Commercial banks are seeing negative returns on their investments in treasury bills and need profitable investment opportunities to pay the current level of interest on deposits, Guyana Bank for Trade and Industry (GBTI) Chief Executive Officer, R.K. Sharma, said.

In his report to shareholders at the bank's fourteenth annual general meeting yesterday, Sharma said the commercial banks in Guyana maintained strong liquidity positions in 2001, holding $12.7 billion in excess reserves or 63.1% more than was required. The holdings of government treasury bills accounted for 63.2% of commercial banks' liquid resources.

This high level of liquidity in 2001, Sharma said, led to intense competition for the limited investment opportunities by banks and other institutional investors. This, he said, led to the fall in the market treasury bill rate from 9.20 per cent at the start of 2001 to 6.25% at the end of the year. As a result, commercial banks' average three-month term deposit rate declined from 7.37% to 7.15%, while the small savings rate moved from 7.28% to 6.70% at December 2001.

"The factoring of the reserve requirement into the cost of deposits show that commercial banks have negative returns on investments in treasury bills and need to seek profitable investment opportunities to maintain the current level of rates paid on deposits," Sharma told stockholders of GBTI.

Deposits in the banking sector at the end of 2001 grew by 4.7% to reach $95.3 billion, in contrast to a 15% increase the year before. Savings deposits in the banking sector grew by 11.3% to $48.6 billion, while time deposits decreased by 0.3% to $33.1 billion at the end of 2001. Sharma said that non-bank financial institutions' deposits declined to $6.5 billion or a 5.3% fall. In the previous year there was an increase in deposits in this category of 45.9%. Private sector deposits grew by 9.7% in 2001 to reach $13.9 billion compared with 12.5% in 2000.

As for the lending portfolio of the commercial banks, Sharma noted that the portfolio declined by 4.1% in 2001 at $52.4 billion. This, Sharma said, was because of the more "conservative and stringent" approach to credit extension by the commercial banks.

Credit to the rice sector, he said, declined by 9.2% in 2001 while credit to the motor vehicle sub-sector increased by 43.5% the rice and distribution sectors remain the largest recipients of credit, accounting for 21% and 20% of the loan portfolio of the total banking sector.

Sharma dealt with an overview of the banking sector in his report to shareholders.

GBTI made an after-tax profit in 2001 of $159.1 million, 16.7% more than the year before. The profit before tax, $298 million, was 45.4% over the results of 2000.

Sharma said GBTI's profit position was as a result of its sound income generating capacity and the prudent management of its affairs. GBTI's total revenues for 2001 declined by $70 million and Sharma said this was as a result of the difficult economic and business environment especially in the retail sector.

Income from loans and advances declined by $116 million to reach $1.2 billion for 2001. Sharma said this was because of the bank's stringent application of the income recognition policy of the Financial Institutions Act relating to non-accrual loans and a reduction in the rates on loans in specific sectors. GBTI's exposure to the agriculture sector declined by $500 million in 2001 and this was deliberate, Sharma said.

He said GBTI's conservative approach to new lending, its adherence to prudential banking regulations and other higher standards of credit appraisal, set by its credit policy, would continue to influence its approach to credit extension this year.

GBTI's income from investments declined in spite of an increase in its investment portfolio. Investment in securities and central bank's deposits yielded $664 million, compared with $736 million the year before. Sharma said this was because the banking sector faced a rapid decline in the six-month Treasury bill rate from 11.27% at the start of the year to 7.31% at year-end. At the end of 2001, GBTI's total stock of treasury bills amounted to $7.5 billion with six-month maturities totalling $2.5 billion and one-year maturities amounting to $4.2 billion.

Income from other sources increased from $47 million in 2000 to $91 million last year. Interest expenses declined by $163 million on account of lower interest and administrative expenses. Sharma said that interest expenses declined by 11.7% as a result of the reduction in term deposit balances and overall interest rates. However, he said that the amount charged against profit as provision for non-performing loans increased by $46 million. Provision for doubtful accounts in 2000 stood at $1.3 billion, but this reached $1.6 billion last year. Provisions for the year 2001 were $406 million compared with $360 million the year before.

Sharma said that the bank's asset base grew by 23% in the last five years, with it holding $24.2 billion in total assets at the end of last year. The mix of assets reflect 16.4% in cash resources, 32.9% in government backed securities, 41.4% in loans and advances and 9.3% in fixed and other assets.

Sharma assured stockholders that GBTI's management exercised careful judgment in ensuring the solidity and proper balance of its asset base to provide a margin of safety for customers' deposit. He said the liquidity position was monitored daily to ensure the maintenance of a level conducive with efficient operations. He said that the liquidity position was very strong in 2001 averaging in excess of 20% over the required levels.

GBTI's return on average assets improved from 0.62% in 2000 to 0.66% last year and the return on equity was 6.08% compared with 5.39%, while earnings per share moved from $3.41 to $3.98.

The bank's deposits at the end of 2001 stood at $19.6 billion, reflecting a 1.3 per cent growth, and maintaining its share of over 20% of the market for deposits. Savings deposits, Sharma said, increased by 11.9 % while term deposits declined by 8.3%. The latter, Sharma said, was a result of GBTI's deliberate policy to attract stable, longer-term funds.