Indar made this, among other comments, during a seminar this week for Internal Auditors.
Notwithstanding the high liquidity in the banking system, the Finance Ministry said that the high level of nonperforming loans combined with apparent risk aversion continues to hamper bank lending.
There, he said it is important for one to examine the financial sector and the state of affairs regarding nonperforming loans carefully, as this is a clear reflection of the state and performance of the real sectors.
The GCCI Head said that a closer look at the reports of commercial banks can tell anyone that some sectors are defaulting, such as agriculture and real estate. He noted that other financial institutions have rice as a heavy nonperformer.
Pointing to the findings of the latest International Monetary Fund Report, Indar noted that the nonperforming loan (NPL) ratio rose to 12.9% of total loans at December 2016, up from 11.5% at the end of 2015. Indar warned that this represents a serious problem. He said that banks will start to tighten lending, which certainly does not augur well for the private sector and households.
The high level of nonperforming loans for 2017 was also reported on recently by the Ministry of Finance.
According to the Ministry’s half year report, commercial banks remained well-capitalized, in the first half of 2017, with a capital adequacy ratio of 26.6 in June 2017, compared to a ratio of 25.8 in June 2016.
However, nonperforming loans increased from 11.9 percent in June 2016, to 13.1 percent in June 2017, with 61 percent of this increase concentrated among business enterprises.
According to the Bank of Guyana, the exchange rate between the Guyana dollar and United States dollar remained stable in the first half of 2017 at $206.5 per US$1, same as that recorded in June 2016, mainly due to net purchases of foreign exchange to market. Similarly, the Bank of Guyana said that the Guyanese dollar remained stable against the Canadian dollar, Euro, and the Pound Sterling.
The apparent stability of the Bank of Guyana’s reported rates, masks the reality of a short-lived period of exchange rate instability. For the first half of 2017, commercial banks’ mid-rate for the United States dollar was 5.3 percent higher than the Bank of Guyana rate.
Additionally, commercial banks’ small savings and lending rates reduced in the first half of 2017. The small savings rate was recorded at 1.18 percent in June 2017 compared to 1.26 in June 2016, while the weighted average lending rate was 10.34 percent, compared to 10.46 percent in June 2016.
Additionally, growth in mortgage lending increased, on average, by 4.5 percent, comparing the first half of 2017 to the same period in 2016.
Lending also grew, on average, by 7.4 percent in the services sector during the first six months in 2017, compared to the corresponding period in 2016, but these gains were offset by reductions in lending in the agriculture, manufacturing, and mining and quarrying sectors.
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