Unreasonable and ridiculous!
That is how the umbrella organization for credit unions here is describing the recent decision by commercial banks to cut their interest rates on savings to nearly zero per cent.
“We still feel in relation to a matter like that, that the direction the commercial banks have taken is somewhat unreasonable. We still believe there is scope to pay a more decent rate on savings,” General Manager of the Barbados Cooperative and Credit Union League Limited (BCCULL) Anthony Pilgrim told Barbados TODAY this afternoon.
Pilgrim admitted financial institutions had to review their interest rates from time to time. However, he insisted customers should receive “a fairly reasonable and decent rate of return on savings”.
The credit union boss said the banks’ action was not a surprise since the Central Bank of Barbados deregulated the market in April 2015, ending the minimum interest rate of 2.5 per cent it had set back in 1991.
A year later the commercial banks had slashed their interest rates to a then record low of 0.5 per cent – the lowest in over 20 years – and are expected to cut even further to between 0.05 per cent to 0.15 per cent.
“There is no reward for savers; and that is a fairly ridiculous situation,” Pilgrim stressed, adding this was an opportunity for credit unions to attract more customers.
However, President of the Bankers Association of Barbados Donna Wellington is defending the decision to cut the interest rates.
“The savings rate for many years did not keep pace with the reduction in interest rates on loans and the negative growth the banks were facing. Removal of the minimum savings rate allows for market forces to balance the equilibrium of supply and demand,” Wellington said.
The association spokesperson said the decision was prompted by low demand and continued negative growth, plus increased taxation on banks and excess liquidity.
She said demands for loans from commercial banks had been declining since 2010 as a result of the sluggish economy.
“The prime rate is not the gauge by which to measure this, but the actual rates provided to borrowers. The rate war and fierce competition between commercial banks is clearly seen in the press. Five years ago, rates were prime ‘plus’, but for some time now they have been prime ‘minus’. Anybody who has bought a car, gotten a consumer loan or gotten a mortgage can testify to the fierce competition that exists and rock bottom rates being offered,” the banking official stated.
She said commercial banks had dropped their lending rates by more than 2.5 per cent, a point made earlier by Managing Director and Chief Executive Officer of Republic Bank (Barbados) Limited Ian De Souza.
The Republic Bank’s executive had suggested that lower lending rates were a bright side to the near zero per cent interest rates the commercial banks would soon be offering on savings.
“While our savings rate has been lowered, so too has the lending rate through the mortgage, as well as the other loan products that we have. So the interest rate environment in total on the savings, deposit side and on the lending side, the entire interest rate structure in Barbados has fallen,” De Souza explained.