Last week I noted how the regulatory and statutory landscape for banking has changed over the past twenty years. The changes have been more than evolutionary, affecting both the operations of the banks as well as the environment in which they operate. Shortly before 1992, the Hoyte administration had removed practically all exchange controls and had made trading on foreign currency with the introduction of the non-bank cambios with several paper controls but little meaningful supervision and enforcement, not unlike the money laundering that takes place openly in the country.
For more than a decade this column has drawn attention to the operations of these non-bank cambios arguing their usefulness and the objectives which they were expected to serve had ceased to exist. More than twenty years later, these non-bank cambios are seen as a fixture of the foreign currency landscape.
It was no surprise to me that Republic Bank noted as a concern of the earlier decades the question of security. In August 2006 the Rose Hall branches of RBL and Demerara Bank were victims of one of the most daring robberies in the history of banking in Guyana, traumatising the staff of the banks for a considerable time thereafter. I recall going up to Rose Hall immediately after the robbery to collect staff members of Ram & McRae who had to lock themselves in a washroom of RBL during the episode. They were still visibly shaken.
Wherever located, banks are now protected by armed guards and high quality electronic cameras monitoring all their perimeters and every movement by customers and staff. In fact so paranoid have the banks become that they no longer allow the use of mobile telephones in the banks, something that is still permitted in the USA.
Death of the consumer movement and advocacy
Part of the landscape then was a fairly active consumer movement and a willingness by the government to challenge the banks on what were considered exorbitant charges, unreasonable spreads between their buying and selling prices for foreign currencies, and the spread between their cost of funds and the rates of interest they charge on lending those funds. In those days, Ministers of Finance Asgar Ally and later Bharrat Jagdeo would rail about the interest spreads on funds. Now there is no consumer movement to challenge the plethora of charges imposed unilaterally by the banks while the government seems willing to extend every conceivable tax shelter to the commercial banks, even where they do not ask for such concessions.
In other words in respect of taxes the government has become the banks‘ major lobbyists and no longer analyses let alone questions the operations of the banks. In fact sometimes the relationship between the banks – or at least one of them – is so close as to allow what this column considered an improper foreign exchange transaction in a particular case.
I recall some years ago then President Jagdeo expressing surprise and alarm when I drew his attention to the effective rates of taxes paid by some of the banks. Yet, nothing has been done.
Banking is indeed a regulated business but it is also a closed business with the government refusing to allow new entrants and allowing existing players to operate more like price-fixing cartels than genuine competitors. By the very regulations, the sector is largely protected from the vicissitudes and developments around the world, prompting Mr Jagdeo to refer, with some hyperbole, to a ring-fencing of the economy. Any detailed study of the history of the two entrants to the sector since 1992 will almost certainly show that the investors had recovered their capital within a few years, protected by a tax system that allows dividends to be paid tax-free and any capital gains arising from the disposal of shares in those companies to be exempt from taxes. On the other hand, the government sees no problem with charging at the rate of 20% the capital gains on the sale by a retired worker of her only house.
Bricks and mortar
Let us now compare the operations of the commercial banks twenty years ago and what now prevails. Rather than just accept, or rather than rely on, the words of the bank managers who provided some very useful insights into their operations in 1991 and 1992, I also went back to the financial statements and annual reports of two of our major players as well as of the Bank of Guyana for those years. In 1992 commercial banking was mainly about bricks and mortar – the customer wishing to transact any business would present herself to the bank, whether to make a deposit, withdraw money or negotiate for a loan. And more to the point, the banks had their branches mainly in the cities and towns and customers would have to travel some distance to do their business.
In fact the annual report of GBTI shows that it was not until 1992 that that Bank opened its Regent Street branch in the heart of the city. It seems fair to say that the bricks and mortar concept still largely drives commercial banking in Guyana both among the pre-1992 banks as well as those that came after. GBTI now has some nine branches and a new multi-billion head office adorning the Kingston skyline – almost all since 1992.
Republic Bank too has seen an explosion in the number of branches and the construction of a new head office since 1992. Like GBTI, Republic Bank also has nine branches. Demerara Bank has its head office and main branch in Camp Street Georgetown and five branches, including one in Essequibo and two in Berbice. Like Demerara Bank, Citizens Bank has its head office and main branch in Camp Street Georgetown and three branches.
Lethem in Region 9 is currently served only by GBTI but one should expect that others will follow to exploit the opportunities offered by the Brazil-Lethem trade link. Bartica, now more than just the gateway to the interior is served by both the Bank of Nova Scotia and Citizens Bank. Corriverton and Diamond on the Georgetown-Timehri corridor are both served by three of the commercial banks and by the New Building Society, the country’s only real building society. None of the banks disclose the profitability of their branches or have indicated the rate of return they expect in order to establish a branch, but the traffic flowing through many of these branches indicates that the driving factor might be less the volume of business than to keep up with the competition.
If we were to form conclusions purely from the banks’ annual reports, we might think that the range of services has remained fairly unchanged since 1992. The balance sheets of the banks twenty years ago disclosed deposits in the form of savings, current and fixed deposits; lending in the form of loans and advances, mortgages and overdrafts; and investments mainly in government securities. The income statements reflected these items in the form of interest paid and received; investment income and other income mainly from foreign exchange transactions.
The survey and empirical evidence indicate however that the banks have moved away from a focus primarily on asset-based core lending and deposit products and now provide a suite of products and services designed to meet “specific market’s needs.” One bank indicated that its products and services have been enhanced to cater directly to segments such as commercial and small business versus retail.
The customer wanting to withdraw money does not have to rush to the bank before it closes, often before lunch, but now has a choice of Automatic Teller Machines available twenty-four hours per day seven days per week. Twenty years later it is normal for banks to offer internet banking, debit cards, local dollar credit cards and international credit cards. Custo-mers of Scotiabank have seen their passbooks replaced by ABM cards and the PIN.
Technology and law
Many of the changes, while driven by customer expectations and a desire for instant everything, were made possible by changes in technology and telephony. Twenty years ago the Chairman of GBTI included as a highlight under the caption Computerisation “extensive research … towards upgrading our Management Information Systems” and the expectation that “the network to be fully operational by the end of 1993.” In 2012, technology rules.
Dramatic changes have also been witnessed in terms of statutory obligations in which even routine company functions like the paying of a dividend has to be sanctioned by the Bank of Guyana which also requires more and more frequent reports; new rules of accounting so that in 1991 notes to the financial statements of NBIC ran to a mere four pages compared with forty-four pages twenty years later. In fact even the auditor’s report has seen its own growth, increasing from five lines twenty years ago to twenty-one pages currently.
To be continued