Capita CEO not surprised by big BOSS buys

^{Noted regional banker Ian De Souza says he is not surprised that commercial banks are beginning to show increased interest in acquiring major government debt, some five years after they accepted a haircut during the 2018 debt restructuring.}

^{“Because banks sit on a lot of liquidity, they have to place that liquidity in interest-earning assets. In the Barbados context, which is not different to other jurisdictions, the liquidity will first go into loans, which are usually the highest-yielding assets and whatever cannot be placed in loans would usually be put into investment products. It would be most commonplace to put surplus liquidity in government paper because this is usually the safest form of investment,” explained the Capita Financial Services Inc.’s interim chief executive officer.}

^{During the first two months of this year, one commercial bank purchased a total of about $55 million worth of the $200 million Barbados Optional Savings Scheme (BOSS) Plus bonds which have been on the market since August last year.}

^{On Wednesday, CIBC FirstCaribbean International Bank announced that it was purchasing a whopping $100 million of the five-year government bonds, as officials said it was a sign of confidence returning to the local capital market and, specifically, government debt.}

^{During an interview with Barbados TODAY ahead of CIBC FirstCaribbean’s announcement, De Souza said, “I expected that to happen”.}

^{He said while the stock market was another option for commercial banks to invest their excess liquidity, that option was less attractive as there are limited securities available.}

^{“In other jurisdictions, excess liquidity could go into the overseas securities markets. However, because of the required close management of foreign reserves in Barbados, banks are limited in the extent to which they can do that.}

^{“So, I am not surprised that the banks are looking at government paper again, and certainly, the way Barbados is performing from an economic point of view, things have stabilised and are far different to the years when the debt restructuring exercise had to take place. That was extremely painful for investors, but those circumstances have changed and Barbados is in a different place than it was then,” he explained.}

^{During a press conference on Wednesday to announce the major purchase of the BOSS Plus bonds, the Managing Director of CIBC FirstCaribbean International Bank for Barbados and the Eastern Caribbean, Donna Wellington admitted that the excess liquidity in the bank contributed to the decision.}

^{However, she stressed that it especially represented the confidence the bank had in the local economy.}

^{“We believe our bank’s investment of $100 million in BOSS Plus bonds, which we are signing this morning, is a strong commitment to our country Barbados. We firmly believe from all the signs we are seeing that the Barbados economy is on a trajectory to recovery, following the challenges of the past few years,” said Wellington.}

^{De Souza, a former Managing Director at Republic Bank (Barbados) said he expected to see continued interest by commercial banks in taking up government paper going forward.}

^{The banker of more than four decades told Barbados TODAY that the high levels of liquidity in the commercial banking system had a major role to play in the low deposit rates currently being offered by the commercial banks.}

^{“What will drive savings and term deposit rates is the amount of liquidity that you have in the market. Surplus liquidity is a function of banks not having sufficient avenues to place that liquidity. Banks place their liquidity in loans and investment products but they have been sitting on liquidity that was not generating any interest due to a lack of viable investment options,” he explained.}

^{“If you have large amounts of cash that are not generating interest, you cannot afford, on the deposit side, to go paying high rates of interest. It is as simple as that,” De Souza said.}

^{He further explained that if the market was such that there was a stronger demand for loans as a result of investment opportunities, then the liquidity in the banking system would be soaked up, resulting in banks having to compete for deposits.}

^{“Once they have to compete for deposits then you will see the interest rates starting to climb. But banks don’t have to compete for deposits today. Left alone, banks may possibly be turning away deposits because they represent a cost to the institution, particularly where they don’t have enough viable options to place the deposits on the asset side. So that is what is happening there,” the banker said. marlonmadden@barbadostoday.bb}