Nov 2008 Financial News

No worries regarding local financial system

Nov 04, 2008

BARBADOS’ financial system should not be impacted adversely by the global financial crisis due to local investment practices.

According to Governor of the Central Bank of Barbados, Dr. Marion Williams, and CEO of RBTT Bank, Horace Cobham, local financial institutions were not heavily invested in the instruments that suffered losses in the international financial market.

Both were speaking last Wednesday at a panel discussion on the topic “Turmoil in the World Financial Markets – What does this mean for Barbados?” held by the Barbados Institute of Banking and Finance (BIBF) in association with the Central Bank.

Dr. Williams stated that the impact on the domestic financial system was not significant, because most of the investors only committed a small part of their portfolio to fixed income securities, in addition to which the latter was not severely hit.

“The instrument that felt the greatest impact was stocks, as it was those who invested in stocks that lost considerably”,
the Governor stated.

“Some of the local mutual and pension funds would have been invested in stocks, and would have been affected to some extent, however, because of the diversity of their portfolios and their long horizons, they are in a much better position to weather the storm.”

By long horizons the Governor was referring to the fact that these investments are long term and as result can rebound before maturity, thereby recovering from losses that ensued during the current crisis.

Cobham stated that banks in Barbados are substantially local in terms of the nature of their business operations.

“They borrow locally in terms of local deposits, and they lend locally in terms of local deposits, so there is very little cross border lending activity, and where there is cross border borrowing, typically, the borrowing is from the parent company’s head office. So there is not the likelihood that there will be a call on any cross border borrowings to the extent that it will cripple the local financial institution.”

The CEO stated that this means that “there is therefore not a lot of ‘hot money’ in the system” which he argued is what probably crippled Iceland’s financial system.

“We accept that there is crisis of confidence in the international banking system, but that doesn’t exist in the Barbados banking system, it is still open, you can still borrow.”

This ability to still borrow is based on the fact that banks in Barbados are very well capitalised, and Cobham argued that this is as a result of the level of consolidation that has taken place in the system.

He made the point that although this has been criticised by many who argued that it has led to reduced competition, the banker countered by arguing that this consolidation provides financial strength particularly at this time.


Source:
Randy Howard
The Barbados Advocate
Tuesday November 4, 2008
http://www.barbadosadvocate.com/newsitem.asp?more=business&NewsID=256