Posted: Tuesday, September 6, 2016. 1:22 p.m. CST.
By Richard Harrison: The Central Bank of Belize annual report for December 31, 2015 shows that the aggregate capital for domestic banks stood at BZ$419.1 million, having increased BZ$39.6 million over 2014. Profitability in terms of Return on Equity (ROE) went from -2.18% in 2014, to +6.23% in 2015. The None Performing Loans (NPL) ratio fell from 7.03% in 2014, to 6.7% in 2015.
The same report shows that the aggregate capital for credit unions stood at BZ$788.6 million, having increased BZ$60.4 million over 2014. The ROE fell from 32.6% in 2014, to 25.9% in 2015. The NPL ratio rose from 3.4% in 2014, to 3.9% in 2015.
International Banks showed aggregate capital contracted from US$743.1 million in 2014, to US$602.2 million in 2015. The ROE fell from 50.1% to 6.2% during the same period. The NPL ratio fell from 8.3% to 7.7%.
1. THE CREDIT UNIONS
In a general sense, the credit unions represent lower and middle-income persons in Belize. The larger and more stable one’s were started by functionaries of the Catholic Church in Belize.
The Father of the Nation, Hon. George C. Price, used to refer to the credit unions and social security as “poor people’s money”…..and he insisted on having a hawk’s eye over them….ensuring that their management is of highest integrity and discipline.
Belizeans need to return these institutions to the same kind of rigorous integrity and discipline.
The aggregate capital in credit unions at the end of 2015 was almost 188% that of the aggregate capital in the domestic commercial banks.
Many more lower and middle income persons should move some of their business to the credit unions…the credit unions should expand their capacity and capability to provide minimum required services more efficiently and effectively….and they need to exercise the power that such rapid growth in aggregate wealth will allow…including, but not limited to, political power.
The Mt. Carmel Credit Union situation in beautiful Benque Viejo del Carmen needs a comprehensive and independent audit, with all the persons responsible for its demise held accountable. Innocent depositors should not suffer loss!
The credit unions should lead from principle….they are not private banks….they are actually owned by the depositors….whose best interest they should serve.
The credit unions should become the primary vehicle for mobilizing the next housing construction boom in Belize…which is vital to any economic recovery, but more importantly to the needs of the growing population….they should provide housing loans for qualified customers at a premium of 6.25% p.a. over 20-30 years….especially for young persons with stable jobs, income and demonstrated financial discipline. Such a premium offer would help change the behavior of the entire work force towards higher productivity.
As commercial banks have reduced their interest on deposits, much more so than their interest on loans, they have widened their spread, which has increased their profitability.
However, this has increased competition with credit unions, by providing loans are lower rates; which explains the decline in profitability of credit unions.
In essence….the commercial banks are cannibalizing the credit unions.
2. THE DOMESTIC COMMERCIAL BANKS
There are now 4 banks that fall into this category….with the Belize Bank Ltd being the largest operation.
These are very conservative banks that deal mostly with middle and upper income earners.
They have, over time, reduced their investments in the productive sectors, choosing mostly to finance importation buy-and-sell operations, consumer loans for vehicles, appliances and vacations, some tourism projects and home mortgages mostly for the middle and upper-income segment….they want their cake and eat it too….to make profit without taking risk.
The World Financial Crisis (WFC) of 2008 had pushed their NPL’s closer to 20%; and the Central Bank of Belize reacted by saying that Belize would not be affected by the WFC….and adjusted loan provisioning requirements with the Central Bank as its only tool to manage the crisis.
The result is the commercial banks started dumping business and personal assets on the market at nearer to 55% of Forced Sale Values (FSV)….they claimed they were “cleaning up the books”…..crushing mostly the productive sector and the middle-income earners, who were the most affected by these decisions.
Their new declarations of lower NPL and higher ROE is based on nothing more than creative accounting….pushing paper….they are in dire straits….for as long as the productive sector, first….and the housing construction sector, second…..does not rebound.
……and these commercial bankers and their insurance-related buddies are who the Government of Belize go to for advice on what to do with the financial economy….so go figure..
3. THE INTERNATIONAL BANKS
These are a special breed….and require an entire article….they are the prime cause for Belize losing Corresponding Banking Relationships (CBR’s). So…lets agree to look at those separately at a later date.
The views expressed in this article are those of the writer and not necessarily those of Breaking Belize News.
This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Master’s in Business Administration degree from Lancaster University.
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