Not enough borrowing, says market analyst

A capital market analyst has suggested that not enough people in Barbados are borrowing to invest in major projects on the island.

And Tariq Alli, head of capital markets at First Citizens Investment Services Ltd, suggested that one of the reasons could be that the capital market was not as attractive because of strong competition from the commercial banking system.

He made the comments during a presentation on Capital Markets and Alternative Sources of Financing For Your Business at the Alternative Sources of Financing seminar at the Lloyd Erskine Sandiford Centre yesterday.

“I can see that the Barbados economy is challenged in terms of availability of borrowers, or the willingness of borrowers to invest right now in projects,” he said.

“What that means is there are very few credits available for borrowing, which means the banks are being more competitive in terms of the financing terms offered. It could mean as well that the capital market could not be as attractive as it used to be because the banks are able to offer all those capital market-type transactions and structures.”

Alli said although the capital market is supposed to provide cheaper financing, commercial banks have been able to compete favourably over the years.

He said one of the advantages for the commercial banks was that they were more accessible to small and medium-sized businesses.

“A very important point not to be understated [in terms of] the challenge we’ve had with many companies still opting to use typical bank financing, is the ability and willingness to share financial and business information . . . Businessmen have to be willing to share their financial information with the bank . . . So that is something to wrap our minds around, in terms of if you want to go down the capital market route,” he said.

Pointing out that the capital market was well regulated, Alli said banks were “generally more heavily regulated” and therefore the ability for the banks to “flex their financing lending policies” was probably less compared to what the capital market could allow.

“Why capital markets versus bank financing? One of the attractive attributes of the capital market is the ability to do long-term financing, riskier projects, and it allows the financing to be shared among banks. So one of the challenges that many banks would have, at least banks with moderate levels of capital, is that you would have a smaller limit that you could lend to a company and its affiliates.

“If a client comes to you and that amount of borrowing exceeds the amount the bank can lend to you, this is where the capital market comes in from a syndicated background. The project may be so large that one bank cannot take on the full exposure due to their capital limits,” pointed out Alli.

One Response to Not enough borrowing, says market analyst

  1. Tony Webster October 17, 2014 at 3:40 pm

    The “lack of action” in the capital markets, is not as simply described by Mr.Ali. It does indeed stand scritiny as a symptom of a much larger malaise: the average Balan’s appetite for risk, both in the listings of Barbados Stock Exchange, and for setting up medium sized corporations, even if not listed on the BSE. The gentleman should dig deeper into our social consciousness, and recent “very unpleasant experiences” ( including bajans’ punts on Almond Beach, and with CLICO, but even going back further to Plantations Ltd, Barbados Foundry Ltd, and to Trade Confirmers Ltd. he would be best advised, to change his focus in the short term, as certainly, Bajans are unlikely to change their outlook any time before the general economy rebounds. Make that, ” is resurected.”


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