Twenty years later

Introduction
Twenty years and four days ago, Business Page became a feature of the Sunday Stabroek. The year 1992 is generally regarded as a breakthrough year for democracy and the return of free and fair elections in Guyana. But economically, former President Desmond Hoyte and his Finance Minister Carl Greenidge had already placed the economy on the path of market-based economic recovery within the framework of an Economic Recovery Programme (ERP) under the direction of and with the support of the International Monetary Fund and the international community.

Let us recall that in his presentation of the 1992 Budget on March 30, 1992, Mr Greenidge had reported growth of 6.1% in real GDP, “dramatically halting three years negative growth.” Indeed so optimistic was Mr Greenidge about the performance of the economy that he conveyed the famous message to those pundits and their parties who had made “tenebrous predictions” that the ERP would not work, with the admonition “the one who says it cannot be done should never interrupt the one who is doing it.”

ERP
Mr Greenidge was of course referring mainly to elements in the trade union movement, the WPA, the PPP/C and even some independent critics. The PPP/C had put its own spin on the ERP, describing it as Empty Rice Pot. So the loss by Hoyte of the October 1992 elections to the PPP/C under Cheddi Jagan brought with it uncertainty about the direction Dr Jagan would take the country and specifically whether he would re-introduce socialism.

After all, Marxism-Leninism had been the guiding philosophy of the Peoples’ Progressive Party which he formed and led until his death.

The ERP has had its serious consequences including a widening of the income gap of unprecedented proportions. But it also had its benefits, and while many would question key segments of the programme, it brought with it many improvements, including massive write-offs of a crippling debt burden which had developed for several years, and also only the second phase of significant tax reform since income tax was introduced in Guyana in 1929.

When Business Page first appeared in December 1992, the Guyana economy had continued the improvements witnessed in 1991.

In 1992 the economy grew by 7.7%, the fastest rate of growth ever recorded in Guyana; aggregate expenditure had moderated; inflation had declined from 75% to 15%; the overall deficit on the balance of payments fell from US$66 million in 1991 to US$41 million in 1992; the stock of public debt had already begun to fall; and the exchange rate had stabilized following the unification of the official and the market exchange rates.

Asgar Ally
Not that these developments impressed the first PPP/C Minister of Finance who in his 1993 Budget speech wrote, “the apparent economic recovery is fragile as major structural obstacles to sustained growth still persist.” Add to this Jagan’s mantra of lean and clean, weeding out corruption, expanding democracy and giving every Guyanese a fair chance to benefit from the country’s resources, and we see why there was some uncertainty among the banking community.

For better or worse, it will remain one of Guyana’s unanswerable questions why Dr Jagan allowed pragmatism to trump his ideology, but it was a major relief among the business and investing community that his government, first under his choice of Finance Minister Mr Asgar Ally, retained the ERP for several more years. That continuation was to result in one of the longest running IMF programmes anywhere in the world.

Banking in 1992
It was against that background that Business Page appeared with its first column captioned ‘Our banks must adopt a more positive role.’ That column made several comments and recommendations with regard to the commercial banking sector and I thought it useful to see how far and in what ways the banking sector in particular has changed in twenty years.

Of course at that time the government was the dominant player in the banking and financial sector. It controlled the National Bank of Industry and Commerce, the former Royal Bank of Canada whose assets, liabilities and operations were acquired by the Government of Guyana in 1994.

The government had also acquired the assets, liabilities and operations of Barclays Bank PLC and vested these into the Guyana Bank of Trade and Industry Limited. On January 1, 1990 the operations, assets and liabilities of Republic Bank (Guyana) Limited, which had arisen from the US Chase Manhattan Bank were merged with GBTI. Bank of Baroda had quietly been carrying on its own operations, as did the Bank of Nova Scotia.

Importantly the government also owned and operated the Guyana National Co-operative Bank (GNCB), the Guyana Co-operative Mortgage Finance Bank and the Guyana Co-operative Agricultural Development Bank.

In 1992 therefore the banking system was largely state-controlled. Indigenous banks had become the vogue and we recall that the GNCB, GAIBANK and the Mortgage Finance Bank had been established with the aim of fast-tracking economic development by making it easier for individuals and businesses to access capital for business and social purposes.

Such state control over such a key sector had problems beyond losses of staggering amounts, as politics became a major consideration in the operations of the institutions, although it was less so in the case of NBIC and GBTI.

Bank ownership
Since 1992, there have been substantial changes in the ownership and operations of commercial banks in Guyana. GNCB had acquired the portfolio of GAIBANK which was subsequently closed, but in 2003 certain assets and liabilities of GNCB were sold to what was by then Republic Bank (Guyana) Limited.

In October 1997, the government’s shareholding in NBIC – approximately 47% – was sold to Republic Bank of Trinidad and Tobago and the name NBIC was changed to Republic Bank (Guyana) Limited. The Republic Bank of Trinidad and Tobago now owns 51% of the local subsidiary while other substantial shareholders (defined as 5% shareholding) include Demerara Mutual Life Assurance Society Limited, GTM and Trust Company Guyana Limited.

GBTI was sold to the locally owned Beharry Group            of Companies which now controls 61% of GBTI’s shares.         The remaining shares appear to be spread among several     non-substantial shareholders.

But there were new players as well. In January 1992 Demerara Bank Limited was incorporated as a private limited liability company and received its licence to carry on banking business in October 1994. It was subsequently registered as a reporting issuer under the Securities Industry Act in 2003. According to this Bank’s 2011 annual report, no shareholder owns more than 5% of its shares.

Another entrant to the market was the Citizens Bank which started out in November 1993 as a Jamaican initiative, but all its shares were subsequently acquired by Guyanese. It is now a subsidiary of Banks DIH Limited, a publicly traded company. Apart from Banks DIH, other substantial shareholders include Continental Agencies Limited (16.7%), the Hand-in-Hand Group (8.7%), and the Hand-in-Hand Pension Scheme (7.8%).

Regulatory changes
Another defining feature of then and now is the regulatory landscape. In 1992, banks were regulated under the Banking Act and, whether they were private or public companies, operated purely under the Companies Act, Cap 89:01 which had seen no amendment of substance since it appeared on the statute books in 1913. The Banking Act was repealed in 1995 with the passing of the Financial Institutions Act that brought about some sweeping changes to the industry.

For one, the capital stock of a company carrying on banking business has been increased substantially. The capital stock specified by the Banking Act for a Guyana company to be granted a licence was initially not less than G$500,000 unimpaired by losses. In 1986 this requirement was increased to the greater of 10% the demand and time liabilities or one million dollars.

At the 1965 exchange rate the requirement was equivalent to approximately US$200,000 compared with US$24,096 in 1986 and US$4000 in 1992! Under the Financial Institutions Act the minimum capital of a deposit-taking financial institution is $250 million. The FIA also has capital requirements for branches of international banks such as Scotiabank and provides for a build-up of a statutory reserve fund equivalent to its paid up capital.

The FIA is a modern piece of legislation that has been supervised by the Bank of Guyana, the FIA regulator, in a very professional and co-operative manner. While the reporting requirements are quite considerable the commercial banks have not complained and actually praise the BOG for its adoption of risk-based audits, a key requirement under the FIA.

By December 1992, the Companies Act 1991 had been passed in the National Assembly repealing the earlier Act, but it was several years after the call by the 1992 Business Page and others that the Act was finally brought into force. What was more significant however was the passing of the Securities Industry Act which regulates, among other things, public companies. That Act too has largely been well received by the two publicly traded commercial banks and its regulator, the Securities Council, has had far fewer issues with them than with some other public companies.

One of the other principal regulatory changes is the Anti-Money Laundering and Prevention of Terrorism Act. This Act sets up a Financial Intelligence Unit to pursue money laundering by requiring a range of bodies to report transactions. The operation of the Act has however proved quite onerous and there are complaints about the manner in which it is administered by an appointee of the Minister of Finance.

Next week: I have invited the commercial banks to provide me with some brief information on their own operations over the intervening twenty years. I will share the results with readers.

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