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Excess liquidity should send interest rates down? #425498
12/17/11 08:35 AM
12/17/11 08:35 AM
Joined: Oct 1999
Posts: 79,699
oregon, spr
Marty Offline OP

Marty  Offline OP

PM Barrow says excess liquidity should send loan interests rates down

The House of Representatives met in Belmopan this morning; two bills were introduced and passed, but we will have more on that later. The sitting ended by midday and we were gratefully spared of the usual theatrics. Outside the House, the Prime Minister fielded questions on a wide range of issues. In our newscast on Thursday we reported on the dismal state of the economy as it pertains to an excess cash reserve at the Central Bank. Over the past thirteen months liquidity has ballooned from forty-eight and a half to almost a hundred and ten million dollars, forcing several commercial banks and credit unions to refuse fixed deposits. The situation at hand is such that the rate of deposits are greater than the loans being approved. According to Prime Minister Barrow, that imbalance has created a fiscal environment where banks are now reducing their lending rates. While those fees are in the range of eight point five to nine point nine percent, consumers remain skeptical in accessing the surplus in light of the weak economy. But P.M. Barrow, in an interview this afternoon, said that he was unaware of a freeze in deposits.

Dean Barrow

“I am not aware that the banks are not accepting deposits but I have spoken from time to time about excess liquidity, most recently at the economic forum that we had and Ive said that to me the fact of excess liquidity ought to be driving down lending rates. I was told that Heritage Bank is offering loans at 9.9% and thats a step in the right direction. I dont know that, I really would have to look at what youre telling me, if the banks have stopped accepting money. That makes no sense to me at all.”

Isani Cayetano

“First Caribbean International being one of those banks.”

Dean Barrow

“I really have to check on that but the question of the deposit rates is altogether another matter except theres a temporary halt while they realign the rates. While they say to people well look, we use to offering you 6% or 7% now were going to be offering you three. Theres a floor, as I understand it, on the deposit rates but if deposits are not being accepted I am sure that is temporary while this whole question of rates is being sorted out by the commercial banks.”

Channel 5

Re: Excess liquidity should send interest rates down? [Re: Marty] #426063
12/24/11 09:11 AM
12/24/11 09:11 AM
Joined: Oct 1999
Posts: 79,699
oregon, spr
Marty Offline OP

Marty  Offline OP

Credit Unions affected by excess liquidity in banks

We have reported that excess cash liquidity is affecting the Central Bank and commercial banks, which are turning down fixed deposits. A ripple effect of this financial crisis is being felt by credit unions, whose membership includes smaller investors. The liquidity has also brought down interest rates for credit unions. News Five’s Isani Cayetano reports.

Isani Cayetano, Reporting

The current overabundance in cash reserve at the Central Bank has forced a number of lending institutions, including banks and credit unions, to turn down fixed deposits. During the past year convertible assets have inflated to roughly one hundred and ten million dollars, up from forty-eight million in November 2010. While the primary focus has been on the impact the adverse effect of excess cash is having on the banking system there are equal concerns within other areas of the financial sector, particularly among the credit unions.

Corrine Fuller, Executive Director, Belize Credit Union League

“For the credit unions, we are also customers of the bank so it affects us. It is just starting to affect us because credit unions hold some of their monies in commercial banks as well and if you had a fixed deposit with a good rate it will remain that way until it matures. So when it matures the rate is going down and it affects them, it affects the bottom line. The credit unions’ investment in loans, that’s one of the most important investment that they make, so they have a lot of their money in loans but people keep on depositing with them, you know. Members continue to save so it is does affect credit unions because when you take additional monies to the bank you don’t get the rate that you use to get before.”

Since the banks are only accepting bulk payments from institutional investors, such as the Holy Redeemer Credit Union, at a comparatively lower cost the market has been buckling. That rate has since been reduced to two and a half and three percent; however, according to Corrine Fuller of the Belize Credit Union League, that figure varies.

Corrine Fuller

“The interest rate that you get at the bank that depends on a number of things, I believe. It depends on how long you have the money on the fixed deposit and it also depends on the amount.”

At an initial rate of return between seven to nine percent the profits derived from fixed deposits contributed significantly to the revenue of the HRCU.

Corrine Fuller

“As a depositing customer to the bank it affects us because the rate that we get is lower now and at the end of the day that is part of our income, you know, the interest from deposits in the bank. So at the end of the day the credit unions will see that there is less income from that source.”

Isani Cayetano

“What you’re describing seems to be sort of a ripple effect which begins with Central Bank, the average commercial bank and then now the credit unions.”

Corrine Fuller

“Well remember I told you that the credit unions are customers of the bank so whatever decisions that are made that affect the bank that eventually affects their customers the credit unions will be so affected because we are a customer of the bank just like the regular person.”

Similarly affected is the Social Security Board. It is speculative, however, how the impact of excess liquidity will affect its bottom line.

Isani Cayetano

“If the need arises for SSB to raise more funds in order to meet its payouts since it is now earning five percent less for its hundred and twenty million in cash deposits, could there be the possibility of an increase in contribution by workers and businesses?”

Channel 5

Re: Excess liquidity should send interest rates down? [Re: Marty] #426081
12/24/11 02:47 PM
12/24/11 02:47 PM
Joined: Oct 2003
Posts: 2,461
Belize City
Katie Valk Offline

Katie Valk  Offline
The excess liquidity only means loan and deposit interest rates will decrease. Banks do not need the $ so are not offering CD's at the rates they used to. I think once lona interest rates decrease, people will borrow again and off set the excess liquidity, which is not a bad thing to have too much money. Perhaps one day, banks will charge for savings accounts, sort of like a storage facility, instead of paying interest.

Belize based travel specialist
[email protected]
Re: Excess liquidity should send interest rates down? [Re: Marty] #426117
12/25/11 09:53 AM
12/25/11 09:53 AM
Joined: Apr 2000
Posts: 3,054
Asheville, NC USA
Lan Sluder/Belize First Offline
Lan Sluder/Belize First  Offline
Another way of looking at it is that banks throughout the world, especially in the U.S. and Europe, have "excess liquidity" in the sense that they have plenty of deposits for which they pay virtually nothing but they are afraid to make loans, even at attractive rates. Like a lot of private investors banks were burned by financial events over the past four years and would rather sit on cash than put it to work.

What's happening is Belize is just a reflection of what's happening around the world.

Re: Excess liquidity should send interest rates down? [Re: Marty] #426288
12/29/11 08:20 AM
12/29/11 08:20 AM
Joined: Oct 1999
Posts: 79,699
oregon, spr
Marty Offline OP

Marty  Offline OP

Banks’ excess cash means lower interest rates for Belizeans

Central Bank's Governer, Glenford Ysaguirre, says surplus cash will bring down interests rates

Commercial banks may very well be impelled to further reduce their lending and deposit rates, as the banks’ cash reserves, which are held at the Central Bank, are well above the prescribed limit, Central Bank Governor, Glenford Ysaguirre, told the Reporter on Tuesday, December 20.

Ysaguirre explained that the Central Bank of Belize (CBB) mandates that the commercial banks keep 8.5% of their average deposit liabilities at the Central Bank as cash reserves. However, current figures show that the banks have an excess liquidity of $108.9 million.

“The amount that they are holding at the bank right now is $283.5 million, under the regulations they are supposed to hold $174.6 million,” CBB’s Deputy Governor, Mrs. Christine Vellos, explained.

Looking at it from a merchant’s perspective, the situation does create difficulties for banks because this means there is less demand for their “product”—loans; while there has been a simultaneous increase in their “inventories”—increased deposits.

But, like any prudent business owner, the price of their “product” (interest rates) is expected to come down, as they hope to attract more borrowers.

“High levels of excess liquidity are an indication that savings levels within the system are high. This is good to the extent that it will put pressure on lending rates...Some advertised lending rates are already in single digits which was previously unheard of in Belize,” Ysaguirre noted.

As they apply to loans to the business sector, the rates have also started to come down, although not as fast as some in the private sector would like.

Ysaguirre said the measured reduction is largely due to the high levels of non-performing loans, which is due to poor decisions made by some banks in past years and complicated by global economic pressures. The banks are now left to carry these high levels of defaulted loans, so there is a resistance to lowering the price of their goods, because they are trying to recover some of their losses.

However, while any reduction may be good news to the borrower, it does mean the banks would be “buying” less from their “suppliers”—the depositors, and they would be inclined to lower the interest rates offered, because they are already “overstocked”.

“Given the current international situation, it is not unusual, in the U.S. for example, for deposit interest rates to approximate 0% or even become negative, [that is to say] banks charge depositors a fee for safe keeping of deposits since they already have more than sufficient funds to meet their lending needs,” Ysaguirre explained.

He pointed out that the surplus is different for each domestic bank, because the liquidity isn’t evenly distributed. This means that the interest rates for deposits, or the conditions under which they are accepted, may vary. Even so, Ysaguirre says, there has been a marked decrease in deposit rates, especially as it pertains to large time deposits.

“Some banks may not accept large time deposits, but as far as we know no restrictions are being placed on savings deposits,” he said.

The CBB has gradually reduced the flooring on savings deposits from 4.5% in 2010 to 2.5% in 2011, in order to give the commercial banks more incentives to lower their lending rates, although such a reduction doesn’t automatically result in huge decreases.

“It is necessary to bear in mind that there are other factors that influence the lending rates such as the level of non-performing loans... [And] the domestic demand for loans is also influenced by the level of economic activity in countries that are our major trading partners,” Ysaguirre said.

He reiterated that, in the end, the matter is ultimately determined by the individual bank’s operating costs; and the economic realities across the region and in the United States, where he says, “excess liquidity is so high, interest rates on regular deposits are well below 0.5%.”

But, as it pertains to the overall health of the economy, Ysaguirre pointed out that Belize has recorded a 2.7% growth up to September, which exceeds the 1.8% increase of the same period last year.

He explained that the excess liquidity in the system can in no way be the sole indicator of the economy’s health. There are several other factors to consider such as GDP growth, the level of inflation and growth in the country’s foreign reserves, he said.

The Reporter

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