Those restrictions are in part being blamed for a considerably high level of liquidity in the banking system.
The surplus stands at around $167 million. The normal level for this time of year is about $75 million. Foreign reserves, meanwhile, remain at a healthy $500 million.
Central Bank Governor Julian Francis was set to meet with his Monetary Policy Committee Wednesday and preferred to comment on the issue after that meeting.
Explaining the reason for the restrictions in an earlier interview, he told the Bahama Journal that, “If the banks became overly aggressive and were imprudent in their lending activity, then the Central Bank limit would come into play. And those limits are in place to protect the external reserves during a time of relatively slow economic activity when our economy is not generating the level of foreign currency which it would normally generate if the economic activity were stronger.”
If there is more to borrow, it costs less to borrow, he pointed out, so more people tend to get loans, which is why the Central Bank restrictions are so important.
But since then, Governor Francis has indicated that there was a turnaround on the economic horizon. He promised an update on the economic picture later in the week.
Local commercial bankers, meanwhile, were also slow to comment after promising to keep quiet on such matters until after an important meeting with the governor at the end of the week.
But one senior commercial banker claimed that the restrictions were hurting profits. He said while he understood the governor’s concerns, banks need to be given more leeway to improve their bottom line.
In September, 2001, the Central Bank placed a lending restriction on banks to protect the foreign reserves from being depleted. For the entire system as a whole, the restriction limits the total lending to $3.7 billion.
But not all of the banks have reached their limit, a source within the Central Bank told the Bahama Journal Tuesday.
He pointed out that because the economy is a bit slow, some banks prefer not to lend as much as they would during better economic conditions.
Royal Bank and FirstCaribbean International Bank reportedly still have space to lend.
In fact, Royal Bank has started visiting local business establishments offering loans.
But The Bank of The Bahamas, Commonwealth Bank, British American Bank and Scotia Bank are reportedly all at their limit or approaching their lending limit.
Some of the banks have reportedly been reducing costs and watching expenses.
But one bank official said, “There is only so much you can cut out expenses.”
He guessed that the “governor is not going to do anything with the restrictions until after the end of the year.”
Some bankers are also asking the governor to create a separate ceiling on mortgage lending.
By Candia Dames, The Bahama Journal
