing

Loan

s [N

PLs]

(3 m

ths

& >

)16

835

19 2

9718

671

114

94

120

5 19

25

664

6 22

422

141

25 0

5525

015

Prov

isio

n fo

r Loa

n Lo

sses

19 1

1720

703

19 5

9720

4 17

2 17

2 4

294

4 58

94

182

23 6

1525

464

23 9

513 C

apita

l Bas

e94

249

84 6

4579

046

5 24

64

692

3 94

528

932

29 0

1227

243

128

427

118

349

110

234

Con

tinge

nt A

ccts

[Acc

ept.,

LC

's &

Gua

rant

ees]

20 0

0814

379

14 0

7969

40

62

3

3 0

20 0

8014

422

14 1

41Fu

nds

Und

er M

anag

emen

t 38

7 36

4 33

7 0

0 0

0 0

0 38

7 36

4 33

7 R

epos

on

beha

lf of

or f

or o

n-tr

adin

g to

clie

nts

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

%

Rat

e of

Ass

et 1

Gro

wth

10.5

%12

.0%

12.3

%-2

.1%

22.2

%19

.0%

7.1%

8.9%

5.0%

9.4%

11.6

%10

.8%

Rat

e of

Dep

osit

Gro

wth

12.2

%7.

4%9.

6%15

.4%

25.3

%41

.6%

10.4

%7.

7%7.

5%11

.9%

7.8%

9.6%

Rat

e of

Loa

ns G

row

th (g

ross

)8.

7%5.

2%17

.8%

37.1

%30

.5%

26.1

%9.

4%10

.1%

1.6%

9.4%

6.6%

14.1

%R

ate

of C

apita

l Bas

e G

row

th11

.3%

7.1%

21.2

%11

.8%

18.9

%3.

1%-0

.3%

6.5%

13.3

%8.

5%7.

4%18

.4%

Rat

e of

NPL

s (3

Mth

s &>

) Gro

wth

-12.

8%3.

4%-1

1.0%

21.3

%-2

1.7%

-87.

7%-8

.3%

-9.0

%-8

.1%

-11.

6%0.

2%-1

2.9%

Inve

stm

ents

:Tot

al A

sset

s 1

26.1

%25

.4%

22.8

%44

.9%

60.6

%62

.4%

39.4

%41

.0%

33.5

%29

.3%

29.7

%26

.1%

Loan

s (n

et o

f pro

v.):T

otal

Ass

ets 1

44.2

%44

.7%

47.7

%41

.6%

29.7

%27

.8%

47.0

%45

.8%

45.3

%44

.7%

44.5

%46

.7%

Fixe

d As

sets

:Tot

al A

sset

s 12.

0%2.

1%2.

0%0.

8%0.

3%0.

3%2.

1%2.

0%1.

9%2.

0%2.

0%1.

9%Lo

ans

(gro

ss) :

Dep

osits

70.5

%72

.7%

74.3

%78

.9%

66.4

%63

.8%

69.8

%70

.4%

68.9

%70

.5%

72.1

%72

.9%

Liqu

idity

Aver

age

Dom

estic

Cur

renc

y C

ash

Res

erve

: Ave

rage

Pr

escr

ibed

Lia

bilit

ies 4

12.0

%12

.0%

12.0

%12

.0%

12.0

%12

.1%

1.0%

1.0%

1.0%

9.5%

9.4%

9.3%

Aver

age

Dom

estic

Cur

renc

y Li

quid

Ass

ets:

Ave

rage

Dom

estic

Pr

escr

ibed

Lia

bilit

ies

430

.6%

35.7

%31

.0%

26.8

%32

.4%

27.7

%12

.7%

18.1

%12

.0%

26.5

%31

.5%

26.3

%

Ass

et Q

ualit

yPr

ov. F

or L

oan

Loss

es:T

otal

Loa

ns (g

ross

)4.

6%5.

4%5.

4%1.

6%1.

9%2.

4%3.

7%4.

3%4.

3%4.

3%5.

1%5.

1%Pr

ov. F

or L

oan

Loss

es: N

PLs

(3 M

ths

&>)

113.

6%10

7.3%

105.

0%17

8.9%

183.

0%14

3.3%

82.7

%81

.0%

67.2

%10

6.7%

101.

6%95

.7%

NPL

s (3

Mth

s &>

):Tot

al L

oans

(gro

ss)

4.1%

5.1%

5.2%

0.9%

1.0%

1.7%

4.4%

5.3%

6.4%

4.1%

5.0%

5.4%

NPL

s (3

Mth

s &>

): (T

otal

Ass

ets

1 + IF

RS

Prov

isio

n fo

r los

ses)

1.8%

2.3%

2.5%

0.4%

0.3%

0.5%

2.1%

2.4%

2.9%

1.8%

2.3%

2.5%

Cap

ital A

dequ

acy

Dep

osits

+ B

orro

win

gs: C

apita

l (:1

)7.

67.

77.

44.

55.

25.

06.

96.

56.

17.

37.

37.

0C

apita

l Bas

e:To

tal A

sset

s 1

10.3

%10

.2%

10.7

%17

.3%

15.1

%15

.5%

11.7

%12

.6%

12.9

%10

.8%

10.8

%11

.3%

5 C

apita

l Ade

quac

y R

atio

[CAR

] 13

.7%

14.3

%14

.0%

19.5

%17

.4%

15.8

%20

.6%

22.8

%20

.8%

14.9

%15

.8%

15.3

%N

PLs

(3 m

ths

&>):C

apita

l Bas

e+Pr

ov fo

r loa

n lo

sses

14.9

%18

.3%

18.9

%2.

1%1.

9%2.

9%15

.6%

16.9

%19

.8%

14.6

%17

.4%

18.6

%

Prof

itabi

lity

6 Pre

- ta

x Pr

ofit

Mar

gin

(for

the

Cal

enda

r Qua

rter)

16.5

%17

.9%

20.4

%13

.7%

12.1

%12

.4%

16.2

%23

.8%

44.0

%16

.4%

18.8

%24

.7%

6 Pre

- ta

x Pr

ofit

Mar

gin

(for

the

Cal

enda

r Yea

r)20

.6%

17.9

%17

.1%

13.5

%9.

5%12

.8%

17.6

%22

.7%

28.5

%19

.9%

18.5

%19

.0%

Ret

urn

on A

vera

ge A

sset

s (f

or th

e C

alen

dar Q

uarte

r)0.

5%0.

5%0.

6%0.

3%0.

3%0.

3%0.

3%0.

5%1.

1%0.

4%0.

5%0.

7%R

etur

n on

Ave

rage

Ass

ets

(for

the

Cal

enda

r Yea

r)2.

2%2.

1%1.

9%1.

3%0.

9%1.

3%1.

5%2.

0%2.

4%2.

1%2.

0%2.

0%7 In

com

e As

sets

/Exp

ense

Lia

bilit

ies

(at 3

1 D

ecem

ber)

105.

3%10

5.2%

104.

4%12

0.0%

120.

2%12

0.9%

109.

9%11

0.2%

110.

0%10

6.6%

106.

7%10

6.0%

AN

NU

AL

PRU

DEN

TIA

L IN

DIC

ATO

RS

OF

CO

MM

ERC

IAL

BA

NK

S,

MER

CH

AN

T B

AN

KS

AN

D B

UIL

DIN

G S

OC

IETI

ES

P

UB

LISH

ED P

UR

SUA

NT

TO S

ECTI

ON

64

(F) O

F TH

E B

AN

KIN

G S

ERVI

CES

AC

T

as a

t 31

Dec

embe

r

CO

MM

ERC

IAL

BA

NK

SM

ERC

HA

NT

BA

NK

SB

UIL

DIN

G S

OC

IETI

ESSy

stem

Tot

al(a

ggre

gatio

n of

all

3 se

ctor

s)

AN

NU

AL

PRU

DEN

TIA

L IN

DIC

ATO

RS

OF

CO

MM

ERC

IAL

BA

NK

S,

MER

CH

AN

T B

AN

KS

AN

D B

UIL

DIN

G S

OC

IETI

ES

P

UB

LISH

ED P

UR

SUA

NT

TO S

ECTI

ON

64

(F) O

F TH

E B

AN

KIN

G S

ERVI

CES

AC

T

as a

t 31

Dec

embe

r N

otes

:n/

a n

ot a

pplic

able

- B

ased

on

unau

dite

d da

ta s

ubm

itted

to B

OJ

by s

uper

vise

d in

stitu

tions

up

to 8

Feb

ruar

y 20

16. P

rior y

ears

indi

cato

rs m

ay h

ave

revi

sion

s ar

isin

g fr

om a

men

dmen

ts.

a Effe

ctiv

e J

anua

ry 2

004,

the

Ban

k of

Jam

aica

revi

sed

its re

port

ing

requ

irem

ents

in li

ne w

ith In

tern

atio

nal F

inan

cial

Rep

ortin

g St

anda

rds

(IFR

S) a

nd in

this

rega

rd th

e

follo

win

g ch

ange

was

effe

cted

:

The

com

posi

tion

of "

Prov

isio

n fo

r Loa

n Lo

sses

" ha

s be

en s

egre

gate

d in

to tw

o (2

) dis

tinct

com

pone

nts

bein

g:

i)

pro

visi

on fo

r los

ses

com

pute

d in

acc

orda

nce

with

IFR

S; a

nd

ii)

any

incr

emen

tal p

rovi

sion

ing

nece

ssar

y un

der p

rude

ntia

l los

s pr

ovis

ioni

ng re

quire

men

ts (t

reat

ed a

s an

app

ropr

iatio

n fr

om n

et p

rofit

s).

C

onse

quen

tly, "

Tota

l Loa

ns (n

et o

f pro

v.)"

repr

esen

ts g

ross

loan

s ne

t of I

FRS

loan

loss

pro

visi

ons

per (

i) ab

ove

FIA

Lic

ense

es a

re n

ow re

ferr

ed to

as

mer

chan

t ban

ks in

acc

orda

nce

with

Sec

tion

2 (1

) of t

he B

anki

ng S

ervi

ces

Act

whi

ch c

ame

into

effe

ct 3

0 Se

ptem

ber 2

015.

1 To

tal A

sset

s an

d Li

abili

ties

refle

cted

net

of I

FRS

Prov

isio

n fo

r Los

ses

and

incl

ude

Con

tinge

nt A

ccou

nts

(Cus

tom

er L

iabi

litie

s fo

r Acc

epta

nces

, Gua

rant

ees

and

Lette

rs o

f Cre

dit).

In

kee

ping

with

IFR

S, T

otal

Ass

ets

and

Liab

ilitie

s w

ere

rede

fined

to in

clud

e C

ontin

gent

Acc

ount

s.

2 Tot

al A

sset

s ne

t of I

FRS

Prov

isio

n fo

r Los

ses

and

Con

tinge

nt A

ccou

nts

(Cus

tom

er L

iabi

litie

s fo

r Acc

epta

nces

, Gua

rant

ees

and

Lette

rs o

f Cre

dit).

3

Cap

ital B

ase

- Ban

ks &

Mer

chan

t Ban

ks: (

Ord

inar

y Sh

ares

+ Q

ualif

ying

Pre

fere

nce

Shar

es+

Res

erve

Fun

d +

Ret

aine

d Ea

rnin

gs R

eser

ve F

und

+ Sh

are

Prem

ium

)

less

impa

irmen

t by

net l

osse

s of

indi

vidu

al in

stitu

tion.

- B

uild

ing

Soci

etie

s: (P

erm

anen

t Cap

ital F

und

+ D

efer

red

Shar

es +

Cap

ital S

hare

s +

Res

erve

Fun

d +

Ret

aine

d Ea

rnin

gs R

eser

ve F

und

) les

s im

pairm

ent b

y ne

t los

ses

of in

divi

dual

soc

iety

.. 4

Pres

crib

ed L

iabi

litie

s in

clud

e:

5 C

apita

l Ade

quac

y R

atio

(CA

R):

Qua

lifyi

ng C

apita

l (Ti

er 1

+ T

ier 2

cap

ital i

tem

s le

ss p

resc

ribed

ded

uctio

ns) i

n re

latio

n to

Ris

k W

eigh

ted

Ass

ets

and

Fore

ign

Exch

ange

Exp

osur

e.6

Pr

e-ta

x Pr

ofits

incl

ude

extr

aord

inar

y in

com

e/ex

pend

iture

and

adj

ustm

ents

for p

rior p

erio

ds.

R

etur

n on

Ave

rage

Ass

ets

is c

ompu

ted

usin

g pr

e-ta

x pr

ofits

as

wel

l as

asse

ts b

efor

e pr

ovis

ion

for l

osse

s (in

acc

orda

nce

with

IFR

S) a

nd in

clud

ing

cont

inge

nt a

ccou

nts

(

Acc

epta

nces

, Gua

rant

ees

and

Lette

rs o

f Cre

dit).

7 In

com

e A

sset

s co

mpr

ise

FC C

ash

Res

erve

s, P

lace

men

ts, I

nves

tmen

ts, R

epo

Ass

ets

and

Loan

s le

ss N

on-P

erfo

rmin

g Lo

ans

(3 m

onth

s &

ove

r).

Ex

pens

e Li

abili

ties

com

pris

e D

epos

its a

nd B

orro

win

gs in

clud

ing

Rep

o Li

abili

ties

(from

BO

J, B

anks

, OFI

etc

).

Stat

utor

y R

eser

ve R

equi

rem

ents

:

CO

MM

ERC

IAL

BA

NK

S

BU

ILD

ING

SO

CIE

TIES

**D

ec-1

5D

ec-1

4D

ec-1

3D

ec-1

5D

ec-1

4D

ec-1

3D

ec-1

5D

ec-1

4D

ec-1

3R

equi

red

Cas

h R

eser

ve R

atio

12

.0%

12.0

%12

.0%

12.0

%12

.0%

12.0

%1%

/ 12

%1%

/12%

1% /

12%

Req

uire

d Li

quid

Ass

ets

Rat

io (i

ncl C

ash

Res

erve

)26

.0%

26.0

%26

.0%

26.0

%26

.0%

26.0

%5%

/ 26

%5%

/26%

5% /

26%

** T

he R

eser

ve R

equi

rem

ents

are

diff

eren

tially

app

lied

to s

ocie

ties

not m

eetin

g th

e pr

escr

ibed

thre

shol

d of

resi

dent

ial m

ortg

age

lend

ing

in re

latio

n to

sav

ings

fund

s.

Soc

ietie

s th

at m

eet t

he p

resc

ribed

'qua

lifyi

ng a

sset

s' th

resh

old

attr

act t

he lo

wer

Res

erve

Req

uire

men

ts in

dica

ted

abov

e. S

ocie

ties

whi

ch d

o no

t, ar

e re

quire

d

to m

eet t

he R

eser

ve R

equi

rem

ents

whi

ch a

pply

to b

anks

and

mer

chan

t ban

ks.

Fina

ncia

l Ins

titut

ions

Sup

ervi

sory

Div

isio

nBa

nk o

f Jam

aica

(i)

dep

osit

liabi

litie

s, (i

i) re

serv

able

bor

row

ings

and

inte

rest

acc

rued

and

pay

able

on

(i) &

(ii).

MER

CH

AN

T B

AN

KS

1

BANK OF JAMAICA Nethersole Place

P.O. Box 621 Kingston, Jamaica

Telephone: 876 922 0750 Internet: www.boj.org.jm

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