What the Governor of the central bank had to say
It took us several weeks to acquire a copy of a paper presented to a seminar on banking and finance by the Governor of the Bank of Guyana. The seminar was executed on July 25, and we only managed to get hold of the Governor’s paper on Monday notwithstanding the fact that we had asked the bank for a copy a matter of hours after the seminar ended. Eventually, we were facilitated with a copy by what appears to be an increasingly busy and focused Georgetown Chamber of Commerce and Industry (GCCI).
If we were not particularly impressed with the way in which we were treated by the central bank we were certainly enlightened by the Governor’s illuminating presentation to the seminar during which he said a number of revealing things about the state of the commercial banking sector in Guyana.
The banks are choc-a-bloc with money. The Governor said that in so many different ways, perhaps the most illuminating one of which has to do with the fact that while banking regulations dictate that banks retain a prescribed level of their liquid assets, the banks, at the end of last year, were holding such assets to the tune of 76.1 per cent – which converts into $44.6 billion – above what they are required to hold.
This – and other interesting revelations made by the central bank Governor in his paper make for rather interesting reading as does the Governor’s repeated advocacy of a commercial bank posture which, given its liquidity circumstance, is far more disposed to lending money to both the private sector and to individuals.
Our commercial banks are, by nature, conservative and it is their risk-measuring mechanisms that determine their lending policies. Williams himself makes clear the importance of maintaining a prudent lending policy that protects the interests of the banks though there are junctures of his presentation at which he appears to be gently admonishing the commercial banks for what one might term an overly cautious lending policy.
Not that the central bank Governor appears to chastise the banks in the same way that potential borrowers and individuals do over what is often believed to be a counterproductive lending policy. In fact, when one examines the figures made available by the Governor himself regarding sectorial loans by local commercial banks one immediately detects significant growth in private sector credit, most of which would have resulted from commercial bank lending. The distribution and real estate sectors – perhaps the two best examples – increased their borrowing by 202 per cent and 351 per cent, respectively.
How to find a balance between ensuring access to commercial bank financing and protecting the interests of depositors appeared to be one of the preoccupations of the Governor He makes the point, for example, that commercial banks would much prefer to lend money to clients at rates of interest which are lucrative for them rather than to literally “park” their assets in Treasury Bills though he stops short of making the point that Treasury Bills are preferable to bad debt.
How to open up the banks’ assets to borrowers while protecting the interests of the banks appears to be the central thrust of the Governor’s paper. It is an issue that ought to be the subject of more discourse between the banks and potential borrowers. In fairness, the commercial banks have not been standing still on this issue. They have, over the past few years, taken a vigorous tongue-lashing from those who accuse them of having arch-conservative lending policies that discriminate against potential clients who are not considered worthwhile risks. In response, most of the commercial banks have been allocating more time and resources to marketing lending packages for small business borrowers, some of which have had conditionalities that have to do with managing a business attached to them. In some cases the journey will be ponderous since there is no shortage of prospective borrowers for small business purposes who are yet to get their minds around the rudiments of preparing a business plan. Still – and until a Development Bank materializes – the commercial banks will be looked to by small business operators as one of the primary sources of lending and in that context it is more than comforting that no less a person than the Governor of the Bank of Guyana is providing information which suggests that commercial banks have every reason to accelerate their lending to both businesses and individual borrowers.