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Dec 23, 2011

Credit Unions affected by excess liquidity in banks

We have reported that excess cash liquidity is affecting the Central Bank and commercial banks, which are turning down fixed deposits. A ripple effect of this financial crisis is being felt by credit unions, whose membership includes smaller investors. The liquidity has also brought down interest rates for credit unions. News Five’s Isani Cayetano reports.

Isani Cayetano, Reporting

The current overabundance in cash reserve at the Central Bank has forced a number of lending institutions, including banks and credit unions, to turn down fixed deposits.  During the past year convertible assets have inflated to roughly one hundred and ten million dollars, up from forty-eight million in November 2010.  While the primary focus has been on the impact the adverse effect of excess cash is having on the banking system there are equal concerns within other areas of the financial sector, particularly among the credit unions.

Corrine Fuller, Executive Director, Belize Credit Union League

“For the credit unions, we are also customers of the bank so it affects us.  It is just starting to affect us because credit unions hold some of their monies in commercial banks as well and if you had a fixed deposit with a good rate it will remain that way until it matures.  So when it matures the rate is going down and it affects them, it affects the bottom line.  The credit unions’ investment in loans, that’s one of the most important investment that they make, so they have a lot of their money in loans but people keep on depositing with them, you  know.  Members continue to save so it is does affect credit unions because when you take additional monies to the bank you don’t get the rate that you use to get before.”

Since the banks are only accepting bulk payments from institutional investors, such as the Holy Redeemer Credit Union, at a comparatively lower cost the market has been buckling.  That rate has since been reduced to two and a half and three percent; however, according to Corrine Fuller of the Belize Credit Union League, that figure varies.

Corrine Fuller

“The interest rate that you get at the bank that depends on a number of things, I believe.  It depends on how long you have the money on the fixed deposit and it also depends on the amount.”

At an initial rate of return between seven to nine percent the profits derived from fixed deposits contributed significantly to the revenue of the HRCU.

Corrine Fuller

“As a depositing customer to the bank it affects us because the rate that we get is lower now and at the end of the day that is part of our income, you know, the interest from deposits in the bank.  So at the end of the day the credit unions will see that there is less income from that source.”

Isani Cayetano

“What you’re describing seems to be sort of a ripple effect which begins with Central Bank, the average commercial bank and then now the credit unions.”

Corrine Fuller

“Well remember I told you that the credit unions are customers of the bank so whatever decisions that are made that affect the bank that eventually affects their customers the credit unions will be so affected because we are a customer of the bank just like the regular person.”

Similarly affected is the Social Security Board.  It is speculative, however, how the impact of excess liquidity will affect its bottom line.

Isani Cayetano

“If the need arises for SSB to raise more funds in order to meet its payouts since it is now earning five percent less for its hundred and twenty million in cash deposits, could there be the possibility of an increase in contribution by workers and businesses?”

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8 Responses for “Credit Unions affected by excess liquidity in banks”

  1. Earl Grey says:

    The Minister of finance NEEDS TO STEP UP and help to RECALIBRATE THE SYSTEM….unless he is UNAWARE!!!

  2. Ervin M Perez says:

    Dear Mr. Cayetano,

    Excess liquidity in the banking system is not caused by an action of the Central Bank but more due to a slow down in investment activities by the private sector- i.e. general economic activity. There may be a number of reasons for this to occur- including uncertainty by the private sector about general future economic activity, the high price of borrowing from the banks, the inefficient banking system and so on. Being a reporter, I am certain you travel around the country and should observe the large infrastructural needs (roads, bridges, drains etc)of the country; therefore from observation common sense would suggest that there is something fundamental wrong with the structure of our financial system which does not allow excess funds to flow towards building these much needed capital projects. This is not a situation that can be resolved with monetary policy alone. This is it is beyond the ability of the Central Bank to resolve. It is structural.

  3. Ricky Malthus says:

    It is the expressed duty of all central banks in all countries to maintain equilibrium in the banking system as it is the bankers’ bank. The commercial banks need to start lending to the public again but not at the staggering rates they are accustomed to.If the people at the helm of Belize Central Bank understands money and banking, then one of the remedies to excess liquidity is to convert excess reserves into required reserves through demand deposit creation process. So lean on the commercial banks to get the commercial banks’ loan officers to start doin their jobs and start selling money to people and businesses. Heaven knows we need fuel i.e. CASH in our economy.

  4. Earl Grey says:

    Commercial banks HAVE BEEN MILKING US DRY for a long time. IT’S TIME FOR THEM TO GIVE BACK!!!!

  5. ricardo says:

    it time for credit unions to divert from bank an invest for example industries like the suger industries for best returns

  6. ricardo says:

    it time for credit unions to divert from bank an invest for example industries like the sugar industries for best returns

  7. savy says:

    With all this money in the central bank , wouldn’t it be a good Idea to buy the superbonds at a discount price ?

  8. savy says:

    With all this money in the central bank , wouldn’t it be a good Idea to buy the superbonds at a discount price ? .

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