Latest update June 14th, 2026 12:45 AM
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Banking scam
Rice is in trouble. Sugar is in trouble. Bauxite is in trouble. Forestry is in trouble. Remittances are in trouble. One would be forgiven, after digesting this litany, to conclude that the banking industry must also definitely be in trouble.
After all, banks were invented to service the financial needs of the businesses of a country by being allowed to accept deposits from the citizenry and loaning the monies collected to the said businesses – for a fee called “interest”. It would not be unreasonable to assume that if the presumed sources of funding of banks were not doing well, the banks would also share that fate. One would be wrong in Guyana, at least.
In Guyana, the banking industry is doing very well, thank you. In fact, so well, that there profits are running at historic levels. Take the case of GBTI, which is a typical example (not the largest, nor the smallest) of what has been going on in the banking sector. GBTI’s after-tax profits (in millions) run as follows over the last few years: 2005 – $334M; 2006 – $506M; 2007 – $795M; 2008 – $940M. This year, amidst all the doom and gloom, GBTI’s half-year after-tax profits have already jumped to $537M – an 11.87 per cent increase over the comparable period last year. They are certain to pass the billion-dollar mark in profitability this year. What is going on?
With the news of banks in the developed world in all sorts of trouble during the past couple of years inundating us daily, have our banks discovered Croesus’ secret of turning anything they touch into gold? Well, in a sense, they have. And this is the great scam they have been pulling on the Guyanese economy as a whole and their customers and clients in particular.
When banks accept deposits from customers, they pay the latter a fee – interest on deposits; and as we said earlier when they lend out this money, they charge the borrowers a “borrowers’ fee”. The difference between these two interest rates – the “interest spread” – becomes the profit of the bank – after deducting their expenses, of course.
In Guyana, depositors are given a measly three to four per cent while business borrowers at the very best are forced to shell out 14 per cent and up. And this is when they are granted the privilege of getting the loan after practically pledging their firstborn.
This double-digit profit on loans has been the major cause of the lack of investment in the development of new businesses in our country (not to mention acting as a disincentive to savings) and creating a tremendous drag on the economy: very few companies can generate the level of profits needed to service loans at above 14 per cent interests – especially in the early start-up years. In the US, on the other hand, the business loans are typically around seven to eight per cent with a spread of three to four per cent.
But the scam does not end there. Under the dogma of the IMF/World Bank dictates, the Banks can afford to turn away business borrowers with disdain because they have a fail-safe backstop in the Bank of Guyana.
The Banks can purchase Treasury Bills at no risk, at any time – with the taxpayers of this country paying the banks billions of dollars yearly (a major source of their profits) for the privilege of holding their money. The biggest irony is that this money – now around some $60 billion – has to be “sterilized”, i.e. it cannot be used by the Government.
This space has consistently demanded that we remind ourselves as to why banks have been literally given the right to mint money: it was certainly not to make a few rich at the expense of the rest of the country and economy. Since we are underwriting them from the public trough, the banking industry should be treated just as another public utility, here intermediating funds for the public weal.
Their rates and charges should be determined by regulation, with the objective of ensuring their shareholders a return comparable to the government bond rate.
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