Regulator says interest rate changes are incentive for depositors to shift funds to higher-yielding placements in banking system
“The Central Bank does not ordinarily comment publicly on such business decisions, neither would it be appropriate to do so”
NASSAU, BAHAMAS — The Central Bank said yesterday that it is actively committed to developing a government savings bond scheme that would allow more households to accumulate investments at an affordable pace in safe government debt instruments.
The regulator said in a statement: “This project is targeted to conclude in 2022. Meanwhile, the collateral registry project, on which the Central Bank is also working with the Ministry of Finance, is at an advanced stage in the diagnostic process. Once implemented, it will help to expand private lending through non-bank channels.
“In the meantime, it is also important to strengthen the domestic banks’ credit market framework so that the capacity can be increased to prudently use more of existing liquidity in the traditional categories of private lending.
“Sustained progress with the credit bureau will support this.”
The regulator made the announcement in responding to widespread public commentary on the Royal Bank of Canada’s (RBC) decision to adjust interest rates on savings accounts and term deposits to zero percent.
RBC said the decision was in response to local market and economic conditions.
“The Central Bank notes the widespread discussions in public forums on the decision of a local commercial bank to reduce the interest rates paid on deposits to zero,” the regulator noted.
“The Central Bank does not ordinarily comment publicly on such business decisions, neither would it be appropriate to do so.
“The Central Bank maintains regular one-on-one dialogue with commercial banks on their customer relations and product strategies. These are mainly prudential discussions around the financial soundness of the respective business models.
“They also address customer engagement strategies around product pricing changes, with emphasis on ensuring that the public is allowed to make informed decisions about alternative options and suppliers of financial products and services.”
It further noted: “The domestic banking system remains highly liquid, with deposits further increased during the pandemic.
“However, bank lending to the private sector is still curtailed as a result of less-favorable conditions created by the pandemic and medium-term efforts to reduce structurally high rates of non-performing loans, which predated the pandemic.
“In sum, the scope to intermediate deposits is reduced.”
The Central Bank pointed out that interest rate changes are an incentive for depositors to shift funds to higher-yielding placements within the banking system.
“As well, the adjustments must incentivize more consideration of alternative investments in both the public and private sectors,” the regulator noted.
“This includes the market for treasury bills and government bonds, and support for near-term private sector fundraising efforts through local capital markets.
“There similarly remains scope to expand the medium-term use of domestic capital markets to finance productive private sector activities, which fall outside of the business models of commercial banks.”
