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#385256 - 08/08/10 11:41 AM Belize Bank in Trouble?
Short Offline
Originally Posted By: 7 News Belize
Central Bank And The Belize Bank At Odds

The Central Bank is the regulator of the banking system where - in all matters - discretion is always at an optimum. That's why observers have found the contents of an affidavit from the Governor of the Central Bank Glenford Ysaguirre quite remarkable. In it he comments on the state of affairs with the accounts of the Belize Bank. We'll quote that shortly, but first the background.

According to documents tendered in court, in early June the Central Bank wrote the Belize Bank instructing it to remove 20 million dollars from its books. That's the same 20 million dollars in Venezuelan funds that had been recovered from the bank by the Barrow administration. It's now on government's books as an asset, so the Central Bank is saying that the Belize Bank has to take it off its books.

The Belize Bank challenged the directive in court and that's where the Governor Of The Central Bank tendered an affidavit saying quote, "The Central Bank Of Belize is also keenly aware of the Belize Bank's extremely high ratio of non performing loans...(which, at) 28%, which is more than 5 times the prudential benchmark of 5%. "

Ysaguirre continues to say that, "The overstatement of assets and understatement of expenses can mislead...as to the true soundness of the bank..."

He warns, "An overstatement of retained earnings can give a false sense of security to directors, shareholders and the public."

He concludes grimly, "The Belize Bank's performance is deteriorating and if left unchecked and unresolved could lead to the bank becoming financially unstable."

Now, that's not just loose talk; it's the regulator of the banking sector saying that the largest bank in Belize could become unstable.

And sustaining the pressure on that Bank, today's Guardian newspaper reports that nine Belizean entities owe the Belize Bank almost half a billion dollars; the paper quotes the figure at 482.7 million dollars.

The paper reports that Eugene Zabaneh's businesses are among these with loans amounting to 52.1 million dollars. We called for Zabaneh at his Maya Island air office and left a message but he did not return our calls.

Originally Posted By: The Guardian
9 Belizean entities owe over $482.7M to Belize Bank - Eugene Zabaneh Group in trouble

Over the past two weeks the Guardian has been following the Belize Bank’s loan portfolio activity. In our investigations we’ve determined that the bank has activated a Group Risk Unit which is tasked with collecting some 28 percent of the bank’s loan portfolio which is delinquent. That represents 206.9 million dollars of a total 680.4 million dollars. While the figures are alarming, what’s more so is that the Guardian has been reliably informed that, as at December of 2009, there
were nine principals who hold an impressive 482.7 million dollars in loans from the Belize Bank.

One group in particular is controlled by Eugene Zabaneh which up to December of 2009 held loans amounting to a hefty 52.1 million dollars. These loans are spread over personal loans and those of six companies. Significant loans include a 16 million US dollar loan to Santa Ana Dev. Co. LTD., US 10 million to Maya Island Air, 10 million dollars to Riversdale Dev. LTD, U.S. $7 million to Eugene Zabaneh and other loans. While the portfolio is significant, what is worrying is the fact that these loans are bordering on going into default. With the presence of the GRU at the Belize Bank, it would mean that the ‘forgive no sins’ mentality will kick in and the Zabaneh group may be at risk of running into receivership.

It is quite a fiasco which we’ll keep monitoring but to which we can add a bit of light. During the inauguration of Maya Island Air’s international flights in July of 2009, present were Ralph Fonseca and Said Musa. Under what capacity they were there is unknown; however, judging from their history of how they managed the finances of Belize during their ten year tenure of office, and if they were somehow involved in the finances or even just in giving advice to Zabaneh it would explain a lot. The group is now floundering and even if just by association maybe, just maybe, Ralph and Said may have something to do with it. In the end, it would appear that anything these two are involved with somehow ends up bad.

Originally Posted By: 7 News Belize
Barrow On The Bank

Last night we told you about the quite remarkable affidavit sworn to by the Governor of the Central Bank. In it he says, quote "the Belize Bank's performance is deteriorating" and "if left unchecked and unresolved could lead to the bank becoming financially unstable."

Today the Minister Of Finance didn't quite distance himself from that grim characterization, but he did make it clear that the Belize Bank is not in any kind of trouble.

Hon. Dean Barrow, Prime Minister

"I think the Governor of Central Bank as the chief regulator has every right to be concerned but I don't think that we ought to be panic stricken. The Belize Bank is still the largest bank in the country, still has a great deal of assets. I am confident that under the guidance with the regulation of the Central Bank that the Belize Bank can come out of whatever difficulties are attached to this ratio of non-performing loans. So I say again, cause for concern but not in my view cause for alarm."

Jules Vasquez
"So as far as you are concerned the bank is sound as a going concern, people should not be worried."

Hon. Dean Barrow, Prime Minister
"I don't think there should be any kind of run on the bank. I don't think people feel they need to withdraw their monies. I don't think there is anything to suggest that that sort of reaction would be justified at all. Clearly I am saying that the fact of the large level of nonperforming loans is a matter for concern and that is why the Central Bank, the regulator has intervened and is requiring the bank to take certain steps, but I think that's as far as it should go. Nobody should be in any rush to believe that the underlying fundamentals of the Belize Bank are in any danger of collapse. I absolutely reject any such suggestion."

Jules Vasquez
"Was the Governor of Central Bank then incautious in his remarks?"

Hon. Dean Barrow, Prime Minister
"I haven't seen his affidavit, but the Governor of the Central Bank in my view was properly discharging his function as regulator. The IMF was here, you saw their statement, while they didn't single out the Belize Bank, that statement spoke to difficulties in the banking system as a result of this large ratio of nonperforming loans."

The governor of the Central Bank declared his position in an affidavit in support of a case where the Belize Bank was requesting and was refused an injunction against the Central Bank.


Originally Posted By: bywarren
Thanks for posting that. I should have made it clear I was refering to the Belize Bank.

And, maybe this should be a separate topic, if so maybe an administrator could move it.
I am curious what protection a depositor has in Belize if a bank becomes insolvent.
Originally Posted By: Diane Campbell
The uninitiated might not know that there is a whole subtext here that has little to do with the actual performance of the bank.
Originally Posted By: bywarren
I was refering to the first ch7 report and the Guardian article where it was stated that the Belize Bank had a non performing loan ratio of 28%.
Having been in the banking business, that would be of great concern to both depositors and regulators if it were a US bank.

But I understand this is Belize not the US. Thus my question, what protection, if any, do depositors have if a Belize bank fails?
Originally Posted By: Katie Valk
BZ Bk and Heritage both have very high default rates at present. Scotia the lowest, First Caribbean and Atlantic within acceptable ranges. BZ BK lost out on loans to PUP political and business cronies in Ashcrofts attempt to keep PUP in power and build an empire he could manipulate.
Originally Posted By: bywarren

A quote from Lan Sluder: Your Money and How to Hold On to It in Belize
By Lan Sluder

CAUTION: Deposits in Belize banks are not protected by deposit insurance, as they are in the U.S. under the FDIC, and in many other countries. All of your deposits are at risk should the bank fail.
Originally Posted By: SnoopysMom
Can anyone speak to the status of the British Caribbean Bank (the offshore/international side of Belize Bank) relative to any additional protections or lack thereof?

#385266 - 08/08/10 12:50 PM Re: Belize Bank in Trouble? [Re: Short]
Phil Offline
I'd also like to know what protection Belizean Banks (and foreign Banks operating in Belize) have on money in accounts if a Bank goes busto. In the US/UK?Canada is every dollar guaranteed? Who guaranttees it Government Central Bank reserve some super insurance etc?

#385267 - 08/08/10 01:04 PM Re: Belize Bank in Trouble? [Re: Phil]
bywarren Offline

In the US:

"The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation created by the Glass-Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. The FDIC insures deposits at 7,895 institutions.[2] The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages banks in receiverships (failed banks).

Insured institutions are required to place signs at their place of business stating that "deposits are backed by the full faith and credit of the United States Government."[3] Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure."

#385278 - 08/08/10 09:16 PM Re: Belize Bank in Trouble? [Re: bywarren]
Lan Sluder/Belize First Offline
About 100 countries around the world have some kind of deposit insurance on banking deposits to protect depositors should a bank get into trouble. Unfortunately, Belize is not one of them.

--Lan Sluder

#385348 - 08/10/10 09:00 AM Re: Belize Bank in Trouble? [Re: Lan Sluder/Belize First]
James Pearce Offline
Originally Posted By: Diane Campbell
The uninitiated might not know that there is a whole subtext here that has little to do with the actual performance of the bank.

I'm uninitiated :-)

While it doesn't surprise me at all, what is the subtext in this case?

#385605 - 08/14/10 05:12 AM Re: Belize Bank in Trouble? [Re: James Pearce]
Short Offline
What is the Central Bank & its Governor Doing?

Moral Hazard, Systemic Risk, Central Banking and Prudential Supervision

Nobel Prize winning economist Paul Krugman described moral hazard as: “…any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly.” In other words, where a person is faced with interests competing with his own personal interest, a conflict of interest, he will tend to do what benefits him the most if he has an incentive to do so notwithstanding the moral implications of his actions.

Banks are prone to engage in moral hazard behavior. Typically, a bank makes its money from lending. In order to lend, it must have funds to lend. A bank gets its funds primarily through deposits from the public and capital (in the form of cash) from its shareholders. In a basic model of a bank, Deposits + Capital = Loans + Reserves. Given that loans generally earn a higher rate of return than reserves, some reserves earning as little as 0% when held with the Central Bank, reserves tend to zero except as otherwise required by statute while loans tend to 100% of deposit and capital net of statutory reserves. This is borne out in the June 2010 quarterly financial statements published by the Central Bank as follows:

In most banks, whether in Belize or elsewhere, deposits comprise the super-majority of the funds a bank has to lend. In lending funds comprised mostly of deposits, most of the funds at risk on a loan are not the shareholders’ own funds (capital) but instead are the depositors’ money.

In Belize, using the June 2010 quarterly financial statements, capital represents 19% of total deposits in the banking system, with Heritage having the lowest ratio at 7% and Scotiabank having the highest at almost 26%; Atlantic Bank, Belize Bank and First Caribbean Bank each having ratios of 11%, 21% and 20% respectively. In other words, for every $1.00 raised in deposits from the public, the entire banking system raises only 19 cents from its shareholders.

It is this type of dis-proportionality that gives rise to one form of moral hazard in banking. Banks can either invest in a prudent loan yielding high expected returns or gamble on a risky loan that can yield high private returns for the bank if the gamble pays off, but imposes costs on depositors if the gamble fails, especially as the ratio of capital to deposits approaches zero. That is, the lower the ratio of capital to deposits, the higher is the propensity to gamble for resurrection. Furthermore, if markets are sufficiently competitive, the bank earns relatively little from prudent investment but the bank can always capture short term high yielding returns from gambling. Thus increased competition tends to promote gambling in the banking sector. Some form of prudential regulation is then necessary to protect the interests of depositors vis-à-vis banks’ managers and shareholders and to induce banks to invest prudently. This has been referred to as micro-prudential policy, a primary tool for which is the mandating of minimum capital requirements. A minimum capital requirement sufficient to dis-incentivize gambling and instead to promote investment in a prudent loan in equilibrium combined with effective monitoring of banks by a central regulator has been shown to form an effective basis for micro-prudential regulation of banks.

A second identified purpose necessitating prudential regulation of banks is macro-prudential policy, that is, the fostering of financial stability and the protection of the banking system as a whole from systemic risk. Systemic risk is the risk that the failure of a large institution whether by way of a bank run or otherwise might spread to the rest of the banking system. In Belize, all of our domestic banks are large, the smallest being Heritage Bank representing 7% in market share of deposits and the largest being Belize Bank representing 38%. Although financial stability may be recognized as a public good, the total willingness of individual banks to pay for financial stability is less than the social value of this financial stability. It is in the interest of each individual bank to free-ride on the willingness of others to pay for financial stability. Macro-prudential regulation therefore becomes necessary for maintaining the public good of financial stability.

The Central Bank of Belize is tasked with effecting both these regulatory policies. Under the Central Bank of Belize Act, “within the context of the economic policy of the Government, the Bank shall be guided in all of its actions by the objectives of fostering monetary stability, especially as regards stability of the exchange rate, and promoting credit and exchange conditions conducive to the growth of the economy of Belize.” Under the Banks & Financial Institutions Act, the Central Bank is also vested with broad powers to examine, audit and otherwise regulate banks including powers to issue orders and directives and seize management and control of a bank with a view to restricting, prohibiting, remedying, or correcting courses of actions taken by banks which may be detrimental to the interest of their depositors. At the same time, to support the achievement of these objectives, and in particular, to ensure financial stability, the Central Bank is also a lender of last resort to banks. It can control interest rates, control credit and vary the amount of liquid asset reserves a bank must hold including the amount of cash reserves it must hold with the Central Bank.

Recent events call into question whether the Central Bank has been effectively discharging its duties as a prudential regulator or whether it has become derelict in its duties and is instead recklessly fanning the flames of systemic risk and moral hazard in the banking system.

In a claim before the Supreme Court, the Belize Bank and its parent company BCB Holdings has brought proceedings against the Central Bank to restrain enforcement of a directive by the Central Bank requiring the Belize Bank to de-recognize its $20million Venezuelan claim against the Government as a receivable or asset on its balance sheet and restate its financial statements accordingly. This necessarily meant a one-time extraordinary expense of not less than $20million against the net income of the Bank. In opposing the application on behalf of the Central Bank, the Governor of the Central Bank, Glenford Ysaguirre, swore to an affidavit in which he seeks to justify the issuance of the directive. In essence, the Central Bank’s action seems to be a valid exercise of micro-prudential regulation.

He then continues further however to address other matters not materially connected to the directive or to the application. He continues on to speak of the Bank’s ratio of non-performing loans and to speculate about the stability of the Bank. This is particularly alarming given the non-performing loan ratios of other banks with substantially less capital than the Belize Bank, whether on an absolute basis or on a percentage basis. In light of such numbers, one is left to naturally speculate – does that mean that such other banks are even more unstable? What happened to the Central Bank’s role as a macro-prudential regulator?

While the status of a bank’s non-performing loans must be evaluated very closely, having regard to the financial stability of not only a bank but to the financial stability of an entire banking system, a regulator must choose his words very carefully so as not to scare the public into an unwarranted contagious confidence panic. Knowing that financial analysts, investors, politicians and others hinge on every word that they may say and that financial markets may rally or may plunge depending on what they say, Ben Bernanke, Chairman of the U.S.A.’s central bank, the Federal Reserve, and his predecessor, Alan Greenspan, are always very careful in their choice of language. With fractional reserve banking, loss of confidence by the public can quickly lead to a systemic banking crisis.

With recent reports in the media about the financial details of individual borrowers, there is also growing concern of leakage of confidential information and reports coming directly from the Central Bank and/or banks which it regulates. It is not clear whether such illegal leakages are intended or unintended but, in any event, what is the Central Bank doing to stop any such leakages and to bring the persons responsible to account for such illegal actions? How do these leakages foster financial stability?

While the Central Bank may be seeking to uphold its duties as a micro-prudential regulator to protect the interests of depositors in issuing its directives, for the sake of all of us, it is of paramount importance that the Central Bank seeks to ensure the financial stability of our banking system, avoid systemic risk and absolutely refrain from taking actions inconsistent with such role as a macro-prudential regulator.

Live and let live

#386167 - 08/23/10 03:17 PM Re: Belize Bank in Trouble? [Re: Short]
Tangles Offline
Hope this is the correct place to post this question, but in lieu of the latest bank fiasco around the world, where IS the best place to put your money? I understand Scotiabank in Belize is Canadian owned but when I asked in San Pedro they said they don't have the same guarantee that the Canadian banks have with their government (i.e. up to $100,000.00 of your money is insured at every financial institution where you place your money in Canada). Does the US have that kind of guarantee? And does Atlantic Bank have any security if they are tied in with the US banks? When I asked last week at the Belize branch, I was told the money was safe in Atlantic Bank because they 'hold' monies that are on deposit in some central office (if I understand this correctly). The interest rates you can make on your money in Belize at the 'American' and 'Canadian' banks are extremely appealing. But how secure is it if they do not have the same guarantees?

Anyone have good contacts and advice about where expats can put their money where they can make good interest and monies are relatively safe? Has this been covered anywhere else in this forum?

#386169 - 08/23/10 03:37 PM Re: Belize Bank in Trouble? [Re: Tangles]
bywarren Offline
An over simplified answer to your question is: It is not Canada or the US, it is Belize. Normally, the higher the reward, the greater the risk. Any bank in Belize will have a greater risk than one in Canada or the US as there are no government guaranties.
You also have the concern of what currency your money will be in once deposited in a Belize bank.

#386173 - 08/23/10 04:04 PM Re: Belize Bank in Trouble? [Re: Short]
Tangles Offline

"Normally, the higher the reward, the greater the risk."

True enough in many cases as a general rule, but since Belize charges such high interest rates on loans, mortgages, credit cards etc. (far, far more than in Canada), I'm assuming that this is how they can offer higher interest rate returns on your savings. Therefor, a higher interest rate return in and of itself in this case in particular, does not necessarily mean a higher risk. Other things might though, which is what I am trying to determine. And Atlantic Bank is telling me that they are guaranteeing your money, albeit in a different way.

Thought this link was interesting as well...though real estate and the general stock market have been more my forte, looking for some Thing and some Where else now to park it all, as are most retirees on this post I'm sure....


#386191 - 08/23/10 06:54 PM Re: Belize Bank in Trouble? [Re: Tangles]
SnoopysMom Offline
I'm not expert, but logic tells me that Belize economy is so tied to the US, that we are likely to see the banks in a domino type effect. Persons here also took out loans (higher interest ones) that they are now unable to pay for reasons tied to the US slowed economy = decreased tourism, slow down of construction / development projects, etc. The borrowers here do not have the protections they would in the US and are subject to foreclosure much more quickly, which is unfortunate. The economy doesn't look too good anywhere you look these days.....

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