Caribbean financial institutions have garnered a reputation for making huge profits from fees and spreads and do not help to finance businesses, thus further stymying regional economies.

It is a subject Prime Minister of Barbados Mia Mottley shone a light on as the special guest speaker at a business luncheon in Bridgetown, Barbados.

“Let us talk straight. Banks are intended to be in the business of financial intermediation not security. If I wanted a watchman for my money, I would go and hire a security guard. But if we want money for the financial services sector and for development, then we need to appreciate that a loan deposit ratio of 55 per cent when the developed world has ratios of 80 per cent tells me we have people here who are watching people’s money rather than working people’s money. It cannot continue.”

The net interest rate spread is the difference between the average yield that a financial institution receives from loans – along with other interest accruing activities and the average rate it pays on deposits and borrowings.

 Mottley is regarded as the finest leader in the Caribbean region and continues to demonstrate both acumen and statecraft consistently.

The notion that banks should play in spurring economies and the private sector but refrain from doing so is not lost on the Prime Minister of Barbados.

But Mottley is not the only one to see the shortcomings of Caribbean banks and how they continue to keep the region underdeveloped.

A discussion paper written by Paul Holden and Hunt Howell for the IDB in 2009 entitled  “Enhancing Access to Finance in the Caribbean”, backs up what Mottley is saying here.

 Part of the report read: “The financial sectors of most economies in the Caribbean remain underdeveloped and “thin” because they do not intermediate effectively between savers and investors. Furthermore, factors such as lack of collateral, poor credit information, and legal systems that favor large businesses and those with property particularly impede access to financing in the countries of the region. These factors make it difficult or impossible for many investors and entrepreneurs in the Caribbean to obtain financing for their businesses.

“While donors have been active in providing funds for investment, their interventions have been ad hoc. Furthermore, donor financing is not sustainable in the long term, and in some cases, risk distorting financial systems, thereby hindering rather than encouraging financial market growth. Currently, the fallout from the global financial crisis is casting further shadows on the economies and financial systems of Caribbean countries. While few economies in the region will experience bank failures, the high dependence on remittances, tourism and, in some cases, natural resources increases the fragility of an already vulnerable group of countries.”

Turning her attention to banks earning high fees, Mottley was equally scathing pointed out inequities

“The notion that people can be paid fees or have to pay fees for minimum deposits means poor people can’t keep two dollars in a bank now. All rich people with large deposits have to pay or are being asked to pay fees because some have deposits that are over $10 million or $20 million. This will hurt in particular the credit union movement whose deposits are lodged into the banking sector, or even lawyers with clients’ accounts.”

Many bankers from the region may argue that they have to contend with tightening regulations as well as intense scrutiny to ensure they comply with correspondent banking edicts. International top banks see doing business with Caribbean banks as risky. This makes it difficult to conduct transactions in foreign currency leading to Caribbean banks taking an ultra-conservative approach in order to keep shareholders happy.

What transpires now sees banks  preoccupied with perceived risks rather than actual risks.

The United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) has also bemoaned the lack of financial  support small and medium enterprises receive from banks and how this hampers economic growth.

ECLAC Executive Secretary Alicia Barcena met with Caribbean Heads of State and Finance Ministers last year to discuss debt relief proposals and other measures to fight the effects of the pandemic.

In her presentation she noted the impact of the COVID-19 pandemic on the Caribbean and how it had exposed a number of both domestic and external challenges, the most significant of which include revenue and income loses, a drop in investments, rising unemployment, increased indigence and poverty and pertinently here, the failure of small and medium sized businesses and challenges to the financial system.

“ As firms increasingly integrate into the multilateral trading system, they invariably require finance (credit) to facilitate the requisite increased investment for expanding productive capacity. While large private sector firms may readily access the required financing, this is not always the case for small and medium-sized enterprises (SMEs).”

ECLAC has on many occasions declared that SMEs play a crucial role in the economic development of Caribbean. It notes that collectively, they generate about 40 per cent of the Caribbean subregion’s GDP. They constitute over 95 per cent of companies in the Caribbean subregion. However, only 13 per cent of these SMEs export. (A Preliminary Review of Responses to Enhance SME Access to Trade Financing in the Caribbean, by Sheldon Mc Lean and Don Charles- ECLAC, 2020 ).

Although Prime Minister Mottley was speaking of Barbadian bankers, her observations resonate across the Caribbean. She has said that the government may well have to intervene to ensure fairness if banks are unable to see that they must conduct themselves in a fair and helpful manner.

“We are asking you as a private sector and we are asking Barbadians as individuals to think outside  of the box. It cannot be that we are going to sit idly by and allow persons to abandon their purpose of financial intermediation and to go into the business of security.

“Now I’m not meaning to be invidious. I’m not meaning to be offensive in anyway, but I don’t know how many more times to say it and therefore I have advised the Governor of the Central Bank  that if we don’t get it right, then the government will legislate because it is not fair to the people and businesses in this nation.”