Untangling a tangle
The raison d’être of banking was facilitated by the urgent partnering of customer and money keeper.
Furthermore, lending sealed the link. But while the banker was enticed by profit – as in any other business, the customer saw safety and need. Therefore a symbiosis was formed over centuries, lasting until today.
There have been problems along the way, and one of the biggest is the present world crisis. Barbados has been caught up in the so-called crisis and there are differing views as to how to extricate the country.
The Wild Coot is no Oracle at Delphi and certainly no Oedipus Rex – more likely a voodoo priest if his dreams are to be believed. For a long time he has maintained that the low interest rates is a serious problem for the banks, the intermediaries in the economy. The spread between rates is narrowed.
The banks are now plagued with non-performing loans as the economy squeezes and the Government reacts by increasing taxation that can only get gills of blood out of soft stone. Furthermore, where excess liquidity could be profitably laid off in Treasury Bills and Debentures, Government’s reduced taxation take cannot accommodate payment to banks even with low bond rates.
The banks’ reaction to all of this is to retreat to charges of fees for services. This is almost tantamount to JB’s charging an entrance fee to customers, since things like current and savings accounts are the bedrock of the bank. How can banks resort to these charges when their customers are catching their royal. The hue and cry has emanated from customers who for years had their small savings in the bank but now are charged $10 monthly for small balances. Heavy charges exist for overdrawing accounts, in addition to interest charges; charges are made for use of credit cards with merchants although the high charges are offset by write-offs and delinquencies.
This squeeze in the spread of interest rates (difference between income and expenses), is compounded by the dearth of mortgages and the competition for those that exist. Customers are suffering and are prepared to shop around to have mortgages restructured at lower rates.
It is now very difficult to reverse the trend of low interest rates with the rub of the present problem as it relates to the cost of doing business and the price that the banks can comfortably charge.
The bigger banks have the most to deal with. Credit unions and credit agencies with lesser overheads are able to pay more for their funds raised and are not hurting as much. Indeed they are taking business away from the banks.
The Wild Coot feels that the Government is well advised to try to reenergize the economy so that its revenue can increase and the need to lay off expensive labour and extension agencies can be reduced.
Why not assiduously try the NDP (National Democratic Party) suggestion of transferring title to houses in the housing areas to those whose rent paid exceeds the value of the houses. For those whose rent paid does not exceed the value of the houses, a mortgage can be arranged. These mortgages can be advertized to foreign and local buyers and provide revenue to Government as well as relieve it of obligations to repair.
Mortgages in American dollars would be preferable with repayments channelled through a local agency. The drain of monthly payments if in US dollars would be manageable.
“But Wild Coot,” said an old lady, “There are peoplein the housing areas with the latest 40 inch televisions and BMWs parked in front who are not paying rental.” Well OK, deal with them!
There is also the often touted by me, security bond, that could ease the lending hand of the banks.
• Harry Russell is a banker. Email [email protected]