There’s a glaring anomaly emanating from the halls of this island’s premier financial institution at Church Village that begs correction.
In no way is that issue the acrimonious divorce proceedings underway between Central Bank Governor Dr Delisle Worrell and Minister of Finance Chris Sinckler – for like all broken marriages, it’s now up to the court to decide if there are irreconcilable differences that merit dissolution of the partnership.
The concern has to do with the Central’s Bank decision in April 2015 to remove the minimum savings rate on deposits, which allowed commercial banks and other financial institutions to be responsible for setting their own interest rates.
Since then, Barbadians who have long enjoyed a minimum interest rate of 2.5 per cent have been feeling the pinch of what some noted bankers and economists have knocked as an ill-advised policy.
Fast forward to 2016 and the confession from Minister Sinckler that the measure had all but failed because banks somehow did not pass on the savings to their customers, at least in the Government’s eyes.
Yet, rather than reverse the action, Sinckler, according to financial experts, compounded the problem by hiking the Bank Asset Tax from 0.2 per cent to 0.35 per cent in the national budget delivered last August, to turn up the pressure on banks and, of course, extract much needed revenue for the Government’s dwindling coffers.
Again, the experts warned Barbadians to brace for a backlash. Among them was economist Jeremy Stephen who counseled that “banks are not in the business of absorbing taxes, so more than likely this will be passed on to consumers, and as such you can expect even further interest rate cuts”.
Stephen’s prophecy has since been fulfilled.
Today, banks are paying savers almost nothing for their deposits and in the words of economist Ryan Straughn, putting money in the bank is now “pointless”.
At the start of the month, CIBC First Caribbean slashed its deposit rates to between 0.05 and 0.15 per cent, while RBC Royal Bank customers will feel the axe on March 1 when their savings rate falls to an all-time low of 0.01 per cent.
It’s a definite blow for already hard pressed Barbadians, ranging from the working poor to the tenuous middle class living from pay cheque to pay cheque in a scenario where work hours and the cost of living are increasing but wages and salaries are not.
Those who would have us believe that it is merely the loss of a few dollars of interest are wrong. The fact is, while banks have taken away interest, they have imposed bank fees on virtually every service they offer. And they are profiting – one glance at the annual balance sheets of these financial institutions reveals very handsome profits even in prevailing tough economic times.
The managing director of Republic Bank Ian De Souza suggested customers have benefited from the removal of the minimum savings rate, citing the lowering of mortgage rates.
And that may be true, but surely he would have to agree that while a considerable number of Barbadians are unable to meet the bank’s criteria to secure a mortgage, they can access services like personal loans and credit cards which both still carry high interest rates that have not declined as fast as deposit rates.
Admittedly, it is true that banks are in business to make money but the solution to our interest rate absurdity best lies with the Central Bank.
As pointed out by noted former banker Horace Cobham, commercial banks focus on their own interests and more often than not “you have to force banks to do what is right in small economies like those which exist in the Caribbean”.
The primary function of a central bank is to control the nation’s money supply through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis.
We aver that in this case, it is the duty of the Central Bank to settle the wrangling at the Tom Adams Financial Complex and get down to the business of ensuring that consumers get a better deal, by re-opening discussions on a minimum savings rate.