GBTI records $171M profit
Commercial court would help lower lending rates
-suggests GBTI’s Sharma
April 29, 2003
The Guyana Bank for Trade and Industry (GBTI) notched up profits of $171M last year and its Managing Director RK Sharma has again called for the establishment of a commercial court to allow banks to realise security and thereby encourage lending at lower rates.
In his report to shareholders yesterday, Sharma said the dynamism of the banking sector in addressing the sectoral demands for financing depended on a well-defined legal framework as well as institutional mechanisms to provide banks with an element of comfort in designing financial solutions for clients.
GBTI, Sharma said, had the technical expertise to create the right blend of financial instruments to assist entrepreneurs with their requirements but this could not be done in a vacuum.
“...Our main challenges remain the support of the legal system in terms of the speedy and efficient registration and realisation of security, and the seeming ease with which some borrowers can subvert and abuse the legal process to avoid honour(ing) their debt with the commercial banks. This has the effect of undermining the supportive role of the financial system and entrepreneurs can eventually find it difficult to access financing from lending institutions.”
While the Financial Institutions Act and the prudential guidelines issued by the Central Bank define and regulate the environment in which commercial banks operate, the growth of the commercial sector is hamstrung by the inability of the said banks to provide a wide array of services as done in other countries.
Sharma said for this array of financing alternatives to be provided, a commercial court to address the concerns of the banking sector needs to be established. He had first called for the establishment of such a court in July 2001 at the bank’s Vreed-en-Hoop opening.
“A commercial court is a necessary prerequisite for enhancing credit creation and the credit function. It is necessary that the government intervenes and recognises that the institutional support mechanism in the registration of collateral and realisation of security needs considerable strengthening and we urge a revisit of the legislative framework and due process in this regard.”
He insisted that the failures of the present legal system inhibit credit creation and as a spin-off, economic development. He also argued that it was the inefficiencies of this process that pushed up the cost of borrowing. While interest rates at the end of 2002 fell by 2.41 percentage points to 4.29%, the weighted average lending rate fell by less than one per cent and saw the widening of the spread between the two rates from 10.9% in 2001 to 11.96% at the end of 2002.
Sharma hopes that the reforms necessary would be undertaken to allow the banking sector to contribute fully to the process of growth and development in Guyana. A commercial court is one of the undertakings of the current administration but it is not clear when it would be established.
GBTI yesterday held its 15th annual general meeting and in his report to shareholders, Sharma declared after tax profits for GBTI of $171M, a 17% increase on 2001. The return on average assets moved from 0.66% in 2001 to 0.69%.
Income from loans and advances fell by $323M as a result of lower lending rates and the application of the stringent income recognition policy of the FIA relating to non-accrual loans, Sharma said. The bank’s loan portfolio declined by $2.2B over the previous year and income from investments dropped from $664M in 2001 to $492M at end of 2002.
Expenses declined by $318M. The provision for non-performing loans was $408M. Non-accrual loans amounted to $4.7B at the end of 2002, up from $4.6B the year before. The indebtedness of the rice sector stood at $3.2B at the end of 2002 and Sharma said GBTI had completed the restructuring process for 96 farmers covering $250M.
GBTI’s deposits grew by 3.9% to reach $20.4B, maintaining a 20% share of the market. Total investments increased by $2B. Sharma noted that non-loan investment opportunities were extremely limited in the Guyana financial market with any funds not held in loans and advances available for investment in treasury bills.
Noting the trend in recent years of excess liquidity and falling treasury bill rates, Sharma said the implication was a loss element in relation to any tranche of funds invested in treasury bills. When the reserve requirement and other indirect costs are factored in, the loss increases.
The entire banking sector’s deposits grew by 9.3% to reach $104.1B at the end of 2002 against a 3.2% increase the previous year. Loans and advances declined by 6.5% with GBTI reporting a decline in credit to all economic sectors. Total credit extended was $49B.
Credit to the transportation and distribution/retail trade declined by 28.6% and 3.7% while credit to the rice sector declined by 2.7%. The latter, Sharma said, was due mainly to loan write-offs and debt restructuring. Loans and advances at the end of 2002 represented 47% of deposits against 55% the year before.
Excess reserves of all commercial banks, Sharma noted, were $13.8B at the end of November 2002, a 61% increase over the required level. As a result of this and the low demand for credit, banks held $25.3B in Treasury Bills at the end of September 2002 as against $20.1B for the same period in 2001. Treasury bill rates have fallen from 6.25% at the start of 2002 to 3.91% as of November 2002. Sharma said the commercial banks’ average three- month term deposit rate declined from 7.15% to 3.70% while the small savings rate declined from 6.70% to 4.29%. Interest paid to customers on savings accounts, he said, was higher than that received by banks for their government treasury bills holdings.
In terms of foreign exchange trade, Sharma noted that turnover in the cambio system was US$451.2M, an increase of 12.2%.
Sharma expects increased caution and apprehension in the business community this year, which will result in a continued decline in credit and investments and place further pressure on the Guyana dollar.