COMMERCIAL BANKS in Barbados are so flush with cash that they have more than $1 billion stashed away at the Central Bank.
But even while having this money idle, and hence not earning interest, bank profits almost doubled to reach a combined $122 million for the five banks when the numbers were tallied up to the end of September last year.
Banks are required to have excess cash holdings in reserve, but having deposited $367 million more at the Central Bank up to the end of the third quarter last year alone, these holdings are now at least $1.1 billion. This means the excess cash ratio is “more than double the required amount”.
However, even while being so liquid the banks’ loans decreased by $35 million by September 30 last year.
This information is captured in the Financial Stability Report (FSR) 2015, which was recently released by the Central Bank, and published in partnership with the Financial Services Commission.
Central Bank Governor Dr DeLisle Worrell alluded to the issue last month while speaking at the official launch of a $70 million guarantee scheme. This scheme is targetting small businesses, including those that are finding it difficult to access funds from traditional sources, including commercial banks.
Worrell also said the banks were not happy they “have all this money sitting at Central Bank because they know I am not going to pay them anything on it”.
Part of the reason for the large stash, he said, was a fear by banks that if they lent more to Government, repayment would be a problem, something Worrell said “doesn’t make any sense”.
“The banking system continued to hold a significant excess of funds as the reserves of commercial banks at the Central Bank expanded by $367 million over the year, to each $1.1 billion at September 2015,” the FSR stated.
“These higher reserves, along with the ongoing switch from longer term Government paper to short term treasury bills, has caused the bank’s liquid asset ratio to climb from 20.1 per cent to 24.4 per cent over the period. Consequently, the banks’ excess cash holdings were more than double the required amount, producing an excess cash ratio of 10.5 per cent of domestic deposits, compared to 5.6 per cent at September 2014.”
But even while having such a large amount of money inactive, the banks made more profits.
“Net income over the January to September 2015 period almost doubled that of 2014 to reach $122 million. Provisions set aside during the period to cover losses were $36 million less than the prior year, and net interest income climbed by $24 million primarily because of a $27 million reduction in interest paid on deposits, in particular savings deposits,” the report said.
Barbados will get more recent information on these and other numbers when an updated FSR is issued in July.