If micro, small and medium-size (MSME) enterprises in Guyana think the difficulties they face in prying open the purse strings of commercial banks are unique to them, they should think again. It would appear as though the problem is a region-wide one, according to the President and Chief Executive officer of Sagicor Group Jamaica, Richard Byles.
According to the business executive, the difficulties faced by small businesses seeking access to commercial bank credit at relatively low rates have to do mostly with the fact that banks are the most highly taxed entities in the business sector.
Byles is quoted as saying at a recent business forum in Kingston that lending rates at local commercial banks continue to be fairly high, at between 15 to 18 per cent in some cases. “If they came down,” he says, “medium and small businesses would find access to credit much easier.”
A senior commercial bank employee in Georgetown while pointing out that she was not in a position to speak for commercial banks, told this newspaper that what applied in Jamaica was most likely true of Guyana, “perhaps to a greater or lesser extent.” She said it was true that commercial banks in Guyana paid high taxes though she added that the disposition of commercial banks to lending to small businesses was also “a question of trust.” She said that at the end of the day commercial banks are preoccupied with measuring risk.
Byles says that one of the critical questions facing the banking sector, the Bank of Jamaica and the Jamaican government has to do with what can be done to make lending rates more reachable to small borrowers. The challenge has also risen in the local commercial banking sector where banks have been partnering with business support organizations and even government agencies to make borrowing more accessible to SMEs.
Byles says that while much of the focus in Jamaica is on how many million dollars the commercial banks make as profits, rather less attention is paid to the approximately 48 per cent tax banks pay, banks’ profits have to be measured “against how many billions of dollars they have as capital in the business.”
He suggests that if one speaks “to somebody that watches the stock market, they’ll tell you that the banks don’t have the best return on equity. Other businesses do. The banks are just heavily taxed and their return on equity, therefore, is pretty low.”
He insists that “if you want lending rates to come down you have to be prepared to look at tax that is levied on the banks and… try to forge a deal whether there is less taxes on the banks and the banks lower their lending rates.”
Here in Guyana, while the mindfulness of risk is still very much an integral part of the operating culture of the commercial banking sector, some banks have increasingly become attentive to the criticism emanating from SMEs regarding their lending and have taken initiatives, either on their own or in collaboration with state-run small business ventures and local business support organizations to reach out to small businesses.
Byles insists, however, that, on the whole, “banks, they are so heavily burdened with taxation” that if they were to secure a measure of relief “then they would be able to bring interest rates down,” a view which the local banking sector official says “is probably true.”
Return on loans
Asked how some commercial banks in Jamaica are able to lend at interest rates of just over six per cent on motor vehicles, Byles says that banks are trying to make loans that they believe will be good. “If somebody doesn’t pay back a loan, the next thing is to go for the collateral. A car, as collateral, is far more saleable than a piece of equipment in a man’s factory. And that is why banks tend to favour car loans a little bit more,” he explains.
