New acting Governor of the Bank of Guyana Lawrence Williams says staff constraints in the senior and middle management, including the vacant positions of Deputy Governor and Banking Manager, are just some of the challenges facing the body responsible for setting monetary policy.
Williams took up his appointment as acting Governor on November 1, following the retirement of former acting Governor Dolly Singh. Prior to his new post, Williams had been Banking Manager at the Bank of Guyana.
Williams recently sat down for an interview on the roles and responsibilities and challenges both for him and the Bank.
He said that the internal challenge is to ensure that there is a cadre of staff to discharge the bank's myriad functions. He added that it has been a rather difficult period for the bank, since it has lost many of its trained senior and middle management staff. "We are seeking to attract new staff with hopefully new ideas so that the work of the bank could continue. Even though I have been appointed acting Governor some senior positions are yet to be filled," he noted. "No one has been appointed to the posts of Deputy Governor or Banking Manager."
He said that one would need the support at the very senior level but that he had heard that the authorities are giving due attention to this matter. He also made reference to amendment to the Bank of Guyana Act, which states that the posts cannot remain vacant for a period of more than six months.
The banking supervision department has been conducting training but "as fast as we train we are losing the trained staff to locally based international institutions." He stated too that some staff members have migrated.
He said that the bank supervision area is very critical. "We need to ensure the health of the financial system and that department is the one that does the off-site and on-site supervision of the financial institutions. As such we are constantly trying to build up capacity in that area." He said that the bank's role is typical of that of any central bank for the formulation and the implementation of monetary policy. Williams said there must be a good balance between monetary and fiscal policy if there is to be macroeconomic stability. He added that the Ministry of Finance is the agency responsible for fiscal policy while the bank is responsible for monetary policy.
He said that this monetary policy is geared towards achieving price stability and the orderly development of the finance sector. "The Bank of Guyana aims to develop a sound, efficient financial system by securing credibility of the finance system. We are ensuring that the payment system is functioning adequately by supervising the financial institutions that we licence."
He stated that the Bank of Guyana Act is clear in identifying the bank's board of Directors as the policy-making organ of the institution. And since the Minister of Finance is answerable to Parliament for the operations of the central bank there will have to be consultation between the ministry and the bank on some issues, he said, while maintaining the position that the bank is an autonomous body.
Concerning the Bank of Guyana Act, which was passed last week, he could not say when it would be assented to by President Bharrat Jagdeo. "But with the increasing of the number of directors, the Board would be able to bring a wider variety of skills...at the moment we are limited to a maximum of four directors; with the amendment that number would be increased to six."
Williams said that with the increased number one could see the board setting up specialised committees to look at certain key areas, like reserve management, audits, staff benefits and welfare. "But that is not to say that with the increase by two, there is a lot more flexibility."
On the issue of credit unions and other financial bodies, Williams said that a study has been done to determine which institutions should be brought under the purview of the Bank of Guyana. He said the authorities are perusing the report of the study and he did not want to pre-empt it by commenting on any potential outcome.
Many are of the opinion that credit unions should be brought under the radar of the Bank of Guyana by amending the Financial Institutions Act in the interest of protecting the members of the co-operative bodies. One example of such a credit union is the Guyana Public Service Co-operative Credit Union, which held its first annual general meeting for five years some months ago.
The report of the audited accounts for the credit union said that the balance sheet included as an asset $849M for loans to members but its management had not carried out an evaluation of the portfolio to determine which loans were inadequately secured or not secured at all. The reports stated too that the auditors had also detected several cases in which the borrowers had defaulted and some of the loans had been refinanced.
In Trinidad, the government announced early this month that it was going to amend the Financial Institutions Act to make credit unions fall under that legislation's purview. That amendment will also make mergers and acquisitions of banks or financial institutions subject to the approval of the Finance Minister after consultation with the governor of the central bank.
According to Williams, credit unions in some societies are significant players in the financial sector.
He asserted that the health of the financial system is the responsibility of the Central Bank. "The bank also issues the legal tender of the country and acts as agents for the government with the issuing of treasury bills to raise short-term and medium-term funding for the government...This is also done through the issuing of bonds even though we have not issued bonds for a long time. We also manage international reserves of the country and as bankers to the government we make international payments on behalf of the government and maintain a series of current accounts for various government institutions."
He said that another tradition role is that of advisor to the government on matters of finance, international trade and international financial systems.
Elaborating on treasury bills, he said that the bank issues treasury bills for two basic purposes; first to assist the government with financing and second as a monetary management tool to control excess liquidity on the market.
He said that excess liquidity in the system, if not controlled, could have certain deleterious effects. It can put pressure on the exchange rates and also fuel inflation. Because the funds are out there, if the commercial banks are not careful they can offer credit loosely, he said.
He said apart from that "we have looked at ways and means of improving the payment system and a fair amount of work has already been done in setting up a national clearing house and we are looking towards having that clearing house automated...we are hoping to have everything computerised. We are hoping that once the clearing is done here there could be automatic update of accounts...but this requires the expertise in the IT area and the operational people to supervise the system."
In terms of infractions by financial institutions, he said that there is no other institution that has reached the level that Globe Trust has reached. "But we are working with some institutions with loan portfolios that are slightly above internationally accepted levels."
In terms of the lessons learnt from Globe Trust, some of the issues have been dealt with by the amendment to the Financial Institutions Act. The institution had a loan portfolio in excess of $800 million at the time of seizure but only about $100M of this was being serviced.
The Bank of Guyana had appointed an administrator in December 2002 to oversee the affairs of Globe Trust after the High Court refused an application by the Bank to have the trust company liquidated.
Commenting on the effects of the recently passed legislation, Williams said: "We have changed our Modus Operandi, we are not dealing with the Chairman and CEO only, but now send all reports to all board members and we have been inviting all members of the Board to meetings." The Financial Institutions amendment gives the Bank of Guyana the power to take temporary control of troubled financial institutions. It also seeks to insert six new sections in the principal Bank of Guyana Act, to fortify the central bank's ability to deal with licensed financial institutions that run aground.
Dirty moeny
As for the issue of dirty money, Williams said the Financial Intelligence Unit (FIU) has been set up in the Ministry of Finance and the Bank of Guyana has a representative on it. The Central Bank conducts its own money laundering regulation review of licensed financial institutions at the time of inspection. But this he said is done in a very limited way because the regulations to support the legislation have been drafted but are yet to be approved by the Attorney General's Chambers. He said that so far the bank is operating with certain basic guidelines, which seek to address the issue from the standpoint of regulator/supervisor.
He said that the onus is on the financial institution to report suspicious transaction and from there the central bank would take the necessary action.
He said that once there is deviation from the guidelines at the time of inspection then the financial institution is asked to explain this.
Williams said that the Central Bank has been stepping up its monitoring of cambios in their operations, and has got them to begin submitting daily reports at 9 am for the previous day's activities. He said that under the law, cambios, which are licensed by the Bank of Guyana, are required to submit reports on a weekly basis.