Commercial banks rack up over $18B in bad debts - Yadav says supervision inadequate By Gitanjali Singh Stabroek News December 22, 1999 Over $18 billion or 32% of the loan portfolio in the commercial banking sector is considered bad, with heavy provisions being made for this in keeping with the Financial Institutions Act. The three largest commercial banks in Guyana-- the National Bank of Industry and Commerce Ltd (NBIC), the Guyana Bank for Trade and Industry (GBTI) and the Guyana National Cooperative Bank (GNCB)-- account for over 90% of the loans considered bad. GNCB's non-performing portfolio stands at over $7 billion, while NBIC's and GBTI's non-performing portfolios exceed $4 billion and $5 billion respectively. Both President Bharrat Jagdeo and head of the recent International Monetary Fund (IMF) mission to Guyana, Gopal Yadav, acknowledged the growing bad debt portfolios of the banks and the latter noted the need for a stronger bank supervision unit at the Bank of Guyana. President Jagdeo, on the other hand, said that the non-performing portfolio was largely because of the difficulties in the rice sector. A seasoned financial analyst who preferred not to be named yesterday called on the government to declare a national disaster in the rice sector. "The rice industry can collapse at any time now," the analyst said, giving as an option a government appeal to the multilateral agencies to facilitate a US$10 million low-interest loan for the sector, to be disbursed through the commercial banks with adequate arrangements to take care of the existing loans which have gone bad. However, rice magnate, Beni Sankar, while believing that the situation is grave, does not think that it warrants such drastic measures as yet. He noted that the millers met President Jagdeo on Monday on the issue and proposed a five-year moratorium on the payment of the principal on loans for those companies going under. He told Stabroek News that the proposal is that interest would be paid during that period, after which payment of both interest and principal will commence. "A lot of guys invested heavily but the bad weather [patterns], drop in prices for rice from US$350 per tonne to US$230, and too many small mills springing up have prevented them from seeing the returns on those investments," Sankar said. He said the meeting with President Jagdeo was very positive as he shared the rice sector's concerns and is arranging a meeting between players in the sector and Saisnarine Kowlessar, minister with the portfolio for finance. Kowlessar would be expected to make a case to the banking sector for restructuring the bad loan portfolio of the rice sector. Stabroek News was informed that several rice mills are in receivership. However, sources have told Stabroek News that it is not just the difficulties in the rice sector which have led to the large non-performing loan portfolio of the banking sector. The source noted that not all the banks lend to the rice sector and said in one particular bank, it was more a case of lending without adequate collateral. The strict provisions of the Financial Institutions Act were now causing this to show, the source said, and these loans are not being serviced. The source also pointed to the number of companies now in receivership because of their inability to service debts. Efforts to reach head of the Guyana Association of Bankers, Radha Krishna Sharma, were unsuccessful. The deputy chairperson of the group is on leave and the secretary of the association was also unavailable. And Yadav, the IMF's Caribbean division chief, told Stabroek News that it is this non-performing portfolio which is reflecting itself in the high spreads between commercial banks' savings rates and lending rates. Technical assistance has been sought for the Bank of Guyana's Bank Supervision Department to strengthen its role in monitoring the activities of the banking sector. A © page from: Guyana: Land of Six Peoples