Commercial banks in Barbados want Government to introduce a new short-term investment instrument that would help them manage increasing liquidity in the banking system.
This is among a set of proposals sent to the administration to include in this year’s Budget, which is expected to be presented next month.
A?repo, or repurchase agreement, is a Government security that can be bought and sold short-term in the financial market, the bankers explained, noting that repos are facilitated by central banks around the world and in the region.
They said repos represented an excellent liquidity-management tool and were very efficient for sellers, especially financial institutions, who can use them to get short-term liquidity without incurring deposit insurance or reserve requirement costs.
“We recommend the introduction of this instrument as a necessary liquidity management option, especially in a market like Barbados with a regulated minimum savings rate that pushes up interest costs of the financial sector without the availability of short-term investment opportunities for excess liquidity,” they said in the document accessed by BARBADOS BUSINESS AUTHORITY over the weekend.
Local bankers also want Government to “review the viability of the minimum savings rate”. The BBA said while the minimum savings rate might serve some socio-economic objective, this monetary policy “affects the overall equilibrium of the markets and in fact drives borrowing rates higher than they should be”.
Bankers have also suggested to Government that it set up a small-claims commercial court for claims of $100 000 or less to help them reduce the current costs associated with trying to get back money from delinquent borrowers.
Another significant policy shift that bankers want Government to consider is the removal or reduction of the 25 per cent foreign exchange surrender requirements.
Describing the requirement as “onerous”, the bankers said it discourages banks from borrowing for on-lending.
“We consider that this requirement should be removed, or the percentage to be sold to the Central Bank should be significantly reduced,” the bankers contended.