Commercial banks are not opposed to lending to small businesses, but they will not be doing so willy-nilly.
That was the position of President of the Barbados Bankers’ Association Donna Wellington in light of increased calls for individuals and business operators to put the approximately $9 billion in the banking system to work to help grow the struggling Barbados economy. There have also been complaints that commercial banks do not want to lend to micro, small and medium sized enterprises.
But taking part in a forum hosted by the Central Bank of Barbados and the Financial Services Commission to discuss the findings of the recently released Financial Stability Report 2018, Wellington said nothing could be further from the truth.
She insisted that commercial banks were happy to provide financing for individuals and all categories of businesses, but they had to be very prudent in their lending
“We have to ensure that whenever we do lend that we do so still with good credit practice. All of our banks have very prudent standards. I know people feel – and it is well understood out there – that banks might be a little harder on people in terms of the stringent nature of our lending practices. But our regulators require us to be stringent,” Wellington explained.
“I don’t think that we have the leeway to be willy-nilly around who we lend to. We have to be very stringent and we have a fiduciary responsibility to depositors,” she added, noting that the reason some banks fail was a result of lack of prudence in their lending.
“We take our fiduciary responsibility extremely seriously. At the same time, we do want to lend but it is always around very good, stringent practices, around the debt serviceability and security provided for the loans.”
Wellington noted that all commercial banks have a unit that caters to the small business sector. But she said the challenge was inadequate financial literacy among some small business operators seeking financing.
“This is something I feel very strongly about in Barbados. One of the things we are finding is that people want to come and borrow from financial institutions, they want to come and borrow especially from commercial banks, but what we require of you in terms of financial reporting is not something you are willing to do and then you are surprised that you don’t get through. A lot of it has to do with your ability to have financial literacy in your organization,” she explained.
With the call for some of the over $9 billion to be pressed into action in a range of investments, the banker explained that all channels led back to commercial banks since they held the deposits of all other institutions.
“That money is not leaving the system, it is just being shifted around,” she said.
Meantime, expressing the view that confidence was returning to the local economy, Wellington said the areas of tourism, medical services, renewable energy and international business that were being “worked on in the economy” would be the key sectors to help propel the economy into the next ten years.
General Manager of the Barbados Co-operative & Credit Union League Ltd Anthony Pilgrim said the excess liquidity in the banking sector was also a challenge for the credit union movement.
“Fortunately for the credit union sector, we have still had loan growth so that has really helped us, but excess liquidity is still really a challenge . . . . The excess liquidity in this environment is difficult to manage given the limited investment.”
Pilgrim added that he was aware some customers were moving “away from the banking sector to finance companies that are offering better rates of return on deposits”.