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Republic Bank and that Marriott investment

Nov 22, 2011 Editorial

 

The Marriott project is about to become a reality. The sod for the project has been turned and there seems to be no shortage of financiers. One of the largest would be Republic Bank Limited which is providing more than half of the money.
It is not surprising that Republic Bank would be funding that project to such an extent. For one, it is the largest bank in Guyana and secondly, it has more money in its reserves than it knows what to do with it. Somehow it escaped the harsh consequences of the global financial crisis that caused many banks to fold.
Not so long ago, there was the fear that the banks were so liquid that they would have demanded that their depositors pay to have the bank keep their deposits. Indeed the banks have also begun to charge a lot of money for basic transactions. For example, for every Republic Bank cheque encashed the holder must pay $30. This same sum is charged for every withdrawal from the Automatic Banking Machine.
Different banks have different rates. They also make money from credit card transactions and from money transfers. Foreign currency transfers from one person to another incur a cost to both parties, the sender and the receiver.
Banks have to make money. But to see them put up startling edifices at a time when they complain about liquidity and to see them expand their businesses would suggest that they are not only liquid but also profitable.
Indeed, they are cagey about certain transactions but in Guyana they seem to have no problem investing. They are investing in potential car buyers, home owners who are now in such large numbers, and large business groups.
And there is no end to people seeking loans. These loans are what keep the banks afloat and ensure a modicum of profit for the depositors.  What make these loans attractive are the low interest rates.
China with its burgeoning economy is seeking investments all over the world to the extent that it is replacing the United States in this corner of the world. It has a lot of money and it has no aversion to spending this money not only to expand its sphere of influence but also to make unimaginable profits. The United States owes it so much that if that country were to recall the debt in an instant the United States would collapse.
It is this drive to expand its sphere of influence that we now see the presence of so many Chinese companies in this corner of the world. They are involved in just about everything, from airport development to hydroelectric development.
Local commercial banks stand to benefit. The employment created from the involvement of the Chinese will effect a spin off. It is in anticipation of this that Republic Bank Limited is investing in the Marriott project. That bank is so liquid that it will undertake any project to make use of the liquidity.
But this recent foray into the hotel industry has given rise to some questions. When Robert Badal was seeking the purchase of Pegasus he approached Republic Bank for a US$9 million loan. Given its excessive liquidity one would have expected the bank to jump at this officer. Instead, the bank refused the investment.
Today, the same bank is investing eight times that sum in the same hotel industry. Perhaps it has confidence in the government; that the government would guarantee this investment since it is a major shareholder in the very hotel. And for its part, the government has a lot of money at its disposal.
But there is always the question of a failed investment. Republic Bank must have conducted a feasibility study to recognize that the Marriott would enjoy a substantial rate of return. Robert Badal, the owner of Pegasus says that for and investment of US$51 million the rate of return at ten per cent or US$5 million.
He is of the view that the hotel industry in Guyana as it stands does not make half of that money. The pursuit of the Marriott, in his book, is questionable. And for Republic Bank to make that investment is to cause raised eyebrows.

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