WILD COOT: Who is to blame?
THE STARTLING REALITY is that things are now lopsided. The banks have made super profits, the supermarkets have made super profits and the Government has made super losses. “Sumtin wong!” Like John the Baptist, the Wild Coot has been preaching for the past five years that the policies of the Central Bank are wrong. I can see it because I can discern where the commercial banks have taken advantage of these policies. I’ve been in town too long.
It all started when the Trinidad banks agitated for the interest rate on savings to disappear or at the most, reduced to .25 per cent (soon even less). The Central Bank, not knowing the wiles of the commercial bankers, agreed that banks could set their own rates for savings accounts. The bankers all pounced on the liberty like the fox on the cheese in the adage. In addition, banks instituted a charge for minimum balances, sometimes significantly reducing the balances in the savings accounts.
Then the Central Bank went one up on the commercial banks. It offered bonds (to now frustrated depositors) of 7.5 per cent, stepped back and admired its handiwork. In compensation it opened the floodgates to the commercial banks to a proliferation of credit cards. This the banks welcomed. The banks went mad. Every Tom, Dick, including Harry, now has a credit card. You can lie in your bed and import from Victoria Secrets in Florida to an iPhone in New York. For the bank, the unpaid balance on credit cards at the end of the month will incur an interest rate of no less than 28 per cent. There are yearly renewal fees, late payment fees, foreign currency fees, over the limit fees. There are mortgages at 4.5 per cent for three years (spread four per cent or more). So the commercial banks are now profitable and can crow. Now there is no fear, as was the fear by the Central Bank that they would leave because of unprofitability. I shall come back to this point.
Barbadian moved their savings from the commercial banks to a bonds offer of 7.5 per cent. This money was not used by the Central Bank. It was passed on to Government at a cheaper rate, as Government could not afford to pay high rates. So the savings of the people are supporting Government’s cash flow. My advice to the bondholders has been to cash in the bonds at commercial banks shortly before maturity date of the bonds as the Wild Coot is not sure that the Central Bank will be able to redeem in cash. Banks were not daunted by the behaviour of the Central Bank. It had almost eliminated their liability for one of their greatest expenses – payment on savings.
The Central Bank has now set up the commercial banks for a free ride when it feared that if the banks were not profitable, they would pull up stumps and leave. Go back to Trinidad and Canada. Herein lies the non-understanding of the commercial banker. If the Central Bank did not make it super easy for the commercial banks to make super profits, there is no chance that they would leave. They would have to change their modus operandi. They would have to do what bankers are trained to do – assess proposals and take risks. If they did decide to leave for any reason, they could not take the buildings, they could not take the staff, they could not retain empty buildings, they could not take the savings or the loans. They would have to sell them all. The Wild Coot has been involved in the departure of Barclays Bank in Jamaica, CIBC in Grenada, Bank of America right here in Barbados. Banks come and go. But, a commercial banker will do business in any place, seedy or otherwise. Look at the fines that some banks have had to pay. If a bank decides to leave, it will have to sell its business.
So there is a fundamental difference between how a Central Bank thinks and how a commercial banker thinks and behaves.
As I have stated in my recent column, the foreign exchange that Barbados owns comprises what is held by the Central Bank and the commercial banks. The commercial banks are given instructions by the Central Bank as to how they can deal with the foreign exchange that they hold – for example, allot an individual a certain travel allowance per year. Commercial banks cannot stockpile, hoard or amass foreign exchange of their own volition. Hoarding of foreign exchange is the domain of the general public (which is illegal), or hotels and business (which is immoral). I say immoral because they have a higher responsibility as efforts to accommodate their use of foreign exchange is facilitated by the Central Bank. There are those who are allowed to have foreign exchange accounts at commercial banks because of the nature of their businesses.
• Harry Russell is a banker. Email: firstname.lastname@example.org.