ECONOMIC VIEWPOINT: Will vexing issue of bank fees be resolved?

IT will be interesting to see what the Central Bank of Barbados (CBB) and commercial banks agree to over the vexing issue of bank fees, which Barbadians are hopping mad about.

Having promised to hold the meeting with the banks, Central Bank Governor Cleviston Haynes should know the public wants a complete roll back of the measures or as near to that. As one of the regulators in the financial services sector, the other being the Financial Services Commission (FSC), the Central Bank is fully aware of its responsibilities to an annoying public already paying high taxes, increased bus fares and high consumer prices.

For their part the banks, which have suffered major losses from the Government’s debt rescheduling and international accounting standards in 2018, will feel justified in making the charges in light of the prevailing economic environment in the country.

So it could be a case of some hard bargaining between the two or the Central Bank having to use moral suasion to deal with this issue.

The fees have been an issue in an economy that has faced challenges for a long time. The country is in an IMF programme to correct the imbalances which have impacted businesses, commercial banks included. They have pointed to low levels of return, high non-performing loans which are only now reducing, and declining business activity.

Over the course of the last few years a lot has taken place in the banking sector, some of which would have triggered these responses by the commercial banks.

In April of 2015, a decision was taken by the Central Bank to cease setting minimum interest rates on savings. It was a decision which found favour with the banking sector, which had long been calling for that action.

That meant commercial banks and finance companies were able from that time (April 21, 2015) to set the savings rate. Data from the Central Bank show that the deposit rate has averaged 0.26 per cent in the period 2015 and September this year. The rate was 2.5 per cent in 2014.

As for the loan rate, this was 7.1 per cent in 2014. However, the average loan rate was 6.4 per cent between the same period (2015 to September this year). So there was not much movement in the loan rate, since it was expected that a lower minimum deposit rate would have triggered a bigger movement in the overall lending rate, as the Central Bank data have shown.

Liquidity in the banking system remained high. This stemmed from such factors as the low demand for loans at the same time that deposits were increasing.

Furthermore, the banks (and other investors) were not too keen on taking up Government Paper as the country’s economic situation continued to deteriorate. These investments earn returns for the banks.

In fact, where necessary, they were exercising a preference for holding the shorter-term treasury bills rather than the then longer-term treasury notes and debentures. Treasury bills could be liquidated or rolled over without too much of a bother.

As for the treasury notes and the debentures, banks did not want to have their funds tied up too long in those instruments, not knowing the future fate of the economy.

All this would therefore have put the banks in a tight spin as their shareholders were expecting increased returns on the funds the banks were putting to use in the economy. The Bank Asset Tax was instituted to raise revenue for the Government as well as the higher securities ratio.

In his economic review for 2018, Governor Haynes said that liquidity in the banking system is high with an excess cash ratio of 16.2 per cent. Credit to the non-financial private sector declined by under one per cent and while there was some increased borrowings to the distributed trades, loans to real estate and restaurants declined.

These in a nutshell indicate just what has transpired in banking in Barbados and which would have contributed to banks going the route they have gone.

The fees represent alternative areas for raising revenues and would be the preferred option.

How this will be resolved to the satisfaction of all stakeholders is debatable. But as a regulator, it has a responsibility to ensure that no one is inconvenienced.

Barbados Advocate

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