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Central Bank’s $20 million recapitalization about “planning ahead”

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Posted: Monday, February 14, 2022. 4:08 pm CST.

By Aaron Humes: Alarm bells had started to sound about the Government asking for $20 million to recapitalize the national regulator, the Central Bank of Belize, established in 1982.

If, as Leader of Government Business in the Senate Senator Eamon Courtenay assured, no Belizean bank is currently in danger of failing, then is something else wrong?

Not necessarily, according to colleague and Minister of State for Finance Christopher Coye, but it doesn’t hurt to plan ahead.

The Bank was initially capitalized with $10 million-plus paid-up capital of $10 million, but the paid-up capital was next capitalized in 2016 with a further $10 million as well as arrangements to retain the Bank’s profits for capital so that it could lend to the Government through Treasury Bills, Bonds, and Notes.

Coye explained that the domestic debt had quadrupled from 2008 (about $378 million) to 2020 (more than a billion dollars).

The recapitalization is the largest investment by the Government in the bank’s history and brings us closer to the region in terms of the strength of capitalization of the Bank.

The capitalization also gives the Bank more flexibility to support domestic banks if, as expected, some businesses are unable to repay loans with domestic banks who must then turn to the Central Bank for cover.

During the pandemic, Coye reminded, the Bank issued forbearance measures to help with cash flow relief and for the past 18 months, businesses either did not have to pay or extended their loans’ time for repayment.

“A prudent financial institution will ensure that it has adequate security and is well-capitalized to back up any losses, but you have to think of the different scenarios. And in looking at those scenarios, to the extent that one institution may be affected from a liquidity standpoint – not a solvency standpoint – the Central Bank is in a position to provide support,” Coye summed up.

It ensures continued trust and confidence in the national banking system, he added and is not different from commercial banks going to shareholders and asking them to recapitalize a bank. The Government is the Bank’s largest shareholder and the Bank is the lender of last resort.

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