The decision by one commercial bank to further cut interest rates on savings is a blow to the country’s poor and the economy, according to economist Ryan Straughn.
CIBC FirstCaribbean International Bank has announced that effective June 1, the interest rate it pays on regular savings, savings plus and senior savings will be cut to 0.25 per cent from an already record low 0.5 per cent, which the commercial banks applied after the Central Bank of Barbados lifted the 2.5 per cent minimum interest rate.
However, Straughn said CIBC’s timing was poor and “really not a very good strategy” to get people to spend the money they have in the bank.
“It is very bad timing for the depositor to be experiencing 0.25 per cent interest rate at this point in time given that we had to go through a two per cent cut last year. I think it is ill-timed,” he insisted.
“It certainly isn’t a very good time for anybody to have a little change in the bank. The reality of the situation is that households, in order to be able to manage their finances, need to have some incentive to save, and that incentive to save often . . . relies on being able to attract some kind of interest rate or returns on those deposits.”
Straughn, a former president of the Barbados Economic Society and a candidate for the Opposition Barbados Labour Party in the next general election, argued that the average balance on a bank account had significantly declined over the last few years due to increased taxation, increased cost of living and a wage freeze.
He acknowledged that the credit union was an option for savings, but insisted that “very poor people” needed banking services now more than ever.
Straughn also suggested that with interest rates at a record low, the banks ought to offer relief on fees and charges.
“If they are not going to pay for the deposits the ordinary Barbadians are going to trust them to keep on our behalf, then they ought to do something about the fees that they are charging because the reality of the situation is that for very poor people who have very low balances on their account the fee structure that exist at the moment would mean that it is very expensive to be poor and have a bank account in the country,” he added.
Meanwhile President of the Barbados Bankers Association (BBA) Glyne Harrison has defended CIBC, telling Barbados TODAY its decision to cut interest rates was based mainly on market conditions and the high levels of liquidity in the banking system.
Harrison said that other commercial banks would not necessarily follow CIBC’s lead since they had different levels of liquidity, different internal structures and incurred different costs.
“So the interest rate is also driven by what the bank’s liquidity is at the point in time [and] what their demands for loan are at the point in time. So it is a combination of factors,” Harrison explained.
The BBA head insisted that the banks were not engaged in profiteering, but simply examined their own environment and cost structures to determine what made sense.
He further explained that commercial banks were now constrained in the level of interest they could offer because the lending side of the business was low.
Harrison predicted if the demand for loans were to increase interest rates on savings would also rise.
However, Straughn said he was not buying the liquidity argument, contending that the banking system had been liquid for a long time.
“The reality of the situation is that the economy is still quite very soft and as such the kinds of lending that one would like to see isn’t taking place – lending for new investment, lending for businesses to start up
“So I think the reality of the situation is that banks and other financial institutions are still looking to lend people to buy motor vehicles and those types of loans rather than to invest those funds looking for viable opportunities in which to invest in,” Straughn reasoned.