IMF highlights need for ‘stronger’ AML measures

Mar 29, 2017 News

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The International Monetary Fund (IMF), was in Guyana, recently, to assess the economic health of the nation. In doing so, it examined the strengths and weaknesses of the financial sector.
A number of observations were made in relation to the financial sector, including the fact that Guyana still has more work to do with regard to strengthening its anti-money laundering measures.
According to the IMF, Guyana has commendably exited the Financial Action Task Force monitoring and concluded a National Risk Assessment. However, “It should continue to strengthen its Anti-Money Laundering and Combating the Financing of Terrorism framework in line with international standards.”
The body also zeroed in on the need for stronger supervision in keeping with the World Bank’s Financial Sector Assessment Programme (FSAP).
The Fund said that this year’s consultation with the authorities here included an in-depth assessment of Guyana’s financial sector under the IMF and the World Bank’s FSAP.
According to the IMF, the findings were many in this regard.
It said that the financial oversight framework in Guyana continues to be strengthened. It noted that the authorities have introduced a more structured approach to supervision, expanded the supervisory and regulatory perimeter, and drafted a Crisis Management Plan.
The Fund said that the FSAP recommended making supervisory oversight internally consistent. The IMF understands that the authorities here are already taking steps in this direction.
Furthermore, the IMF said that weak activity in a few key sectors led to a notable increase in Nonperforming Loans (NPLs), and a decline in private credit growth.
A Non-performing Loan is the sum of borrowed money upon which the debtor has not made scheduled payments for at least 90 days. A nonperforming loan is either in default or close to being in default. Once a loan is nonperforming, the odds that it will be repaid in full are considered to be substantially lower.
Furthermore, while banks’ reported capital adequacy ratios and profitability are high, the Fund articulated that slow collateral recovery, unrecorded related-party exposures and loan misclassifications account for inadequate provisioning.
It said that more timely and effective enforcements recently initiated by Central Bank must be continued to address these supervisory gaps.
The Fund also stated that the Bank of Guyana’s supervisory guidelines should be revised to eliminate reduced provisioning requirements for “well-secured” portions of NPLs.
It added, “The Bank of Guyana should also encourage banks to cease use of overdraft lending for commercial purposes; revise the definition of related parties to reflect international standards; and increase the minimum capital requirements from eight to 12 percent of risk-weighted assets to enhance loss absorbency.”
Furthermore, the Fund said that the Banks’ strong inter-linkages with the domestic and regional sovereigns; complex ownership structures; and substantial related-party lending can amplify potential shocks.
It added, “Stress tests found the banking system resilient to severe shocks, but there are vulnerabilities in some institutions. Credit and deposit concentrations are high, and underpin the need for requiring banks to have contingency funding plans.”
Given the aforementioned, the Fund noted that a systemic risk assessment should track the ownership linkages of banks, private sector balance sheet strength, and house price growth.
The Fund noted that operationalizing the crisis management framework will require proper sequencing and substantial amendments of the Financial Institutions Act (FIA). In this regard, it said that an effective resolution regime and a formal framework for emergency liquidity assistance are prerequisites for a Deposit Insurance Scheme.
The international body said that the FIA should give Bank of Guyana powers and tools to carry out orderly resolution of banks and prevent Courts from reversing Central Bank’s actions.
The Fund said that it has observed that losses of correspondent banking relationships continue to be a major concern for trade finance and remittances.
Additionally, the International Monetary Fund noted that the FSAP provided advice on strengthening insurance and pensions supervision, improving access to finance, and upgrading payments and settlement infrastructures to improve financial development.
The IMF delegation was in Guyana from March 6 to March 17. The visit was in keeping with its Article IV Mission
Under Article IV of the IMF’s Articles of Agreement, the IMF usually holds bilateral discussions with members every year. During those consultations, the mission reviews the overall economic developments in the country, as well as its policy measures aimed at maintaining of economic stability, ensuring a sustainable external balance and further liberalizing foreign trade.
Upon the completion of the IMF mission consultations, the IMF Executive Board discusses the staff report and issues an assessment of the country’s economic situation and the adequacy of its economic policy measures, based on a comprehensive analysis of the overall economic situation and a wider fiscal policy strategy of the member country.
The International Monetary Fund is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

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