We are reduced to a sorry state when we see what the Central Bank is doing. It is the role of the commercial banks to seek out entrepreneurs and small businesses with the intention of lending money. Why has the Central Bank had to step in? Simply because the commercial banks are not doing the job.
The commercial banks are not doing the job because they are not taking the risks in this “unsafe” climate of business. However, the Central Bank is poorly equipped to make this kind of lending. The big advantage that a commercial bank has is its daily advisory control with a loan or facility granted to a customer entrepreneur.
Let me explain. A commercial banker grants a loan to a weak entrepreneur and lays down certain stringent conditions. He is in daily contact with the customer as he monitors the fluctuations on the account. He can see the daily transactions through the cheques being drawn and received, as well as the daily cash flow. The banker can give advice, as he is aware of the trends in the marketplace. When necessary, he can rein in the customer; even visit the customer’s place of business. None of these things is the Central Bank equipped to do, as it is not au fait with the daily movements of the loan account/overdraft or the credit balances of the customer.
Furthermore, the commercial bank, with its vast resources and network, is sometimes able to see the need for additional funds and the type of borrowings required by the entrepreneur. Funding is not confined to lending alone. An entrepreneur can need a bill acceptance, letter of credit, discounting or guaranteeing facility, all of which are in the armoury of the commercial bank – or should be. Of course, all of this depends on the willingness of the banks to police or participate and their perception of the business environment in their outlook on the island.
Our Central Bank tried this type of funding before and it failed miserably. Why is it trying it again? Wanting to show an anthropomorphic face? It did not succeed because the commercial banks complained that the Central Bank was tardy in paying up under the guarantee that was given. The Central Bank had guaranteed the commercial banks’ lending. The Central Bank’s complaint was that the commercial banks were too hasty to claim under the guarantee and made no effort to nurse the loan to the entrepreneur. Stalemate!
The present effort will not work. Unless there is an understanding between the commercial banks and the Central Bank, such a plan to help the entrepreneur is flawed. We need a National Bank whose aim is to help, not fleece the country. Having missed the opportunity by selling our bank, it is time we rectify the error and do like Jamaica – offer to buy one of the banks or even set up its own bank again. Buying a bank is not as expensive as it seems to the layman and usually involves not only raw cash, but combinations of loans and other assets. Then the Central Bank will not have to deal with what does not concern it.
The Central Bank would then be able to involve itself in protecting the general public from the actions of the commercial banking community and avoid letters such as that written by Sir David Seale rightly complaining about the unhealthy tactics of the foreign banks at a time when the country needs help. Your fear of stimulating the economy is your obsession with the foreign reserves but you must trust the citizens who are your last hope.
The International Monetary Fund prescription of a whole slew of taxes is no more than what it offered to Jamaica. How in heaven’s or Pluto’s name can you achieve growth in a country when you curtail spending by increasing taxes; when the private sector finds it difficult to make a profit; when the private sector and Government have to send home more workers, thus reducing spending power in the country? It does not take an economist to see that it does not make common sense.
The Opposition Leader should explain the ramification of her remark when she states, as reported in the SUNDAY SUN of October 26, that “Government drew down $235 million from the commercial banks”. You say that the deficit shortfall is only $175 million.
But Wild Coot, the time is running out when even a National Bank would be able to help. Does that account for the paltry effort of our Central Bank?
• Harry Russell is a banker.
