Central Bank Governor queries banks on high margins

Central Bank Governor queries banks on high margins | The Trinidad Guardian

 

Bankers Association president, Dennis Evans, left, poses with the organisations executive director Kelly Bute-Seaton and its vice president Richard Young at yesterday’s launch of Bankers Week at the Cascadia Hotel in St Ann’s. Photo: Dilip Singh

While the country’s banking sector has weathered the global economic crisis relatively unscathed, the banks were criticised for the high cost of doing business. That criticism was levelled by Central Bank Governor Ewart Williams at the inaugural launch of Banking Week at the Cascadia yesterday.  While Williams lauded the banks’ stability and profitability, he noted the relatively high cost of banking in T&T was due to the limited exploitation of new technologies and “the oligopolistic structure of the country’s banking market which limits competition allowing banks to maintain their profitability without increasing efficiency.”

“Clearly the large margins are excellent for banks’ bottom line and for bank shareholders. My banking colleagues always remind me that it is better to make profits than to have losses and I fully agree. But there is a difference between private and social rates of return and particularly, going forward, where banks would be critical to the diversification effort, we need to seek a better balance between the one and the other,” he said. Williams said that while the margin between loan and deposit rates was over nine per cent in T&T, the margin in developed countries was between two and three per cent.

But Bankers Association president Dennis Evans said “profits” is not a bad word and lamented the constant “bank-bashing.” He observed that commercial banks have strengthened their liquidity positions, increasing reserves at the Central Bank in excess of statutory demands to as high at $3.3 billion in October 2010 from an average of $1.6 billion in 2008. “Due to prudent management practices, banks have contained their risk exposure which declined to 6.9 per cent in September 2010 from 8.6 per cent in December 2009 and loan delinquency is largely contained,” said Evans. This position, in addition to increased liquidity in the Banks, said Evans, can be used to revitalise the economy as organisations can access the needed capital injection to finance projects at the individual, community and national level.

“Companies and citizens can take the opportunity to restructure their debt and capitalise on the many creative products that banks are now promoting to encourage consumer and investor confidence and stimulate the economy,” he said. Evans said against the backdrop of excessive liquidity and limited demand for loans, he expects intensified competition between banks as they compete for market share.
“Also consumers are becoming more discerning and demanding and are shopping around much more. I expect participants in the sector 2011 to respond with new, creative and cutting edge products and provide more options to the public,” he said.

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