Running out of guppies
You can read that quote in its full context at page 13 of the 2018 Financial Stability Report, published by the Central Bank of Barbados on July 31 (it’s available in PDF on the bank’s website).
The phrase I like is “modest lending opportunities” because it might suggest to an outsider that the banks can’t find anybody to whom they might lend the money they have taken in on deposit. At one-tenth of one percent.
Hint to the banks: They are walking through your doors everyday to deposit their money with you. But of course people who deposit money are one thing; you and me as people who want to borrow money are another. Unless it’s a vehicle. Lately ads offering vehicle loans with lots of razzle dazzle are all over the press. Free insurance for a year, cash back incentives, very low downpayment (usually connected to the calendar year (only $2,019.00!).
Maybe they should offer free health insurance in case you get a heart attack from so much excitement. But you will have to hunt around for ads offering to give you a mortgage to buy a house, a condo or land. Let’s not even talk about business loans because those are just non-starters.
I am not blaming any individual or company. Instead I am asking a simple question or two. For instance, how could it be that a country whose economy desperately needs investment has a financial sector with so much liquidity? Water, water everywhere and not a drop to drink, cried the ancient mariner.
Having read the parts of the Financial Stability Report that were actually written in English I would never say the financial community is sitting pretty. They had a tough year and had to write off a lot more of their losses up front due to new fiscal rules - those losses coming from the government renegotiating its debt. Last year alone the commercial banks had to write off $285 million.
But if you are running such high liquidity ratios at the same time it means you are not lending to the small or at least the mid-size companies. There are lots of little fish getting caught up in their nets but the lenders have punched so many holes that most of the fish are slipping out. The banks don’t really want to take any risks. So they are running out of guppies.
The result is that our local banks have to increase their day-to-day costs to help cover their overhead and drive customers into the arms of the ATMs. Last year, our use of ATMs resulted in an increase in transactions of nearly three percent and point-of-sale purchases by nearly seven percent, for a total of nearly ten million transactions and $1.2 Billion in transaction value.
But with such stringent rules regarding loans for this or that (Vehicles? Sure. Anything else? Forget it.) you have on the one hand the loan-seeking guppies being ignored or turned away, and a few major financial institutions, some of which are looking to sell out of the Caribbean because they have too many assets chasing too few loan opportunities.
As the report put it: “Local, regional and international interlocking financial corporate structures and conglomerates continue to give rise to high concentration, interconnectedness and cross border linkages.”
“With banks indicating only modest lending opportunities, balances held on reserve at the Central Bank grew by 14 percent. Liquidity remained high with an excess cash ratio of 16.5 percent, up from 14.5 percent in 2017….”