Home' Trinidad and Tobago Guardian : May 21st 2015 Contents MAY 2015 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
NEWS | BG7
Senior banking executives met last
week for the Banking on the Future
Summit to discuss the changing exter-
nal environment for financial institu-
tions and how they plan to deal with
the challenges which face the sector.
The summit was held at Hyatt Regency
hotel, Dock Road, Port-of-Spain.
Low interest rates are stimulating
demand for hire purchase offered
mainly by retail stores but
Finance Minister Larry Howai
said there are no regulations for
this part of the finance industry,
and it could have dire consequences to cus-
T&T s prevailing interest rates have been on
an upward climb since September last year
when the Central Bank increased the repo rate
by 0.25 per cent to three per cent as a signal
that it wanted to curb inflation and widen the
gap between T&T and US-dollar fixed income
instruments. The repo rate is now 3.75 per
But Minister Howai, addressing members
of the banking sector last week Wednesday,
said: "The current low interest rate environment
has facilitated not only households taking on
higher levels of debt, but has also created fertile
ground for large non-financial retail store chains
to lend to riskier households."
Substantiating his point, he said Central
Bank of T&T (CBTT) produced data indicating
that initiatives such as hire purchase need to
be regulated. Howai added that certain retail
chains, which are neither regulated by CBTT
nor anybody else, have been "rapidly" increasing
their sales of consumer durables on hire pur-
chase terms to householders.
"One can surmise that as these retail stores
compete for market share in an unregulated
environment, there may be greater incentives
for these retail stores to underprice risk. This
can have a negative impact on these retail
stores, as well as consumers exposed to interest
rate risk, in the event of rising domestic interest
rates and negative economic shocks."
The financial system at the end of 2013,
accounted for approximately 12 per cent of
GDP, with a total asset base of over $300 billion,
Howai said. Commercial banks, which have
traditionally dominated the financial system,
according to Howai, accounted for 45 per cent
of T&T s total assets.
If these activities remain unregulated, they
can pose a systemic risk to the domestic finan-
cial system, but he did not explain how they
would be a systemic risk.
Howai assured bankers that this scenario of
an unregulated market is engaging the attention
of policy makers.
Describing the retail stores which offer hire
purchase, as shadow banks, Howai said he
predicted they will grow, "to fill much of the
gap in financial inclusion faced by consumers."
What is clear, he said, is that these unreg-
ulated businesses---which conduct business of
a financial nature---need to be identified and
regulation needs to be put in place to ensure
that those businesses are watched over by a
"The business models used by these shadow
banking businesses needs to be carefully studied
to ascertain the risk they pose to the domestic
financial system," said the Minister of Finance.
Overall, Howai stated that there is need for
institutional strengthening of conventional
financial and shadow banking industries in
order to safeguard depositors, borrowers and
investors from excessive risk taking.
Regarding technology, he predicted that
smartphones, cloud computing and bandwidth
would play a role in improving the efficient
management of banks.
"The financial services sector will continue
to play an important role in the diversification
thrust of the Government. The International
Financial Centre (IFC) is poised to lead the
way in this diversification thrust."
Looking at what he called the domestic eco-
nomic conditions, Howai said the economy is
strong. He said: "At the end of 2014, our exter-
nal position remained robust with US$10.8
billion in international reserves (representing
an import cover ratio of 12.2 months of imports)
and we also have the Heritage and Stabilisation
Fund stood at US$5.6 billion."
Despite the downgrade by Moody s, he reit-
erated that T&T remained as an investment
grade destination which is fully capable of
meeting its debt-servicing obligations when
they fall due.
Central Bank also flagged issue
Last week s speech by Minister of Finance
Larry Howai about the dangers posed by unreg-
ulated hire-purchase arrangements was not
the first time that this issue has been raised.
In the 2014 Financial Stability Report, which
was issued in February, the Central Bank raised
the issue in the context of one of the vulner-
abilities facing the local financial sector: the
high level of household indebtedness caused
by "record low interest rates, low unemploy-
ment and rising disposable income" which
have supported strong growth in household
debt over the past few years.
The Central Bank stated: "Low interest rates
have not only encouraged some households to
take on higher levels of debt, but also seem
to be encouraging large, non-financial retail
store chains to lend to riskier households.
"Anecdotal evidence suggests certain retail
chains, which are neither regulated by Central
Bank nor any other authority, have been rapidly
increasing their sales of consumer durables on
hire purchase terms to households.
"With increased competition and no reg-
ulation, there may be greater incentives for
these retail stores to underprice risk, which
would leave them, as well as households, more
vulnerable to rising domestic interest rates and
negative economic shocks." ---Nadaleen Singh
cards and people skimming credit cards. It is something
that you have to be concerned about and make sure that you
create a safe environment for our customers."
Technology and the safeguards which come with it cannot
be eliminated because trends have shown that as people get
more accustomed to the Internet, they get comfortable.
Like most banks, Dulal-Whiteway said RBL has had its chal-
lenges in providing a constant supply of US currency:
"We are in business of selling foreign exchange but we can t
sell what we don t have.
"What has been a good ease this year is that the Central
Bank did step up to the plate a little further, by selling quite
a bit of money early this year and that helped to deal with
some of the backlog which we had from last year. We would
get our share and leave it to satisfy our customer needs."
Asked what the supply of US currency was like for the cor-
porate community, Dulal-Whiteway said the supply was "getting
"All of these things are a matter of timing. There are times
when you have sufficient. There are times when it has tightened
a bit and therefore, we have to just wait until the supply comes
back in," Dulal-Whiteway said.
Overall, he suggested that T&T has to find ways in which
it can earn foreign exchange since dependence on oil and gas
revenues would not be a prudent move.
"All of us can t be depending on only one source of foreign
exchange and that s where we have to start focussing heavily
on export growth again. Something which we did very well
in the late 80s and early 90s.
"Today we talk more about just buying things (importing)
and then selling (to the T&T market), who is going to pay for
that eventually, you will have to find hard currency, US dol-
of US$5 billion?
Commenting on the statement by Trade Minister Vasant
Bharath that, in total, there was US$5 billion in unproductive
savings in T&T, Dulal-Whiteway said the money is not
being hoarded since saving in bank accounts with $US or
$TT is one option which investors have available to them.
"For some of us to diversify our portfolio we keep savings
in $US, I think that s what our customers have done, over
20 years, when we removed the exchange controls.
"The issue then is we have these US dollars what do
you do with it? It may seem to be unproductive. To the
extent it is lent in US dollars, it means it is being put to
productive use. The issue is if a company borrowed in US
dollars it should have a $US float in which it could pay
back the loan, because you can t come back and pay the
loan in TT dollars.
"We really as a country, need to start looking at how we
earn US dollars."
He suggested there was need for T&T to have further
alternatives for earning US dollars rather than earning
foreign exchange from the energy sector alone.
Regulation of the
Dulal-Whiteway supports any move to improve the leg-
islative framework governing the financial sector because
it assists in improving security in the system and improving
confidence and trust.
He said he supports regulation of the players that operate
outside of the regulatory framework.
"When you look at what is happening in technology you
have new players who work outside of regulation, and
that s where focus has to be: to ensure that these new
players who are not banks, (retail stores) are also regulated.
"When they are not, you will have a situation where you
will increase riskiness in the system. You ll have all these
sales happening we have a blind eye to, and therefore it
can cause problems later on."
Time to focus on export growth
From Page 6
about hire purchase
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