MY HEARTFELT THANKS go out to Dr Brian Francis, of the University of the West Indies, for his excellent article in the Monday, July 4 BUSINESS AUTHORITY under the caption Banking Nightmare – Part 3. To quote him: “How can our countries maintain a significant rate of growth when the main financial institutions which hold everybody’s money are actively discouraging people from saving much more than they do now?”
Another area of encouragement came from the advertisement of First Citizens Bank. “If you cannot come to us, we will come to you.” This indicates a hunger for lending business from the bank and I hope that it will not concentrate on the funding of vehicles or pumping up credit cards.
For the past umpteen years, I have been critical of the policies of the Central Bank encouraging, misleading and facilitating the destruction of the savings ethic of Barbadians and the consequent impoverishment of its senior citizens. I am glad for some help from these two cases mentioned above.
In training to be a banker, one of the things that impressed me was the emphasis on the courses to which I was exposed in the use of the bill of exchange. As a matter of fact, there was a department at the bank dealing exclusively with this aspect of banking and the consequent facilitation of credit. There were bills discounted, bills negotiated, bills collected and the myriad aspects of the letter of credit. It was a lucrative source of business for the bank. It would be difficult to find such a department in one of our banks today. Why? Because it is much easier and requires less effort to glean profit from lending for a vehicle for a period of 72 months at 18 per cent with the vehicle still under the control of the bank.
I have appealed to the Central Bank to intercede in this matter, but “it wouldn’t take me on”. My experience in the matter seems to have been discounted apparently by greater mortals. This is why in many of my articles, I rue the loss of the Barbados National Bank whose substitution mirrors the direction espoused by the Central Bank. With their ability to mount high and spurious charges for each and every service, the bank profitability increases from commissions instead of loans and overdrafts.
The transfer of savings to the Central Bank and then Government through the issue of bonds and debentures deprives the business sector of the ability to expand as citizens find their money supporting in many cases non-productive sectors, and not the productive side that can lead to job creation and increased taxation paid to the Government. Thus, the present policy of the Central Bank, apparently to facilitate Government at any cost, seems misguided.
The behaviour of the banking community may be viewed by the Central Bank as allowing profitability to accrue to the banking sector for fear that the banks will leave Barbados. It is taking a conservative approach that will only lead to further deterioration.
But there is another side of business facing the commercial banking community. Banks are uncertain as to whom to lend money. If you lend to buy a car or give a mortgage, it may be pretty clear with whom you are dealing and there is no fear of drugs or terrorism. Therefore, there will be no fear of being “de-risked” by your correspondent bank.
In making certain facilities to businesses, the bank may not be certain of the use of the money lent. Going after business, the bank can never be certain that the business is not a front for an illegal activity. Hence the bank may be quite satisfied with lending the money to Government or for supporting credit cards. Above all, the fine that can be felt both by the local bank and the correspondent bank can be heavy.
In order not to be de-risked, it is necessary to build several safeguards within the bank that involve getting seemingly egregious information from customers; a comprehensive department for oversight of customers activities. In addition, these aspects of the banks’ business must be clearly outlined for inspection by the correspondent bank. It takes away the confidentiality of the customer in addition to other cherished relationships once enjoyed.
So when you say A, you have to say B. I maintain that the US should reassess the damage done to people of the Caribbean by the imposition of FATCA legislation. We are its innocent soft underbelly!
• Harry Russell is a banker. Email [email protected]
