20 years later … Central Bank moves to bring transparency to lending between banks

May 06, 2018 News

Bank of Guyana is seeking to shed a light of transparency on lending between banks. This is according to a document it prepared in partnership with the World Bank to pave the way for the modernization of the nation’s National Payment System (NPS).
According to the document, interbank money markets play an important role in an NPS. They facilitate liquidity management, enhance transparency with respect to interbank lending, and provide a valuable tool for the implementation of monetary policy.
Central Bank officials noted, however, that the current bilateral lending practices can take time to arrange.
It said that for the time being, “The (current systems) fail to provide Bank of Guyana and the commercial banks with information on the rate the intraday or overnight lending is taking place, as well as important information on the demand for funds.”
Going forward, Central Bank said that it intends to establish an interbank money market. Once the Real Time Gross Settlement (RTGS) and Central Securities Depository (CSD) are in place, Bank of Guyana said that the establishment of an interbank money market can be fairly straight forward.
It also noted that the CSD provides a means to pledge government securities as collateral for an interbank loan. The RTGS on the other hand provides the means to transfer the funds from one bank to the other. Central Bank said that a trading platform would be the only piece missing.
The Bank of Guyana also intends to improve its powers to monitor the interbank money market by strengthening its governing legislation. In fact, the Bank of Guyana (Amendment) Bill is already before the National Assembly.
This Bill also seeks to amend the Bank of Guyana Act by explicitly giving it the power to provide temporary liquidity assistance to deposit taking financial institutions.
The document outlines that this is an integral measure which is employed in maintaining the stability of the system.
NATIONAL PAYMENT SYSTEM
The National Payment System Development Plan which was released by Finance Minister, Winston Jordan, consists of four chapters and five annexes.
Chapter One examines the current state of payment in Guyana. It notes that the Bank of Guyana is the institution responsible for payments. Be that as it may, the document makes clear that there is need to upgrade the laws, regulations and infrastructure for a safe, efficient and modern payment system.
The chapter analyses the role of the main players in the current payments arrangement.
Chapter Two examines how the Bank will lead the development of the NPS Strategy. It defines the role of a National Payment System as a series of layers in an inverted pyramid in which each layer is supported by layers beneath it.
Chapter Three explores Guyana’s vision to build a safe, robust, sound, efficient and inclusive payment system that meets the current and future needs of the economy.
It proposes the year 2030 as a realistic target for full realization of the NPS vision. However, in the medium term it proposes a 2017-2021 action plan as a first phase on achieving that vision.
The fourth chapter concludes with a highlight of the 2017 – 2021 NPS Development Strategy and plan of actions. The Strategy also has attached five annexes.
The preparation of the payment strategy has been a joint effort of the Bank of Guyana and a team from the World Bank. A preliminary draft of the strategy was issued to stakeholders for their comments in August 2016.

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