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The real issue at hand: breaking the current banking oligarchy structure by issuing more licences
DEAR EDITOR,
The decision to deny Republic Bank (RB)’s bid to take over the assets of Scotia Bank leaves much to be desired. According to both Stabroek News and the Kaieteur News of September 25, 2019, it is reported that both the Central Bank Governor and the government are in agreement that the risks of acquisition are too high based on capacity concerns and the “concentration” and dominance of the local banking sector by RB.
For me this represents a missed opportunity on behalf of the government of Guyana to address the real issue at hand here: breaking the current banking oligarchy structure by issuing more banking licences.
In terms of the capacity concerns of the bank, both Republic and Scotia banks would have done their due diligence financial assessments to determine whether RB has the capacity to absorb the assets of Scotia Bank.
As it relates to the concentration argument, the country does not have much to lose, since the current banks operate in an oligarchic manner, where they all offer similar banking products and services, and in particular the suppressive interest rate spreads. Currently this oligarchy controls 100% of the market and should be more of a cause for concern over RB and Scotia merging to command a more than 50% share.
What should have occupied the government at this time isn’t trying to restrict the expansion of a CARICOM bank, but to allow the transaction, and to articulate a position that it has to open the banking sector and issue more licences and be more aggressive in attracting regional and global banks to Guyana. No new banking licence has been issued in Guyana in the past decade, despite interest from regional banks and others.
Now that we are entering into a more sophisticated oil-based economy and our local companies are asking for local content legislation, Guyana will have to seriously address the current limitations of the banking system and look to encouraging new entrants to the sector and not look to impose limitations on the free market process of an acquisition.
Clinton Urling
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