Banks’ choice

Central Bank of Barbados has no immediate plans to reinstate a minimum savings rate on deposits.

Furthermore, Governor of the Central Bank Cleviston Haynes said the regulator had no intention of setting bank fees and charges.

It was in April 2015 that the Central Bank removed the minimum deposit rate that was set at 2.5 per cent.

In recent years there have been mounting concerns from residents about the low interest rates that were being placed on savings accounts in commercial banks, some as low as 0.01 per cent.

At the same time, there have been complaints about increasing bank fees and charges.

Asked to respond to those concerns, Haynes said the central bank would ensure that the fees charged by commercial banks did not adversely affect the most vulnerable.

“The Bank does not want to set all fees for [commercial] banks. If you were to look at the fee schedule of a commercial bank you would see a wide range of fees for various services. Our focus has been in the past, and will continue to be, to look at a select group of services that impact the most vulnerable, to make sure that where there are opportunities, to use more than one form of service,” he said, while pointing out that banks were increasingly going more digital.

“We don’t think that it would make sense for us to be in a position of trying to look at all of the fees that banks have and say ‘look, this fee should not be this and this fee should not be this’. It is not practical,” said Haynes.

As it relates to interest rates on deposits, Haynes said this was driven by market conditions. He insisted that an uptick in economic activity and borrowing would result in an increase in interest rates.

“The challenge that we have right now is that there is so much liquidity in the system that if you ask financial institution they really don’t need new funds and that is why interest rates, in a sense, are as low as they are,” Haynes explained.

He said: “Getting the economy growing again and getting increased lending activity changes the dynamic between the source of funds and the demand for funds. It is in those circumstances that one will begin to see some change in the interest rates going up”.

“At this point we have not determined that we want to raise interest rates or send the signal that interest rates need to rise,” he added.

The trade-off on the low interest rates on deposits, said Haynes, was that commercial banks and lending institutions were offering lower interest rates on loans.

“Clearly, what happens is that persons who are the savers are not necessarily the ones who are the borrowers, and therefore the benefits are perhaps a little skewed as it relates to that,” he said.

He was responding to questions on Thursday during the delivery of the Central Bank’s economic review for the period ending March 31.

In delivering his report, Haynes said capital in the local financial system compared to risk, fell about four percentage points towards the end of the reporting period.

However, he said “The financial system remains stable, notwithstanding the impairment to commercial banks’ capital buffers, resulting from Government’s debt restructuring and the adaption of the IFRS 9 [International Financial Reporting Standard] in 2018,” said Haynes.

“As a result, the aggregate capital adequacy ratio fell to 13 per cent from 17 per cent one year earlier. However, these levels remain above the prescribed minimum benchmark of eight per cent,” he said.

He further pointed out that preliminary data on deposit-taking institutions indicated a small decline in credit to the non-financial private sector, while deposits held in domestic currency were up by one per cent for the first three months of this year.

This performance, he said, was on par with the corresponding period of 2018.

“The banking system remained liquid. Commercial banks’ excess cash reserves held with the Central Bank increased 15.5 per cent from 13.9 per cent in the first quarter of 2018. Additionally, the excess securities ratio improved to 5.3 per cent from three per cent, driven by the reduction in the securities requirement ratio from 20 per cent to 17.5 per cent in November 2018,” reported Haynes.
marlonmadden@barbadostoday,bb