Commercial banks have expanded their lending to the business community over the last year and a half and The Barbados Bankers Association (TBBA) sees room for this to grow even more.
However, TBBA president Shimon McIntosh says there are some challenges associated with deploying more funds, including $400 million in renewable energy projects unable to proceed until battery storage challenges are solved.
He also sees opportunities like providing equity financing access to small and medium enterprises (SMEs) via the Barbados Stock Exchange (BSE), in relation to deploying equity and achieving a more efficient process of land transactions and mortgages.
McIntosh was speaking in the context of persistent calls for more savings in commercial banks and other deposit takers to be channelled into investment. Central Bank of Barbados data shows that at the end of September Barbados dollar deposits climbed to $13.8 billion.
As it relates to lending, Central Bank Governor Dr Kevin Greenidge reported that “private sector credit expanded at a moderate rate between December 2023 and September 2024, largely due to renewed activity in the real estate market”.
Overall credit to the business community reached $8.8 billion at the end of the third quarter.
“As seen from the Central Bank report, consistent with the resurgence of the economy, banks have increased their lending to the non-financial private sector over the past 18 months,” McIntosh said.
“There is heightened economic activity, particularly in real estate, with new construction projects across a variety of sectors including large scale tourism infrastructure projects, villas, wholesale/retail expansions, warehouses, offices, residential homes etc.”
McIntosh also said that “Moreover, many banks have frequent campaigns to promote their respective lending products and are eager to lend more given the elevated levels of liquidity”. “Banks also re-entered the capital markets and invested in government bonds and treasury bills to utilise its excess liquidity. Most recently, three banks were involved in the first debt for climate swap as well,” he added. McIntosh, who is Royal Bank of Canada’s (RBC) area vice-president, business banking, personal and commercial banking, and managing director of RBC Royal Bank (Barbados) Limited, said the challenges “associated with deploying more funds are as follows”.
He elaborated: “Projects that do not meet banks’ lending criteria. This could be due to a lack of accurate/ appropriate financial reporting or start up projects that do not have additional support. “These types of projects are typically funded by equity in the early stages to allow the businesses to achieve commercial viability and establish a track record. This is an area where angel investors, private equity and other financial institutions can and do play a role.”
He also pointed to renewable energy sector challenges.
“It is estimated that there are renewable energy projects totalling $400 million awaiting execution but are unable to commence due to the electricity grid reaching capacity,” the senior banker stated.
“However, the banking sector is fully aware of and applauds the efforts of the Ministry of Energy with respect to competitive procurement for Battery Energy Storage Systems, of which the Request for Information was recently completed and the Request for Proposals will begin in January 2025.
“When these storage systems are implemented, it will bring much needed capacity to allow the pending solar generation projects to be executed. The solar generation and storage projects will allow for further deployment of capital from a bank lending perspective and equity from investors,” he noted.
Regarding opportunities, McIntosh said that “an opportunity to deploy equity is the listing of SMEs on the Barbados Stock Exchange”.
“For example, the project that is being contemplated by the Ministry of Energy, the Caribbean Development Bank, the Barbados Stock Exchange in partnership with the Small Business Association to list SME’s on the Barbados Stock Exchange. This will allow SMEs to access equity financing and allow individuals to invest,” he said.
Another positive development would be if a more efficient process of land transactions and mortgages was attained.
“The Land Colloquium chaired by the Hon. Prime Minister Mottley focused on identifying and proposing solutions to issues surrounding land transactions, conveyances, and other hindrances that slow down the purchase/construction of properties,” he reminded.
“The colloquium was a multisector approach with government departments such as Corporate Affairs and Intellectual Property Office, The Land Registry, Town & [Country] Planning, the Bar Association, the Bankers Association, realtors and developers present.”
His view is that “if solutions can be implemented, this will achieve reduced conveyancing timelines, faster purchase and sale process and mortgage process, thereby giving banks the ability to deploy funds at a faster rate into
the economy and result in a more productive business environment.”
Overall deposits in the financial sector $15 billion at the end of September, including $1.2 billion foreign currency deposits. Some $13.3 billion of these were transferable deposits, meaning that they comprise call deposits, demand deposits and savings deposits with unrestricted withdrawal privileges.
The Central Bank said that the growth in deposits was “driven by activity in the global business sector and increased tourism output, which contributed to higher system liquidity”. (SC)
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