Sunday, April 21, 2024

WILD COOT: Don’t truck with banker


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I MEAN A commercial banker. The planned change in interest payment is meant to favour large depositors who may take advantage of the Central Bank’s offer of a high bond interest rate.

There is the inherent danger that five-year bonds may result for some people in rollover rather than cash on maturity.

Why do the banks not support this with their 2.5 per cent or even cheaper money from savings if they are so attractive? Five per cent bonds are more profitable than a 4.99 per cent mortgage with interest guaranteed for only two years as advertised by some banks. People on a fixed income are advised not to participate in this mortgage.

It seems that the Central bank is colluding with the Government in offering a new source of revenue in lieu of taxes. It is a slightly different approach from that of Cyprus. Is this a desperate ploy for the Government to get money urgently to pay salaries?

What are the banks actually getting out of this? Is it an excuse for their claim that the climate for investment in business loans is so bad that they cannot participate? They have excess liquidity.

Everything is being done to conceal the inefficiency of the Government, in bed with the Central Bank. The small man bears the licks. Does a five-year bond appeal to the small saver? Does it have the flexibility of a small savings account? No!

Instead of appeasing the banks for fear that they will leave, why not encourage them to stay by reducing their taxes? This latest tax has been passed on to the customer anyway, with an uproar of disapproval from the people.
The guarantee scheme, also recently announced, may be a step in the right direction but I am not sure that banks will allow it to fly.

My take on the matter is that the Government has misstepped on education, health, value added tax and agriculture; has created an uneven playing field in tourism; has responded unfavourably with the fall in oil prices; is owing millions to dismissed workers, for tax refunds and to business; has unpaid bills local and overseas; has so far reneged on promises to BARP on reverse mortgages, etc. etc. and is now attacking the last positive asset Barbados has to offer, savings.

You can see from remarks from the representatives of the banks, especially those from Trinidad, that they will not be making an effort to fund entrepreneurs, or even tourism (where they are heavily lent). There are, and would be big adverts for cars, mortgages, credit cards and holidays but not for business. This is a one-way street and a misuse of the country’s critical resource.

Oh for a national bank. As far as the Wild Coot is concerned, the Government should be looking to buy one of these banks and forestall the threat of their leaving. But we all know the rub.

Spokespersons for the commercial banks should be asking the Central Bank to address the burdensome fees instead of colluding with Government on a discriminatory bond replacement for savings. Maybe you will soon see the banks or one of their arms being agents for these bonds being offered by the Central Bank and getting a fee for their effort.

If the market is going to be righted and the banks eventually have to compete with the five per cent bonds of the Central Bank as one banker advises, what would the commercial banks have to pay for savings large or small, five per cent or more? Then what would be the interest rate for loans? Given a five per cent spread, minimum interest would be ten per cent. What will happen to those mortgages negotiated for a period of time at 5.5 per cent when they come up for renegotiation?

I am sure that the Wild Coot’s interpretation of the change in interest policy by the Central Bank is not correct and that the Wild Coot has got it wrong not being privy to information already shared with the commercial banks. I suppose that the Central Bank will break its silence and explain the rationale to the media.

If the general public agrees to this change in policy, then the excess liquidity will flow into the Government’s coffers in lieu of more direct taxes. It would be an attack on savings.

Harry Russell is a banker.


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