The Finance Minister should swiftly amend the Act to raise NBS’s lending limit

Jun 24, 2014 Letters

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DEAR EDITOR,
A recent article appearing in KN headlined, “Financial analysts say… Raising NBS’ lending limit has tax implications” provided a skewed view of the issues surrounding the role of NBS and its importance to the nation. The article failed to appreciate that government still has a responsibility for ensuring its citizens are adequately housed.
After being in office over 21 years, the PPP-led government has not pursued any public housing projects (that even “raw-rank” capitalist societies such as USA do) and as such the taxes foregone annually on an increase of $3M on the lending ceiling will work out to be less than 6% of what may be needed if Government were to pursue any credible public housing project.
Government’s decision to provide interest relief and tax-free regimes to ensure it supports the growth of housing (where the poorest citizens are usually the biggest beneficiaries) cannot be viewed narrowly as revenue foregone, but rather an indirect investment in housing for the working class.
To ask NBS to convert to a commercial bank so that it can access an unlimited lending ceiling, is myopic to say the least, and reflects a manifest lack of understanding of the mandate of Building Societies. NBS and its forerunner the British Guiana Building Society were set up to fill a void that commercial banks have not been fulfilling over the years, and continue to exist and thrive for this very reason.
Directors operate commercial banks strictly for profit and they increase and reduce their mortgage portfolio based on what they perceive to be market forces. Any sensible and deliberate housing policy directed to benefit the poor and working class cannot be based upon the whims and fancy of a commercial sector. For this reason, the New Building Society Act was established to give certain aspects of the Housing Act and Government’s housing policy functional relevance.
The fact that NBS does not come under the Bank of Guyana Supervision Guideline for rules against doubtful loans, gives the Society the leverage to relax its lending requirements to be less stringent than those of a typical commercial bank, enabling it to give loans to the poor and informal worker who would not see the light of day if they had to face a typical commercial bank.
It is a misnomer to argue that, if NBS is allowed to escape the BOG supervision rules an uneven playing field is created thus commercial banks must be subject to the same rules. It is just as ludicrous to suggest that NBS has an unfair advantage because of its tax-exempted status.
The Guyanese economy has a thriving social model operating alongside a fierce capitalist model. For example, free medical care and free education exist alongside fiercely competitive and exacting medical and education institutions. Does Queen’s College have an unfair advantage over Marian Academy? Does Georgetown Hospital realize “far too generous” access to the public purse than Woodlands Hospital?
While NBS is not necessarily a public institution in the same sense as QC or GPHC, the Act establishing it did so with similar intentions to ensure that such an important aspect of national life is not left entirely to the commercial profit motive. As such, there is nothing preventing direct or indirect access to public funding.
Lending limits ought to be reviewed and increased from time to time in accordance with rise in prices in the building industry. The ceiling of $12M was introduced more than 10 years ago and was very relevant then. Requests for loans based on a pre-2003 ceiling while having to face post-2013 prices tells its own story.
If we check the price for stone, nails, wood, cement and steel rods etc. one would see that all categories of building materials have risen exponentially, including the price for workmanship. Ten years ago, a labourer class of construction worker earned less than $1,500 per day, today they earn about 4,000. What this means is that today’s higher prices in the housing sector have dwarfed the $12M ceiling since it was first introduced. If NBS is to fulfill its mandate and continue to be relevant, it must of necessity be allowed to increase its ceiling to at least $15M, a sum which itself should come up for automatic review every four or five years.
New Building Society has elements of functional relevance that make it different from commercial banks: it exists as a quasi-public sector entity and should not be seen as a protected, privilege-driven captor. If anything, it is the commercial banks that should consider themselves fortunate for the tax holiday they enjoy on profits for the first $8M of loans issued for housing, a more than generous position.
In the absence of a comprehensive study and forecast of the size of diversion of loan applicants and the quantum applied for, one can only speculate, so for an analyst to speak of a huge burden on the national coffers without attempting to offer any credible data is a bit abusive to the intelligence of the public.
There are growing voices for Guyana to re-establish an agricultural development bank, because the commercial sector’s loan regimes are not compatible with the needs of the local agri-sector, as such, the expansion of agricultural production is being severely hampered. For the purpose of giving a fillip to the agri-sector, establishing a tax-exempted agri-bank therefore cannot be seen as creating an unfair advantage over commercial banks, but rather creating opportunities that are hitherto nonexistent.
It’s a similar customer base that the NBS is reaching in the housing sector and has helped to grow the housing sector exponentially; in fact the commercial banks should be thankful to NBS for keeping the mortgage market lively even through dark economic times, so that they can cash in on the vibrancy of the housing sector which exists today.
A rise in the ceiling is now past due, the Minister of Finance and his counterpart in Housing should act swiftly to consolidate the vibrancy in low income housing for the sake of the poor and working class.
Lenno Craig

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