‘Incestuous conduct’ between banks and big companies needs urgent attention – accountants

Apr 02, 2017 News

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By Kiana Wilburg
Over the last few weeks, there have been expressed fears fuelled by fluctuations in the foreign

currency market and the nation’s economic stability as a whole. While the Government has been making moves to quell all concerns, local financial analysts believe that there is another potentially huge problem that must be given attention.
The matter surrounds the impact of big businesses in Guyana and their controlling interest in commercial banks. Speaking to the matter recently was Chartered Accountant and Tax Advisor, Christopher Ram.
Ram cited three major conglomerates – Banks DIH Limited, the Beharry Group and Demerara Distillers Limited (DDL).
The Chartered Accountant said that Banks DIH Limited has a 51% stake in Citizens Bank Limited, the Beharry Group indirectly controls the Guyana Bank for Trade and Industry Limited (GBTI), and DDL has common control with Demerara Bank Limited.
He noted, however, that DDL is a special case. In this regard, he said in his recent writings that there is no “significant shareholding” relationship (by law, 5%) between DDL and Demerara Bank Limited but the two entities share three directors – Messrs. Yesu Persaud, Komal Samaroo and Harry Parmessar, all leading accountants.
Ram said that prevailing circumstances make the relationship between the group of companies and the banking sector a matter of national interest. He said that the need now arises for one to ascertain how the banking arm of these groups of companies treats other group companies in respect of foreign currency.

The Chartered Accountant said, “Are the foreign exchange requirements of Banks DIH Limited, for example, procured from Citizens Bank Limited with which it shares a Chairman, and if so, under what conditions? The same questions will apply to the Beharry Group of Companies and to Demerara Distillers Limited which are both holding companies and operating entities.”
“I believe that such transactions should be formally and separately identified in the periodic reports by the respective banks to the Bank of Guyana. The intervention in the currency market by Banks DIH Limited when it repurchased its shares in Guyana dollars and then went out to buy large sums of US dollars may never have happened but for its control of Citizens Bank.”
Ram added that the Bank of Guyana as regulator should undertake checks of such reports to identify any self-dealings and preferential treatment by these commercial banks. He said that the Bank of Guyana should also enquire why the sale and purchase of foreign currency is not disclosed in the financial statements of the banks and their respective associated companies, clearly a requirement under International Financial Reporting Standards.
The tax advisor said that accounting standards are not there to be narrowly construed and selectively applied.
Ram intimated, “For me, there is a bigger and more fundamental problem with these conglomerates. While the concept of conglomerates is entirely normal, the question of whether any of them should include a bank in any of its forms is one that needs to be critically examined. The existing arrangement is full of incestuous conduct and it would require an inordinate amount of time and resources by the Bank of Guyana to police them.”
The Financial Analyst said that the Government needs to consider very seriously, whether financial institutions should be allowed to continue to operate as part of any group of companies.
“Of course, the same kind of self-dealing which the conglomerate arrangement permits exists in those companies and groups which are granted non-bank cambio licences. In so far as cambios can be justified, they are licensed to carry on trading in foreign currency, not self-dealing. The Bank of Guyana as the licensing authority needs to address this problem,” the Chartered Accountant said.
He noted, too, that the relationship between the Government and the private sector needs to be strengthened; the demonization of the entire business community sedated; and the bigger players in the foreign exchange market paid far more attention, rather than the individual seeking a US$500 to purchase.
Ram’s perspective was recently supported by former Auditor General and financial analyst, Anand Goolsarran.
Like Ram, Goolsarran said he is concerned about the impact of big businesses in Guyana having controlling interest in commercial banks, especially at a time where there is a decline in foreign exchange earnings. Unlike other businesses, Goolsarran commented that they have ready access to foreign currency to the extent where major foreign currency transactions, using that relationship, are putting pressure on the exchange rate.
The former Auditor General said he agrees that additional mechanisms need to be put in place to avoid possible abuse. Goolsarran added that what those mechanisms should be is for the Government to decide, without being seen to attempting to impose exchange controls.
He noted that Guyana’s economy is relatively small, and one major player in the foreign exchange market can be a source of significant influence on the exchange rate.
At a minimum, Goolsarran said that there should be adequate disclosure of major foreign currency transactions, in keeping with the International Financial Reporting Standards.
He insists that greater monitoring by the regulatory authorities is also needed.

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