Latest update November 21st, 2024 1:00 AM
COVID-19 economic impact…Non-performing loans, solvency of banks, businesses under close watch – Central Bank
By Kiana Wilburg
Measures to limit the spread of the Novel Coronavirus have affected significantly the balance sheets of many businesses.
As a result, the ability for some to meet loan payments has been severely constrained.
Central Bank head, Dr. Gobind Ganga
Taking this into consideration, Central Bank Head, Dr. Gobind Ganga said that the levels of non-performing loans and even the solvency of banks and businesses are under close watch.
During an interview with Kaieteur News, Ganga said: “This is indeed a concern, that is to say, Non-Performing Loans (NPLs). It always is. But the banks as you are aware have put in measures to ease the pressure on business such as restructuring loan payments once you are in good stead. Even as they take measures, we are keeping a close eye on bank solvency too.”
The Governor added: “I can tell you at this time that our banks are well capitalized, they are in good shape and provisions are adequate…”
Dr. Ganga was also keen to note that the effects of the COVID-19 on the economy and companies are still in the stage of infancy.
When the worst of it is over, he is hopeful that there would not be any significant impact from non-performing loans.
“As you know, we are very much diversified in terms of the banks’ lending. We have so many sectors that the banks are lending to and if there is some chain reaction, one will affect the other but we are monitoring the situation,” the official said.
Looking ahead, he said that discussions will continue with the various stakeholders on finding ways and means to ensure the solvency of the companies and banks.
In one of its most recent assessments of the economic effects of COVID-19 and how financial institutions may wish to respond, the Inter-American Development Bank (IDB) was keen to note that Central Banks will play a vital role in the survival of businesses.
The IDB said that Central banks have many tools at their disposal and should think carefully about combining them in a way to provide maximum relief.
In this regard, it said that the interest rate policy of banks may be most appropriate to look at while in other cases it may be best to consider extending liquidity to financial and other entities.
The IDB said that these different tools may be used to seek different objectives. Be that as it may, the institution said that great care should be taken to ensure such policies are calibrated correctly and that there is appropriate oversight in place.
Further to this, the Inter-American Development Bank said that an important role for banking oversight, including both supervisory and market discipline, is to ensure that banks that suffer shocks, resulting in lower capital ratios, take action to improve solvency rather than increase risk and “gamble for resurrection.”
The IDB advised that bank solvency ratios may be hit by shocks to loan performance such as higher non-performing loans, changes in the market valuation of securities and unexpected changes in loan demand. The IDB said that if a shock reduces bank solvency, an institution may respond by issuing more capital, paying less in dividends, curtailing credit growth, or switching from higher to lower risk assets (including holding more government bonds) to boost the capital ratio.
BOG MEASURES
To date, Central Bank has called on commercial banks to offer relief to affected individual and commercial customers by reducing interest rates on loans and credit cards to customers, deferring loan payments to assist customers in good standing; deferring loan payments by companies to assist with their liquidity requirements; waiving or reducing fees/penalties for transactions with ATMs, Point of Sale, debit cards, loan processing, late payments on loans, etc.; and encouraging customers to reduce in-person transactions by using e-banking, ATMs, Point of Sale, telephone, etc.
Central Bank, the supervisory authority of the financial sector, has said that it will continue to monitor COVID-19 and the evolving economic conditions while noting that it may consider other measures, if necessary.
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