Latest update October 13th, 2024 12:59 AM
Mar 21, 2023 News
…account now in $12B overdraft
Kaieteur News – As Guyanese and the rest of the world continue to keep an eye on the global financial implications of the failure of several international banking institutions—in light of globalisation and concomitant ripple effects—it would be apposite to note that the General Reserves, held at Guyana’s Central Bank, also continues to dwindle.
Bank of Guyana (BoG) in its most recent official report on its statement of Assets and Liabilities, reflect that the General Reserves of cash held at that institution is, $12.1B in the red.
That figure represents an increase over the $9.2B overdraft that was reported last month by the Bank. The latest figures show that at the close of business at the end of the first week in March of this year that -$9,223,246, 431, accounted for in February, had grown to -$12,111,508,791.
This publication had also reported that by the middle of last year, the reserves were actually at minus $6.7B. As such, it would mean that between the middle of last year, and the first three months of this year, or approximately nine months, the overdraft of the general Reserves at BoG has in fact doubled. Under the Laws of Guyana establishing the General Reserves account—the Bank of Guyana Act—the BoG shall establish a general reserve into which it would deposit 50 percent of the net profit made by the bank for each financial year. The other half of net profits earned by the BoG, according to the Act, would then be transferred to the Consolidated Fund through the Accountant General.
It should be noted that net profit for BoG, is calculated by deducting from gross income all expenses, together with allowance for depreciation of assets, contribution to staff benefit funds, provision for bad and doubtful debts, and such other contingencies and accounting provisions as are usually made by banks. The BoG Act does however, provide for instances where if, the General Reserve Fund is in any year insufficient to cover any net loss of the bank recorded in its profit and loss account, an amount similar to the deficiency will be appropriated and shall be debited to the account of the Govt. with the bank. “Such debit shall be made in the form of shall be made in the form of a transfer from the Consolidated Fund or interest-bearing marketable obligations issued by Government.” As such, it would mean that it is ultimately the nation’s treasury that will have to pick up the shortfall.
News of the continuing growth of the overdraft comes amidst a global financial crisis which has so far has led to the collapse of several US banks and the bail out of others, including in Europe.
According to international reports, over the weekend the financial crisis currently threatening banking systems saw regulators attempting to stave off the phenomenon. In an emergency deal brokered by Swiss authorities, UBS agreed to scoop up longtime rival Credit Suisse for US$3.25B, which was less than half of the latter’s market valuation at the close of trading on Friday last.
Economists indicate that without a deal, Credit Suisse would’ve likely collapsed this week, spreading further financial contagion that began in the U.S. with the implosion of Silvergate Capital (SI), Silicon Valley Bank (SIVB) and Signature Bank (SBNY).
(First Republic (FRC) is also facing trouble with additional cuts to its ratings.
Market sentiment took a turn for the better following the emergency rescue, which would limit contagion through the financial system, only to drop lower as things were fully digested. With big losses on tap for shareholders and bondholders, the Federal authorities in the US, Europe and other major central banks took “coordinated action” to ensure dollar liquidity, while the Swiss National Bank promised access to liquidity facilities for both banks involved in the transaction.
In premarket trading, UBS and Credit Suisse opened down, 11 percent and 59 percent, respectively, with regulator FINMA adding that about $17B worth of Credit Suisse’s risky AT1 bonds will become worthless to guarantee that private investors help bear some of the costs.
This week will see a crucial two-day meeting of the Federal Reserve’s policy-making committee with some investors on a razor’s edge over the potential for an unexpectedly hawkish tilt.
Economists across the world have noted that the common denominator affecting the banking are sharply rising interest rates.
Central banks around the world have been raising the cost of borrowing to try to dampen down rising prices. After years of very low interest rates, that has come as a shock. Guyana is no different. Only recently the Insurance Association of Guyana (IAG) announced that effective April 1, the insurance rates being offered in Guyana across the board will also be increased.
At that time, IAG said that for several years re-insurers servicing the Caribbean region had been on the decline adding that the declining rates being offered here and regionally was not sustainable. The situation it said, had been made worse by the fact billions in claims being made annually and referenced that insurers that had settled claims related to Hurricane Ian and other storms was some US$95B in addition to claims in the US and Australia and also across Europe.
To this end, it was pointed out that by last year, several reinsurers servicing the region reduced their capacity while others withdrew from the region altogether. This was compounded, IAG said, with the fact that at the beginning of this year all of the reinsurers servicing the region collectively increased the premiums being asked for.
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