Managing Director and CEO of BNB, Robert
Le Hunte, would like to see a further reduction
in the minimum savings rate.
Business Monday: Savings rate could be lower
11/23/2009
IDEALLY, Managing Director and CEO of Barbados National Bank (BNB) Incorporated, Robert Le Hunte, would like to see market forces determine the minimum savings rate, however, in the meantime, he believes that the current rate could be taken lower.
Speaking last Monday at the company’s annual media conference to review their performance for the year, Le Hunte referred to the minimum rate as being “almost like a tax” on banks.
When commercial banks take deposits, they are required to pay this minimum rate to depositors, which is currently three per cent. However, in the event that there is reduced lending activity, which results in the banks not making any returns on these deposits, they are essentially being forced to pay out money without making anything back.
As it relates to BNB’s operations for the 2008-2009 financial year, Le Hunte noted that there was a drop in deposits from $2 billion to $1.8 billion, which he stated is not a bad thing because there was a drop in loan activity.
“So we’re not so concerned that that has dropped slightly; that has actually saved us money, because if we had that additional money it would’ve been $217 million that you’re paying three per cent, which would’ve been an additional expense hitting your bottom line.”
This would have translated into interest payments of $6.5 million, which is representative of how much less the level of profitability for the company would have been.
It is because of this that Le Hunte believes that market forces should determine the rate paid.
“I have spoken and said that I think market forces should determine the minimum savings rate, and therefore a minimum savings rate should be a reflection of the liquidity in the market and the demand,” he said. “If it is left up to market forces, if I need more money to lend then I will pay more for it, and when I don’t need the money and I have nothing to do with it, I should not be forced to have to pay for it even though I don’t want it.”
Given the fact that this is not the situation that currently exists, the CEO argued that the rate could be reduced another 50 basis points, stating that he does not think “it would hurt if it goes down”.
He made the point that the argument that would be made against reducing this rate too low is that it would result in an increase in consumer spending because borrowing would be cheap, and would therefore lead to a strain on foreign exchange reserves given that the majority of spending is on imported goods.
“That would be the argument against it, but the reality in this market, which is good, is that the consumer is already showing constraint, and he is not running out there, because of the reduction in jobs and so forth, and trying to overspend,” Le Hunte said. “That’s actually a good quality of the Barbadian consumer; being conservative is now working well.”
He argued, therefore, that if the rate is dropped further, it could then help to stimulate more mortgages because people who need to borrow will benefit, as well as easing the burden on some individuals who experienced job or salary cut, because their borrowing rates will come down.
He also argued that it will also make the cost of doing business cheaper, which could result in people having a more positive impact in getting into business, or keeping employment opportunities high. (RH)
