From a friend
“HARRY”, a fellow banker who is still current accosted me by email, “you write a farrago of foolishness sometimes, but sometimes you make sense.”
“We in the banking world are in a dilemma. You said, way back in 2008, that we should not let interest rates fall so low. The result is that we have now increased our spread from the traditional rate of four per cent to seven per cent, which means that customers are being screwed royally. I cannot speak for the silence of the Central Bank, but customers are reacting and we shall shortly experience a crisis. Let me take you into my confidence.
“With an increased spread, we are temporally able to survive, but our loan portfolios are taking a beating. People who are under pressure (the majority of the society) are not paying their loans and credit card debts are getting out of hand. (We charge 29 per cent in an effort to offset our losses). Customers are rebelling over the new commission rates. Shortly we shall be haggling with customers. Our foray into the hotel industry is not paying dividends, since hotels are experiencing untold difficulties.
“Harry, we do not know what to do. We have been told by the Central Bank to watch our overseas investments; indeed, they need to be watched because of the expected fall in the value of the US dollar as a currency war continues between the United States and China. China’s favourable balance of payment increases with most world economies, to the disadvantage of America and . . . Barbados.
“Barbados is caught like a fly in a jar of vaseline. The vaseline cannot even smooth its journey as it does with other things. If it increases the Value Added Tax (VAT), people from the middle class downward (most people) suffer, the poorer the worst. If it cuts subsidies and transfers, parish councils, free medication, bus fares, school meals, uniforms and books, the poor will suffer. However you turn, the poorer will become even poorer and the deficit will hardly reduce as tax collections become more difficult.
“Banks in Barbados have not yet been on the chopping block, and this policy of steering clear of ‘dubious’ lending will land them in trouble as is already happening in some Caribbean territories. We have now embarked on cannibalistic banking. We are now predators for non-productive business, and we are paying handsomely for it.Meanwhile, if you, Harry, have a savings account, we will charge a commission – we would be sure to get paid – from the savings.
“Harry, question. Would we get a Government bail-out if we were to sustain more losses? I suppose that that may happen if the Government owned us, but when we are foreign-owned, we will be forced to leave just like Bank of America and City Bank.
“Harry, we miss you in the banking world. We regret that you are on the outside casting a pall of gloom over us, but we do not blame you. We are sorry that we cannot assist with small and ‘entrepreneurial’ businesses even with Government guarantees. To tell you the truth, if the Central Bank had put more pressure on us, we might have helped if the ventures were feasible. As you know, the Central Bank deals in ‘moral suasion’ and that is not in the Constitution. Anyway, if you want to renew your card, you are welcome; we will pay attendant costs.“If you disclose the content of this email and call my name, I will sue you and yours.”
Barbados now has few options. What can we do monetary-wise? Interest rates, inflation? No options! Raise taxes? People do not have the money to pay, company profits down. Lower taxes? (What the private sector lobbyists want). Civil servants will go home. Borrow? Our standing is down. We are left now with little room to manoeuvre.Let the economists among us do their magic.
But few economists are exposed to the real world of business and the Government is warned that their advice often causes confusion. Just check on the VAT cock-up, which not even the Barbados Labour Party Constitution guru has spotted.• Harry Russell is a retired banker. He may be reached at [email protected]