Looking at the GBTI financial statement

Jun 23, 2018 Letters

Dear Sir,
Commercial banks as financial intermediaries have a significant responsibility in ensuring that their actions in lending and investing the borrowed funds of depositors is done with the highest appreciation for bank soundness and integrity.
The consequences of poor lending and investment -decisions are fresh in our memories after the 2007-2008 global financial crisis — were heartbroken customers, affected banks and the business community, and the financial sector as a whole.
It is therefore important that the Boards of Banks and their Credit and Investment Committees do not support actions that place depositors’ funds at risk, as this can have grave implications.
Editor, it is for this reason that I use this opportunity to comment on the financial statements of Guyana Bank for Trade and Industry as presented in their 2017 Annual Report, and which is on the agenda for discussion at the Bank’s upcoming Annual General Meeting.
The Executive Director’s Report presents a gloomy picture regarding the Bank’s Loans and Advances portfolio, where he noted that the state of the non-performing portfolio “remains a matter of concern”. This suggests a failure of the Bank’s Credit and Investment Committee / Board of Directors who, as noted in their Corporate Governance Statement “plays a crucial role within the Bank’s sphere of credit appraisal and makes all credit decisions involving amounts over a stipulated level and expends much effort in the analyzing of risks associated with credit and investment decisions”.
The Financial Highlights table on page 22 of the Report and corresponding notes on page 71, presents financial results from 2010 to 2017. In relation to Loans and Advances, the figure stood at $21.5B at 2010 and reached $48.3B at 2017. Of these amounts, impaired loans at 2010 was $1.8B (8.3%) with a corresponding impairment allowance of $2.28 (122.2% cover).
In 2017, impaired loans stood at $11.88 (24.4%) with a corresponding impairment allowance of $3.68 (30.5% cover).
This shows that as the condition of the Bank’s loan portfolio deteriorated, there were correspondingly smaller amounts placed towards the provision for loan losses.
This should be a matter for concern to the Central Bank, who should educate the public and the Bank’s shareholders on the expected levels of provision that a bank should maintain against its bad loans. Glaringly, the Bank reduced its provision for loan losses in 2017 by $312M versus 2016, even in the face of its high impaired portfolio.
It should also be a cause for concern that the Bank has renegotiated over $6B in loans in both 2016 and 2017 as reported on page 92 of the Report.
It is also public knowledge that the Bank has participated heavily in a WOW Loan programme for single women, however the quality of this specific area of lending cannot be garnered from the information in the Report and leaves shareholders to assume that this lending falls in the impaired loans category.
The Executive Director in his Report made references to the slowing economy as having an impact on the performance of the Bank. However, the information presented shows a progressive decline in the quality of the portfolio and leads to the question whether the Board / Credit Committee factored the normal changes in business and economic cycles in their strategy for the growth and management of this critical loan portfolio.
With the current gaps in the Bank’s management structure, the loan portfolio issues at GBTI should not be allowed to go unchecked by the Bank of Guyana and needs a definitive statement from the Chairman of the Board at the upcoming meeting.
Yours truly,
Christopher Peters

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