Dear Editor,
The Guyana Bank for Trade & Industry, Regent Street branch, recently advised me that I must open a local currency account in order to have my US VISA Debit Card replaced on an existing facility I had with them. This applied to new customers seeking to access their US Debit Card facilities, and in their words, was ‘bank policy’. There were a number of problems with this ‘policy,’ as I advised in a letter dated May 10, 2021 to the Governor of the Bank of Guyana, pointing out that the holding of US dollar and local currency accounts are separate and distinct services driven by different consumer needs. As such, the decision to force customers to open local currency accounts when this is not their primary interest or intention:
a. Induces misallocation of financial resources in the banking system.
b. Raises costs for customers as they forego the minimum balance on these new accounts, not to mention whatever inefficiencies they have to endure, which was why they chose not to open an account there in the first place.
c. Is clearly anti-competitive in that GBTI is using other than market forces to influence consumer behaviour.
The ScotiaBank Robb Street branch for its part informed me that it is only accommodating new accounts from individuals who are willing to have their salaries assigned to ScotiaBank. While it is very possible, even probable, that they would waive this condition for persons able to prove acceptable levels of financial wherewithal, I observed the following in another letter to the Governor of the Bank of Guyana:
1. This practice is discriminatory against non-salaried individuals, since these persons clearly will be barred access from ScotiaBank’s account services.
2. Amounts to bullying of salaried customers who already have their salaries assigned at another bank.
3. Translates into an unwieldy and administratively costly exercise for both ScotiaBank and potential customers who already have their salaries assigned at another bank, but are still interested in opening an account at ScotiaBank.
4. Is an anti-competitive, welfare-retarding practice, since it forces individuals to make decisions not driven by market conditions, and not necessarily in their best interests.
The separate practices of these two commercial banks point to a number of things: both are keen on increasing deposits/market share of deposits in Guyana; both are unwilling to contain themselves to acceptable competitive behaviour such as increasing deposit rates. They will do whatever regulatory oversight allows them to get away with, at the expense of society.
This now raises the issue of the competitiveness of our banking system, costs to consumers, and my suggestion for correcting the injustices being perpetrated against Guyanese. The sum of the evidence is in the humongous profits of our commercial banks even in these desperate times, and seemingly intractably fixed lending rates. But responding more directly to the question of how to increase competition in the banking sector, it is easy to identify very probably the biggest culprit stymying the entrance of new (indigenous, at the very least) banks much needed to break the virtual cartel control of existing commercial banks on savings and lending rates: existing capital requirements for new commercial banks in the Financial Institution Act (1995) (6) established at a minimum of G$250,000,000 (two hundred and fifty million Guyana dollars). While there is no question of intention of the FIA to safeguard the welfare of society with this level of financial requirement for aspiring new commercial banks, times have changed, financial technology safeguards have improved enough to consider the applicability of such a sum of money as a requirement for opening a new commercial bank. The idea I am proposing is consideration of available research on commercial bank theory, models, and particularly relevant to Guyana’s case, scalability. My suggestion is for the Bank of Guyana to open available research on scalability of commercial banking with a view to introducing a multi-tiered system for licensing new commercial banks with a new financially sound lower capital requirement established to accommodate smaller commercial banks not only in Georgetown, but all around the country.
After 26 years of service, now is an appropriate time as any to re-examine commercial banking regulations and requirements in Guyana. Because the current one provided little in the way of financial efficiency and a ‘highly competitive environment’ for Guyana’s commercial banks, not to mention the massive welfare transfers from consumers to commercial banks in the form of profits. This should undoubtedly bode well for greater financial intermediation, increased competition, lower borrowing/investment costs, increased consumer welfare, and a significant shifting outwards of Guyana’s production and employment prospects.
Sincerely,
Craig Sylvester
