Increased FX cost for Jamaican banks

Bank of Jamaica announced changes to the cash reserves and liquid assets that deposit-taking institutions are required to hold against foreign currency liabilities effective March 1.
According to the central bank the change will see a three percentage points increase to the current requirement. The adjustment will be in two steps, beginning with an increase of two percentage points on the first business day in March 2017, with the remaining one percentage point will be effected on the first business day in April 2017.
The adjustment is aimed at reducing the incentive to hold foreign currency liabilities.
No change is being made to the reserve requirements applicable to Jamaican dollar prescribed liabilities.
During the last three months of 2016, Bank of Jamaica gradually increased the cash reserves and liquid assets requirements for foreign currency liabilities in the banking system to bring them in line with the reserve requirements for Jamaican dollar liabilities. This removed the bias in the structure of the reserves requirements that favoured foreign-currency deposits.
At December 2016, the cash and liquid assets reserve requirements were twelve per cent (12%) and twenty-six per cent (26%), respectively, for both foreign currency and Jamaican dollar liabilities. Remuneration for foreign currency cash reserves was also discontinued, bringing it into conformity with the treatment for Jamaican dollar cash reserves.
The net effect is that it will cost banks more to hold foreign currency than before and is likely to drive up lending rates for foreign currency loans. Depositors will most likely see a dip in the interest they currently earn on foreign exchange deposits. The move will mean more funds will be available in the market for either the build-up of the country’s reserves or a further strengthening in the value of the Jamaican dollar. Real estate and stocks will definitely benefit from the changes as well.
The change come partially, as commercial banks accumulated large pool of surplus foreign currencies since mid-2016, forcing the central bank to issue bands to pull the funds out of the system, as well as the fact that Jamaican have increasingly been dollarizing their financial activities.