The President is pointing the finger in the wrong direction

May 29, 2024 Features / Columnists, Peeping Tom

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Kaieteur News – Addressing a recent forum of the Private Sector Commission (PSC), President Ali said: “The banking sector has been given one of the most dynamic platforms to support capital formation in this country. Yet, to date, the banking sector has not responded with the speed, efficiency, reliability and time to exploit the opportunities that are here.”

According to the President, the role of the banks is not just to take deposits and lend in a low-risk environment. He stated that “The role of the bank is also to seek opportunity, to understand where the economy is going, should create an ecosystem to support where the economy is going, and to build on what is happening in the country,” the Guyanese leader added. His overall criticism was that the banks needed to match the accelerated pace of the local business community. He also wants the banks to create proposals for the business sector.

The President comments were unfortunate. It seemed just a few months ago, he was boasting how Guyana had the best record of non-performing loans in the Caribbean. He ought to know that this was not by chance but because of the prudent risk management undertaken by local banks. He was also high in praise last December for the lending of banks to the country’s various sectors. He particularly praised the role of the banks in lending to the agricultural and mining sector. These are two sectors that are not low-risk. Yet, it is the local banking sector that has been bankrolling these sectors.

The President is also misguided when he calls for the banks to develop proposals for the business sector. The role of the banks is to consider proposals not to develop business proposals. Those proposals must come from investors and it is the banks to decide whether they will finance those proposals and on what terms.

While banks do go looking for businesses, they do not develop proposals. They develop products to tap into the need for financing. The President will recall that the same banking sector, of which he is now critical, was responsible for developing a syndicated loan for the Marriot Hotel. Onto this day and despite AML/CFT legislation, even the government was unable to find out who were the syndicated investors into that project which is owned by the government but for which the syndicated investors had preferred rights.

It was also the banking sector which provided funding for GUYSUCO. The loan was backed by the APNU+AFC government. If that loan was not given, the sugar industry may have long been closed totally. But if anything, Ali has been consistent in his call for a shift in our banking culture. He genuinely wants to see the sector modernized. He wants to see more investment banking even though it is doubtful there are proposals languishing for financing because of the absence of investment banking.

That shift in our banking must begin within the private sector. Most local businesses are tied to the traditional way of doing business with banks. Many of them are not keen to expand and some of them prefer not to borrow because they know that their financial records are not credible and would not stand scrutiny by bankers. Under two years ago, Vice President Jagdeo had emphasized that the private sector needs to enhance its financing strategies and long-term planning. He pointed out that many companies are reluctant to establish the necessary structures and accounts for accessing greater financing. He urged businesses to consider partnerships and to go public to raise funds beyond debt financing. He said then that transparent and accurate record-keeping are also essential for accessing financing.

Poor record-keeping and manipulated accounts by private companies create significant disincentives for banks to provide loans. These practices hinder the banks’ ability to accurately assess a company’s credit worthiness. They increase the perceived risk of lending. Inaccurate financial records can conceal underlying financial problems, raising the risk of default on loans.  The lack of trust in the financial information provided undermines the credibility of borrowers and raises concerns about their integrity thus serving as a disincentive to lend.

Almost 15 years ago, Jagdeo had expressed disappointment at the lack of progress in encouraging companies to go public, emphasizing the importance of transparency in public company operations.  Then, Jagdeo had stressed the significance of good corporate governance, stating that it not only complements good governance in government but also enhances overall confidence in the system. He highlighted the importance of transparent management in both public and private spheres. What has changed since then? How many of our local private companies have gone public? How more transparent have become our businesses?

It therefore is ill-advised of the President to direct criticism towards the banking sector. The responsibility for fostering change primarily lies with the private sector. Rather than faulting banks, the President should focus on encouraging and incentivizing private companies to adopt the reforms advocated by PPP/C governments for over two decades. These reforms, aimed at enhancing transparency, accountability, and good corporate governance within the private sector, are crucial for fostering an environment conducive to economic growth and investment.

There are elements within the private sector who may have been nudging the President in the direction of criticizing the banking sector. It is hoped that this recent broadside against the banking sector does not lead government to consider setting up a revolving fund for private companies. If this is done, it removes the risk from those companies and banks and places it on taxpayers who effectively will have to finance any such revolving fund. By shifting the narrative away from criticizing banks and towards empowering the private sector to enact long-overdue changes, the President can effectively catalyze the transformation needed to drive economic progress and strengthen the nation’s financial sector.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

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• ENVIRONMENT, Peeping Tom, President Ali, Private Sector Commission (PSC), sector

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