Sound system, says Worrell

In the assessment of Central Bank Governor Dr Delisle Worrell, Barbados has a sound and sophisticated financial system with a wide variety of financial services for businesses and households, but there are still some gaps. He addressed the issue as gave an overview of the financial landscape in Barbados at yesterday’s Domestic Financial Institutions Conference at the Lloyd Erskine Sandiford Centre. Following is his presentation.  

Governor Dr. DeLisle Worrell
Central Bank Governor Dr. DeLisle Worrell

Barbados has a sound and sophisticated financial system which provides an adequate range and variety of financial services for businesses and households, but there are a few gaps still to be filled. The main impact of the global recession on our financial system has been to reduce profitability among commercial banks, and to arrest the growth of insurance business.

The financial landscape is changing largely because of changes in the way that large companies manage their regional and international finance and payments arrangements. My remarks this morning will address these three issues.

The main financial providers in Barbados are the banks –– by far the largest segment –– insurance companies, credit unions and finance companies. Between them, they provide adequately for the needs of households.

Banks provide mortgages, short-term consumer credit and payments services. Many people hold savings with commercial banks, even though savings bonds and credit union shares are more remunerative alternatives. Banks also provide for the working capital needs of established businesses, and contribute to the funding of projects for larger firms.

All banks operating in Barbados are part of international banks headquartered in Canada and Trinidad. They therefore have strong backing. Banks’ profitability has declined, but loan write-offs are only a tiny percentage of their credit and have not contributed much to the fall in profitability.

Credit unions are the banks’ competition. Because of their mutual ownership, they are able to offer lower interest spreads than the banks, between what members earn on their shares, and the interest they pay on borrowings. Credit unions currently offer most of the services banks offer, and there are no barriers in principle to prevent those credit unions which qualify from providing the remaining services in which they have expressed an interest.

Insurance and pension funds cover the remainder of the financial services most businesses and households need. The insurance industry contracted with the exit of CLICO, and there has been little recovery since then. Insurance and pension funds look for investment that will yield a good return over the long run, and they are therefore a potential source of funding for capital formation.

The weakness of this segment is the limits on the supply of long-term finance. What makes matters worse is a preference for investment in marketable securities rather than equity participation in projects. In Barbados there is a scarcity of marketable corporate instruments available for purchase and sale on an ongoing basis. All in all, our financial system provides a range of services that pretty much satisfies the needs of Barbadian households and large and well established businesses.

However, venture capital is in short supply, and the fixed investment needs of small and medium-sized enterprise continue to be a challenge for us. Our session this afternoon will explore this conundrum.

Impact of the crisis. The global recession, which is dated from the September 15, 2008 Lehman bankruptcy, had little effect on the Barbadian financial system, with the one important exception of CLICO. As might have been expected, the weakness of the Barbadian economy resulted in late and incomplete debt service by some firms and households, but in the typical case a workout arrangement was put in place.

On the other hand, Government maintained its perfect service record, both for domestic and foreign debt.

Changes in business finance. The most noticeable changes in financial transactions in recent times have been on the foreign exchange market. The interbank market is now inactive, in contrast to the situation up to a decade ago, when daily interbank transactions of a modest size were the norm.

Large customers of the banks have corporate treasuries which manage their transactions and exposures in several currencies, matching exposures by currency so as to minimize net exposure in foreign exchange, and reduce the transactions costs of currency conversion. We have looked into this phenomenon at this conference in years past, and when we meet with banks we invariably discuss how the market is evolving.

Some businesses appear to have achieved a degree of independence of their bankers, with respect to foreign currency receipts and payments. In so far as this facilitates payment of imports out of private firms’ foreign earnings, there is no problem with that arrangement.

Our programme today includes an update on the financial system, a presentation on cybersecurity, investment options for insurance companies, the view from the credit union sector, a new look at banking subsidiaries, and a panel on equity finance. It is a varied menu, and one that is certain to be instructive.

One Response to Sound system, says Worrell

  1. Tony Webster November 13, 2014 at 7:16 am

    Yep, I agre Guv…with “conditionalities”. Back in 1836, and for many years thereafter, yes, Barbados had a sound system…as Barclays Bank used to issue the currency notes (I found the old register in our archives, listing the numbers of all so isssued, and all others issued to spread banking, currency, and commercial “life-blood” to all the other English-speaking colonies in the Caribbean), and every “bill” (a term endearingly given to the $5 note here in Bim), was rock-solid; had lasting value; and you could safely put in in the bank or under the mattress, and your heirs, assigns and beneficiaries, would all get Good Value, whenever they wanted. One’s word, was one’s bond, and “honor” was not merely a word used when speaking to a magistrate.
    Yessir, we HAD a good, sound, system: the tills balanced every day; books were audited on-time; and any infelicities were not locked-away, but their perpetrators locked -UP. Those were they days, sir!
    Now, we got sumptin’ else! Lord, cumfah yah “system’…and ya World.
    (BTW: Thanks the note re the interbank F/X trading system: I started this wid car-maniac Maloney over at RBC…and it was “useful”…but like the old buggy…it has evidently had it’s moment of glory.)


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