Sunday, April 14, 2024

WILD COOT: An invidious position


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TODAY THE WILD COOT is constrained to don a banker’s fedora in the light of recent developments in Barbados. He has for many articles been ridiculing the behaviour of the commercial banks and their commitment or lack thereof to customers; their seeming anxiety to expand their bottom line (figuratively and economically, of course).

It seems, and I can only say seems, that our Central Bank is afraid to go head-to-head with the banks. It would appear that the fear emanates from a desire to avoid the perception that the Central Bank is dabbling in an investor’s business. This could scare away possible present and future investors from coming to Barbados.

So what is happening? If the Central Bank issues a guarantee to an entrepreneur, he is then required to go to the commercial bank and present the guarantee as collateral for a possible facility. Pressure may be put on the commercial bank to accept the guarantee even if the proposal is not worth what Paddy shot at. Even so, the commercial banker could be in deep ‘dudu’, depending on the Central Bank to pay under the guarantee. Well, we know the Central Bank’s position, as it is reputed to be printing money to an enormous extent to facilitate Government (Predicative dative in Latin). Therefore commercial banks will be cautious in relying on repayment if for some reason the facility allowed ends up in Maxwell Pond. The guarantee counts as a contingent liability in the Central Bank’s books.

So what is happening? This five per cent bond that savers are expected to take up, has an attractive rate of interest and people may very well support the Government. After all, it is our country.

It is said that on maturity and if funds are required urgently, the bonds can be cashed at a commercial bank and payment received according to a schedule printed on the bond document. People then may be directed to the commercial banks to satisfy maturity and early redemption. The commercial bank has to be careful that it is not left in the lurch since it will require the Central Bank to pay (on a daily basis) the redeemed bonds. We would be relying on the Central Bank that is heavily committed to Government and is already accused of printing money. Some say over $300 million (currency of the land).

So what is happening now? Government, in collaboration with the Central Bank, has transferred the liability for repayment of valued added tax and income tax refunds to the coffers of the Central Bank. By some convoluted system involving getting a certificate from the Barbados Revenue Authority and a letter from the Small Business Development Unit, businesses may be assured that they can go to the commercial banks or the credit unions to claim their refunds up to the tune of $50 000 per business/person (tax refunds alone are estimated at $250 million). The financial institutions are guaranteed (not too sure how) by the Central Bank that if they facilitate this repayment, immediate refunds would be forthcoming. Well, we know that the Central Bank is already printing money in order to facilitate Government’s cash flow.

What does all of this mean? Pressure will be put on the commercial banks to make these payments. It is expected that the banks will be refunded immediately in each case mentioned above.

Have the commercial banks really agreed to this? If so, what daily limits are the banks setting for the facilitating? Were the Wild Coot in charge of a penny bank, he would not only want to set a limit for his own bank, but also would want to assess the daily limit of all these facilities to banks and credit unions undertaken by the Central Bank. The daily liability limit is crucial, as the Central Bank does not have limitless resources.

Having assessed the limit and hence the risk of the Central Bank, I would want to know what compensation is promised to my staff who have to do all of the work interfacing with customers and giving extra work to my cashiers, clerks and supervisors. You could not expect me to provide these services free of cost. Above all, there is a matter of risk.

Will the banks hold a meeting to present a uniform front in terms of conditions to prevail for these services? Actually, I do not think that my penny bank has been consulted as yet and I have to refer the approach of the Central Bank to my head office in Timbuktu.

The Government is transferring liability of the Treasury to the Central Bank.

• Harry Russell is a banker. Email


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