Shareholders see sinister motive as… Govt. blocks NBS from increasing lending ceiling

Apr 27, 2014 News

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The non-approval of an application by the New Building Society for an increase in its lending ceiling from $12M to $15M is causing concern among members of Guyana’s only building society.
Sources tell Kaieteur News that the delay of more than three years by the Ministry of Finance to engage the Society is causing several problems.
NBS is being squeezed out of the more profitable higher-end lending market since it cannot meet growing demands for higher mortgage financing as building costs continue to rise.
The consequence of the delay also means that the NBS is facing a situation whereby its avenues for investing surplus funds are being restricted.
According to officials of that financial institution, who asked not to be named, NBS’s shareholders during its Annual General Meeting three years ago approved a move for the lending ceiling to be raised from $12M to $15M.
NBS, which has hundreds of millions of dollars in liquidity,   immediately dispatched an application to the Minister of Finance, Dr. Ashni Singh, seeking permission for the ceiling adjustment.
According to the officials, a number of letters were sent as a follow-up to the Minister but there have been no movement. “We are not sure the reasons for the delay or why no permission is being granted.”
However, what is clear is that NBS is being forced to turn down applications for mortgage financing of over $12M. The Financial Institutions Act under which the NBS is regulated deems NBS as a Licensed Non-Bank Financial Institution. Unlike the commercial banks, NBS is not permitted to offer demand deposits and chequing accounts.
Housing loans have been a boon to commercial banks, NBS and a number of other financial institutions like Hand-in-Hand Trust Corporation, following a move by Government to introduce low cost mortgages a few years ago.
Under arrangements, commercial banks and the non-bank financial institutions would receive tax breaks for issuing mortgages at special rates that start as low as 4.25 per cent annually. Banks therefore enjoy the same tax benefits as the NBS on such lending even as they are allowed to lend without any limits.
With thousands of house lots being issued annually…last year it was 7,000…mortgage financing has been big business. As the published financial statements of the commercial banks show the commercial banks have seen their profits soar as they exploit the tax advantages of the mortgage financing packages and the lucrative high end mortgage market.
The sources claim that the government does not demonstrate the same level of respect for the New Building Society as it does the commercial banks whose body, the Guyana Bankers’ Association, appears to have unrestricted access to the Minister of Finance.
They describe it as complete contempt that the Minister has ignored the several letters and reminders from the New Building Society which has nearly 100,000 members.
The sources told this newspaper that the Society is the only financial institution that is complying with the Mortgage Interest Relief regulation and called on the Government to explain its inaction on dealing with the commercial banks which have collectively refused to comply.
They noted that had the NBS so brazenly challenged the Government as the commercial banks have done, it might have had its licence revoked.
Sources outside of the NBS, however, see a more sinister motive behind the Government’s refusal to increase the lending limit in what would be in line with inflation in building material and labour costs.
This government has tried to facilitate the Hand-in-Hand Trust which after blowing hundreds of millions behind a shady investment in the disgraced finance magnate, Alan Stanford, turned to the Brassington brothers to rescue it, one NBS shareholder said.
Concerns have been expressed at the piecemeal approach to the financial sector including the New Building Society. The approach encourages the commercial banks to conduct their operations like they did 50 years ago with little imagination or innovation.
By pandering to the commercial banks’ bottom line the government may be helping them and their shareholders but is contributing to the retardation of the sector and the wider economy.
In 2011, advances made by NBS were to the tune of $4.2B. In 2012, this jumped to $6.75B, representing a 60 per cent increase in its business.
Yesterday, the financial institution held its 74th AGM at its new head office on the Avenue of the Republic. As of December 31, last year, NBS had made $992M in profits, up from the $813M from 2012.
Calls and text messages to the Finance Minister, Dr. Singh, were not answered yesterday.

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