Controlling governments blamed for high rate of non-performing loans

Former Finance Minister Anthony Boatswain believes governments that “insist on having controlling interests in the commercial banks are the main contributors to the high level of non-performing loans” within the banking system of the Eastern Caribbean Currency Union (ECCU).

Minister Boatswain told a sitting of the Lower house in Parliament that unless the ECCU addresses this issue, the proposed establishment of an Eastern Caribbean Asset Management Corporation (ECAMC), will not be able to fulfill its obligations effectively.

His remarks came as he was contributing to the debate on the Eastern Caribbean Asset Management Corporation Bill (2015), which received approval during last week Friday’s sitting of the House of Representatives.

The proposed money bill seeks to establish an entity, to be called the Eastern Caribbean Asset Management Corporation for the main purpose of ensuring there are provisions of bailout options for financial institutions when they are in trouble.

“You would realise that in the countries where the government has controlling interest in the banks, that (this) is where we have the problem,” said Minister Boatswain, who is the Member of Parliament for St. Patrick’s West.

“We have to get to the core issue involved,” Boatswain asserted, adding, “I think that is what’s escaping us”.

“We can set up an asset management corporation to deal with those assets that have gone sour but unless we address the key issue…we are setting up a corporation to deal with issues when the governments themselves are the major culprits. Yet you are asking every country to contribute equally to the capitalisation”, he remarked.

Minister Boatswain, who is the current Education Minister in Grenada, holds the view that if “these governments have (had) the discipline to stay away and let the banks operate as normal banks we will not have the problems that we are having now, and this is what we are not addressing.”

“The first order of business Mr. Speaker is to get the governments out of the banking business. They have no right there,” he added.

The senior government minister also expressed the view that governments cannot resist the temptation of getting involved because “whenever they want a loan they (would) go to the bank thinking that the bank cannot refuse them.”

“This must be addressed,” he said.

Leader of Government Business, Works Minister Gregory Bowen, who introduced the bill to the House, said such a fear could be addressed at the level of the Council of Ministers of the ECCU.

“It is at the Council that the intervention is made into a bank,” he told Parliament.

Minister Bowen directed the House of Representatives to the recently passed Banking Act (2015), which was passed in the OECS countries (except Anguilla and Montserrat), a recommendation by the ECCB Monetary Council, which gives all the power of making decisions to the Council of Ministers.

The new Banking Act, establishes one banking domain across the monetary union and makes supervision of banks more stringent and also sets the criteria that the capital banks must have to safeguard a portion of depositors monies, among other safety measures.

Minister Bowen pointed out that while the Grenada Authority for the Regulation of Financial Institutions (GARFIN) is the regulatory authority for the non-bank financial sector such as Credit Unions, the new Banking Act makes provision for the bigger commercial banks.

Pointing to the ECCBs intervention and assumption, of control over two indigenous banks in Anguilla – the Caribbean Commercial Bank (Anguilla) Ltd. (CCB) and the National Bank of Anguilla Ltd, (NBA) on August 12th, 2013; and of the July 22nd, 2011 take over of Antigua and Barbuda’s Investment Bank (ABIB) Bank, Minister Bowen noted the importance of the formation of a Eastern Caribbean Asset Management Corporation.

“We wish to form a corporation…(that will) intervene when it (a bank is) in trouble,” Minister Bowen said adding, “while in Grenada, we are not facing that problem…we are doing extremely well with respect to loans; only about 14 per cent of our loans are what you call questionable…”.

“…We cannot allow it to fester in any other country. So by putting this in place…forming this corporation, which must be capitalised by the governments of the ECCB (with capitalisation starting at EC$100 million)…we are ensuring that depositors monies can be safeguarded”, he old fellow legislators.

“This is not to say that something will or will not happen…we are (just) putting our house in order with respect to the monetary institutions within the monetary union.” Bowen said.
The Leader of Government Business noted that the Eastern Caribbean Asset Management Corporation Bill, (2015) is part of the strategic restructuring of the supervision arm of the banking sector and seeks to give effect to the Eastern Caribbean Asset Management Corporation Agreement.

According to Minster Bowen, the establishment of the corporation will come into operation on the deposit of 5 instruments of ratification of ECCB member states.

The corporation would replace the Resolution Trust Organisation established as an incorporated body by the governments of the Currency Union to address the various issues plaguing the banking sector.

According to Minister of Economic Development, Planning, Trade, Cooperatives and International Business, Oliver, “the previous body did not have enough powers to go into asset management.

“…We hear about the two banks in Anguilla and the one in Antigua, and if we do not intervene it could affect the currency union as a whole, because it’s one central bank with participating member states”, he said.

The purpose of the corporation is to carry on with the business of asset management including acquiring the whole or any part of dealing with managing and disposing of assets or liabilities of approved financial institutions in an expeditious manner.

It also among other things prohibits other institutions from lending monies to other institutions in trouble without seeking authority from the Minister of Finance.

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