Reintroducing a minimum interest rate on savings is off the table for commercial banks, even as they await discussions with officials from the Central Bank on possibly providing an ease for customers.
President of the Barbados Bankers’ Association Anthony Clerk, in response to customer complaints about high bank fees and low interest rates on savings, told Barbados TODAY: “If you reintroduce a minimum interest rate that means the loan rates are going to go up. I don’t think that will make sense.”
In April 2015, the Central Bank removed the guaranteed minimum savings rate of 2.5 per cent, with the hope that more cash would be moved out of the banking system and into investment. However, by the end of March this year, savings had grown to reach about $14 billion. While loans to households grew faster in the first three months of this year when compared to the same period in 2021, overall new loans were down from prior years, despite historically low interest rates on loans.
“Right now, loan rates are the lowest they have been, in my understanding, in the history of Barbados. So they are all-time low rates, which is very good for people who want to borrow money to build homes and acquire homes, put up renewable energy systems or for any other reason, both on the retail side, personal customers and the business customers,” Clerk explained.
“So that bodes very well for the development of the economy. You know, [if] people want to undertake projects, now is the time to do it because you have very low interest rates. So to reintroduce a minimum [savings] rate means the spread has to increase between the deposit rates and the loan rates and that means borrowing is going to get more expensive and I don’t think that is going to be a good thing for anyone really.”
Last Thursday, as she announced measures last week to help ease some pressure off residents,Prime Minister Mia Mottley indicated that it was necessary to engage with the banking sector to see what bank charges can be tweaked.
She revealed that Central Bank Governor Cleviston Haynes had been mandated to investigate the issue of bank fees and report back to the Ministry of Finance.
Mottley said at the time: “While we have done some things on fees already, it is clear that we have to revisit it and that we have to encourage our banks to recognise that their core business of making money from lending cannot be abandoned for passive income from transactions.”
Although stressing that she was not picking on banks which have been heavily impacted by Government’s debt restructuring in 2018 and the introduction of a pandemic levy this year, the Prime Minister questioned: “How can a bank justify charging more to facilitate a digital transaction of $2 000 than a digital transaction of $200 or $20? It is the same mechanism.”
Clerk told Barbados TODAY that the commercial banks would be cooperating with officials in providing information, but there was not much to say at this stage.
“All I could say is that the Governor of the Central Bank reached out to the banks for some information specific to our debit cards, our newly introduced debit cards, and we gave him the information. That is all that has happened so far,” said Clerk.
“I prefer not to speculate and I prefer to let the process run itself. The Prime Minister announced that she asked the Governor to discuss with the banks so we are waiting on a discussion. We are waiting on the Governor to come back.”
Effective November 1 last year, the Governor of the Central Bank announced that the amount Barbadians pay for a transaction at a bank’s Automated Teller Machine (ATM) other than theirs would be capped at a maximum of $3.
This, Haynes said at the time, was in response to complaints from residents about high bank fees associated with debit card transactions.
(marlonmadden@barbadostoday.bb)
