The liquidity overhang

LUCAS STOCK INDEX The Lucas Stock Index (LSI) rose 2.56 percent during the second week of trading in May 2013. A total of 89,770 stocks of seven companies changed hands. Leading the Climbers was Banks DIH (DIH) which traded 28,420 shares with a 12.99 percent increase in value. Demerara Distillers Limited (DDL) also recorded a gain of 6.67 percent after trading 2,334 shares. Demerara Tobacco Company (DTC) gave up 366 shares and increased 4.36 percent in value. The only Tumbler this week was Guyana Bank for Trade and Industry (BTI) which fell 2.15 percent on the sale of 2,100 shares. Demerara Bank Limited (DBL), Caribbean Container Incorporated (CCI) and Republic Bank Limited (RBL) traded 32,300; 22,100 and 2,150 shares respectively for no gain.

Swirling Around

The economy of Guyana exhibited significant vibrancy last year in many ways.  One of the ways was through the expansion of credit to the private sector.  Not only did net domestic credit by the banking system increase by 10.6 percent, the output of the financial and insurance sector itself grew by 13.8 percent.  From the numbers cited in the 2013 budget speech, there is clearly much money swirling around Guyana.  The data from the Bank of Guyana support the view that bank lending has gone up significantly over the last three years, having grown at an average of 21 percent during that time, outpacing the growth rate of deposits by about six percentage points.  The expansion of the financial sector also came with expanded income for the banks and other entities operating in that industry.  For the last three years, the income accruing to the sector went up by an average of 13 percent each year.  The credit expansion reflects the financial flows model that there is a basic relationship between bank loans and bank deposits.  But banks are facing a liquidity overhang that might also be connected to the portfolio model stemming from the structural change in the financial market that occurred in 2003 with the introduction of the Guyana Stock Exchange.

Critical Ratio

The primary base from which banks make loans is the deposits that they receive from depositors.  Recent developments in the financial sector in Guyana reveal that banks, in general, remain conservative in the management of the money that they handle for their