Tuesday, April 23, 2024

WILD COOT: Central Bank in a tizzy


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WHAT FOOLISHNESS IS THIS? Remember the article Can We Trust The oracle?. One big advertisement on the television.

 “You want to repair your hotel? You want working capital? You want . . .?” Is the Central Bank becoming a commercial bank? Why is the Central Bank doing this?
Is it not a regulatory body? Quis custodet ipsos custodes, according to the Greeks? Who will guard (supervise) the guardians? Sir Courtney must be tearing out his hair.

The Central Bank of Barbados is making a farce of banking and it begs the question, do we miss a local bank? Recently a banking executive disclosed that the perception of controlling head offices outside of Barbados is that the economic climate is not conducive to lending. Therefore
the Central Bank is trying to fill the breach.

When coupled with the revelation that a well known citizen holds a deposit there of $5 million, one wonders if more affluent citizens will or have also been accorded this privilege. Many people have raised eyebrows at the revelation, but like everything else, it is a nine-day wonder although a few people have asked the Wild Coot, is this thing legal? Sure, the Central Bank is a bank and it can
do banking. Its objectives are wide.

The big question is, why are the commercial banks not making the kind of loans espoused by the Central Bank’s appeal? More importantly, are the loans offered by the Central Bank targeted to totally new customers or are these loans additional to failed loans already lent by the commercial banks? If they are, what does it do to the balance sheet and the viability of the hotels/restaurants, small businesses? Are we now that desperate? If I were a commercial banker, I would make sure that such loans do not rank pari passu with my facilities.

For the Central Bank to embark on this overtaking, it must have liaised with the Ministry of Finance and this ministry would be aware of the many Government institutions/agencies that try unsuccessfully to imitate a commercial bank. Why not start our own bank? It is not difficult or costly. Either a commercial bank or a development bank.

The Wild Coot outlined in the article referred to above the advantages of a customer working with a commercial bank. A Central Bank is poorly equipped to undertake commercial banking.

Desperation stalks the land, and no bird sings. With the Central Bank entering the area of commercial banking, the problem we are seeing with inordinate fees and charges of the commercial banks is compounded. The commercial banks will dig in. Banks will find more ways to institute charges. More than anything, the root problem is not being tackled and what the Central Bank is attempting shows us that it is lost. Perhaps establishments and organisations that can help us are reluctant to do so because they see that we are obtusely heading in the wrong direction.

To exemplify the scant regard for the common sense of the people and to fly in the face of irrefutable evidence, we get people saying that there is no vote selling and buying during elections; that there is no corruption in Barbados; that the country is well because schools are open and ZR vans ply routes daily. What about the bills not paid, the businesses strangled, the unions neutered, the promises not kept for the university students, and the list goes on?

I quote from my article. “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.”

However, the face of banking is changing in response to the financial times. Discretion is no longer with branches. That makes what the Central Bank is attempting even more unrealistic today. The saying about angels fearing to tread comes to mind.

Harry Russell is a banker. 


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