The Central Bank of Belize says that its role is encouraging financial stability and economic growth in Belize. Among its tasks are: providing economic advice to the Government of Belize; providing banking services to commercial banks, the Government of Belize and public-sector organizations; issuing monetary notes and coins in Belize; buying, selling and otherwise dealing in foreign exchange; and managing Belize’s foreign reserves; among other responsibilities.
This week, we spoke with Central Bank Governor Glenford Ysaguirre on a range of matters which concern the bank’s portfolio.
Banking sector troubles
The governor broadly addressed the challenges facing the banking sector, particularly the high rate of non-performing loans (NPL) attributable to losses in sectors such as real estate and tourism.
He noted that under normal circumstances, the prudential benchmark of 5% NPL is encouraged, but Belize banks, on average, have been dealing with NPL rates way above that.
“Given what happened in 2008,” said Ysaguirre, speaking of the global financial/economic crisis, “I think everybody has jumped above the prudential rate.”
He said that an NPL rate of 8-9% would be a comfortable number under the circumstances. Some banks are high and some are low, depending on the sectors they finance.
“The average for the [banking] system right now is around 15%,” said the Governor, pointing out, however, that for the period 2008 to 2009, it was as high as 17 to 18 percent. “It is coming down, and it is important to us that it is trending in the right direction.”
He told us that some banks have bitten the bullet and absorbed losses, and so they can move with a portfolio that is cleaner, while others are still going through that process.
Delayed responses hurt
He noted that as Belizeans, “We have difficulty to accept change... Many in the business sector did not react as quickly to the situation; a lot of us sat down and hoped things would rebound but they won’t get back...for some time now.” He said that the quicker we come to that realization and try to do things to improve – diversify business and move on to other forms of activities, the better.
“We tend to lag behind the region in adjustment to change when we are faced with these external shocks,” said Ysaguirre.
Central Bank’s intervention
The Government told us that the Central Bank introduced most recently in December an increase in the provisions that banks would have to pass for non-performing loans.
“In the past, a loan that was fully secured – whether by mortgage or interest in some asset – would not have required the bank to pass any provision;” however, he said, the banks are now being required to increase their provisioning—funds held to offset losses—for 70% for such loans.
This, he said, is to ensure that banks have enough of a buffer and have enough provision to offset losses, thereby bringing the provisioning requirements up to international standard.
Banks would also be forced to recognize their losses on bad loans at an earlier date, and they would have to more readily acknowledge when they have come to the point where there is no reasonable opportunity to recover a loan.
Receivership of Port of Belize
We asked the Governor to comment on the Port of Belize receivership by Private Investment Limited, an overseas entity in the Turks and Caicos. We told him that the business owner, Luke Espat, had raised questions of the legality of what has been transpiring, and his attorney, Arthur Saldivar, had told us that PIL is not even a bank and should not be petitioning upon a financial document.
Ysaguirre said that while indeed, PIL is not a bank, what the originating bank did in selling off the loan to PIL it can do, “as long as that is part of the terms and conditions that the borrower signed on to.”
He added that, “In most markets, that is one of the methods banks use to rid themselves of troubled assets -- sell them at a discount,” Interestingly, however, at the time the loan was moved from the Belize Bank it was a performing loan, and that was one of the objections the Central Bank had with the repackaging of the debts. He told us that what happened to the loan after it was transferred is something he has no information about.
Ysaguirre also said that whereas there are procedures, guidelines, regulations in place to ensure related parties do not take advantage of clients, by accessing information for personal gain at the expense of their clients, in this case the indication is that the customer, Espat, was in agreement.
Thoughts on National Bank
The Central Bank Governor also shared with us his views on Prime Minister Dean Barrow’s proposal to turn the Development Finance Corporation (DFC) into a full scale national bank, to compete with the commercial banks.
Ysaguirre said that there would be issues with capitalization and ownership of the bank.
“If the idea is to turn the DFC into a full-scale commercial bank to start accepting deposits that would be owned by the private sector, there is nothing wrong with that,” he said, but added that, “there may be some difficulties with respect to a bank owned by the government.”
Ysaguirre noted that “Confidence and credibility is always an issue.”
If the DFC transformation does come to pass, he said, the Central Bank would also be regulating that institution and regulations would have to be drafted up to ensure it has the kind of autonomy that would give Belizeans the comfort and confidence that it would be run in the right way.
He said that there would have to be some distancing between administration of the bank and the government for it to be a success.
Can GOB pay super-bond and pay BTL, BEL compensation?
We asked the Governor: How do our numbers look?
He told us that the monies from the proceeds of the sale of shares in Belize Telemedia Limited (BTL) are set aside. The final compensation figure would still have to be determined, and if the courts issue a ruling for a compensation figure higher than the proceeds of the sale of shares, he said, meeting all those payments “would create some fiscal pressure on the government, but that’s to be determined.”
Governor Ysaguirre said that remittances have ceased to be a major foreign revenue source for Belize.
“With the advent of the money transfer agents, we have flat-lined with remittances,” he said. “We almost send out most of what would be coming in through these transfer agencies – the vehicle for remittances to come into Belize.”
He added that there has been pressure on the Central Bank, which also regulates money transfer agents, for permission to buy foreign currency from the domestic market to satisfy the demand for the transfers out.
(Story from the Tuesday, January 10, 2012 edition of The Adele Trapp Show, which simulcasts at 7:30 p.m. on KREM TV and KREM Radio.)