Tag: Bank of Guyana

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On the Line: Guyana Bank for Trade and Industry Annual Report 2008 – revisited

Guest business column by Robert V McRae, CPA

Background
Several weeks ago the Bank of Guyana (BoG) publicly and the Guyana Bank for Trade and Industry (GBTI) management privately in a letter to me, responded to a guest Business Page published in Stabroek News of April 12, 2009 under my name. Unfortunately, personal commitments precluded me from addressing this matter earlier and for this I apologise.

Of specific concern to both entities were two paragraphs under the caption ‘The blog and the BoG.’ The two paragraphs contained information derived from the Annual Report of the bank and merely raised legitimate questions over the original response to the blog, particularly why it did not acknowledge the overnight borrowing by the bank or the deficiency in the statutory reserve requirement of more than $4B at December 31, 2008. After the column had raised the matter the Bank of Guyana advised that the shortfall was “authorised,” a fact that was not evident prior to its public statement.

Overnight borrowing
While the BoG must be commended for its prompt dispelling of any doubt surrounding the bailout claim, it should have at the time acknowledged the approach for the overnight facility while asserting that transactions of a similar nature were not unusual. This was clearly an unnecessary and unfortunate omission that did little to help the cause it was seeking to promote.

In its direct response to me, the management of GBTI has correctly made the point that the BoG’s half year report 2008 reveals sixty-three trades in the inter-bank market with the value of funds traded totalling $20.4B. It is of interest to note that the average value of these trades is approximately $324M, so in terms of its magnitude, that specific transaction of $1.5B by itself must be considered unique and therefore warranting more explanation than was provided.

Reserve requirement deficiency
The second issue and the reference to the deficiency in the reserve requirement was that maintenance of this reserve is a statutory requirement and nowhere in the financial statements could the reader deduce from what date or why this shortfall had occurred, nor was there any indication whether the situation had been corrected, as was the case in the Bank’s 2007 annual report, (It has since been revealed by the BoG press release that the 2008 shortfall was corrected.)

Indeed, financial reporting standards which specify that, “if the quantitative data disclosed at the end of the reporting period are unrepresentative of the company’s exposure to risk during the period, an entity shall provide further information that is representative,” would seem to make such disclosures mandatory – another unhelpful omission.

Bank of Guyana press release
The press release also refers to discretion which the Bank of Guyana is allowed to exercise in these matters. As far as this writer is aware, discretion exists in the relevant legislation only with respect to the imposition of penalties for deficiency in the reserve requirement, and does not allow for authorisation of what is tantamount to a breach of law. Consequently it appears that the BoG acted without authority.

In the current economic climate the BoG must not only be seen to be acting promptly but it must also act impartially, and if it does engage in a public issue it must ensure it does so fully, fairly and completely.

It would have been extremely helpful and enlightening for BoG to have addressed the following:

1. The number of shortfalls in reserve requirements during 2007 and 2008 and the number of entities involved.

2. The circumstances in which BOG would “approve” a breach of the statutory reserve requirement by a financial institution.

3. GBTI management has indicated that the transactions resulting in the reserve requirement deficiency at the end of 2007 and 2008 were similar. The BoG should confirm whether it granted a similar “approval” in 2007 for the breach of the reserve requirement, and cite the specific authority for any such approval.

Conclusion
Nowhere in the earlier column was there any attempt to give credence to the spurious claim by the blog that the GBTI required a bailout, nor any question raised about the financial soundness of the bank.

As a public company, whether the management of GBTI disapproves or not, any member of the public is entitled to seek clarification of any matter on which there is inadequate or no information. Financial statements are only as good as the information they contain and the users can only draw conclusions based on what is disclosed. Rather than leave unanswered questions, the management of all public companies and most especially financial institutions should lean towards more helpful rather than less disclosure unless confidentiality or competitiveness will be compromised.

The questions raised in the article go to the heart of transparency, accountability and fairness. The BoG must avoid any appearance that it favours one institution over others and ought not to overlook, in matters of this nature, the implications for its role as an independent, supervisory watchdog over the sector.

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The Insurance (Supplementary Provisions) Bill 2009

I note that the Minister of Finance Dr. Ashni Singh has introduced legislation [The Insurance (Supplementary Provisions) Bill 2009] that will bring the functions of the Commissioner of Insurance (CoI) under the Bank of Guyana (BoG). The Explanatory Memorandum states that the “Bill seeks to pave the way for the Bank of Guyana (not the Commissioner of Insurance) to administer the Insurance Act and for a person nominated by the Bank to be appointed by the Court as judicial manager.” Because it was the first reading of the Bill, the Minister was not required to nor did he otherwise give any reason for this move which is not without considerable significance. Such a move would however have been helpful in alerting parliamentarians and the public of the thinking behind the legislation and directing their minds to the kind of preparation they should begin in order to contribute meaningfully to the progress of the legislation.

The Clico meltdown exposed in a rather dramatic and disastrous fashion some of the weaknesses of the existing legislation and its operations. But it also emphasised the need for a more exhaustive examination by an impartial body of the causes of the debacle and the steps necessary to better regulate the insurance sector and prevent similar failures in the future. Without the benefit of that exercise, I can only rely on my experience of the Insurance Act in relation to audits, revelations about Clico as well as – let’s not forget – the GuyFlag/Fidelity story in offering any opinions. Those suggest that what we need are fundamental changes both to the regulatory framework as well as how it operates. The proposed Bill falls very short.

The only change being made by the Bill is the transfer of responsibility for the supervision of the Office of the Commissioner of Insurance from the Commissioner of Insurance to the BoG. This raises the obvious question whether the Minister really believes that that is all that is necessary to fix the system that certainly failed us in the case of Clico and serves us poorly in the case of GuyFlag/Fidelity. One assumes that the Minister would have been kept fully informed by the Commissioner of Insurance that the breaches of key provisions of the Insurance Act by Clico were putting policyholders and depositors at considerable risk. Are those addressed by this Bill? I think not.

There is only one Commonwealth Caribbean country that I know of where the insurance industry is supervised by the Central Bank – Trinidad and Tobago which coincidentally has also had the biggest failure to stakeholders, other than Guyana. In Barbados and Belize the sector is supervised by a Supervisor of Insurance operating under the Ministry of Finance. Jamaica has what I consider to be the best model and one which was recommended in Ram & McRae’s Focus on Budget 2009, i.e. a Financial Services Commission. Under that umbrella can fall responsibility for the supervision of such sectors as insurance, securities, prevention of money-laundering and even the financial institutions. That would allow the central bank to deal with its core objectives, namely “the fostering [of] domestic price stability through the promotion of stable credit and exchange conditions, as well as sound financial intermediation conducive to the growth of the economy of Guyana.”

While the Commissioner of Insurance has had to take responsibility for much of Clico’s regulatory failure, the Bank of Guyana too failed to detect that Clico was engaged in deposit-taking which required Clico to apply to the Bank for a licence under the Financial Institutions Act. In fact the disclosures surrounding financial/quasi financial institutions including Clico, the Hand-in-Hand Trust, the New Building Society and the National Insurance Scheme suggest that the Bank of Guyana has its own problems. To add to its mandate supervision for the insurance sector can compound those problems.

I hope that the Bill is a mere temporary measure until the President’s promised investigation into Clico makes more extensive and meaningful recommendations. I hope we do not have to wait too long.

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On the Line: New Building Society Limited Annual Report 2008

– $200M exchange loss

Introduction
Forgive the rather misleading heading which is the standard for the review of annual reports in this column. It is misleading because at the time of writing the annual report of the Society, including the report of the directors and the financial statements, has not yet been made available to its members. Compelled by its own law that the AGM must be held before April 30, the directors have chosen for the venue of the meeting the Cotton Tree Primary School, West Coast, Berbice on Saturday April 25 with the first item on the agenda “to receive the financial statements and the Reports of the Directors for 2008.”
The financial statements of the Society audited by long serving and proposed-to-be-replaced Jack A Alli, Sons and Company show growth in deposits by just over 5% from $28.9B to $30.5B. This is the smallest percentage increase in deposits since 2002 and represents a recent trend of declining annual percentage increases. More significantly, however, is the decline of more than $103M in profits for the year. This is the second successive decline but is the highest decline recorded by the Society in recent history. Readers will recall that the 2007 profits were charged with the sum of $74M resulting from the fraud on an account holder.

It really has not been two good years for the Society under new Chairman Dr Nanda Gopaul, who signed the 2008 financial statements along with Mr Floyd McDonald, Deputy Chairman and former Commissioner of Police now on contract with the government, and Mr A Khan, Director/Secretary.

Commentary
The major reason for the decline in 2008 is an exchange loss of $200M, arising almost entirely on UK Government Treasury Bills which are denominated in pounds sterling, the exchange rate of which declined to the Guyana dollar by more than 20% between December 31, 2007 and December 31, 2008. While the Society had an exchange gain of $67M in 2007 it may be time for the directors to consider whether in the light of the volatility of international currencies it should liquidate those investments and repatriate the proceeds or invest in a currency to which the Guyana dollar is more aligned.

Loan assets have increased by 12.1 % from $16.99B to $19.1B almost a third more than GBTI, the performance of which was reviewed in a guest column last week and which has deposits of considerably more than the NBS. NBS, a creature of legislation, is restricted to how much it may lend and the nature of the security it has to have. On the other hand its income is tax-exempt and it can afford to and does pay the highest rates of interest on deposit accounts and charges the lowest rates on lending.

Despite the fall in income, reserves have increased from $4.5B to $4.79B or 6.4%. The Society is cash strong with some $4.2B in cash resources, almost all being held in interest-bearing fixed deposits. As discussed later in this column, that position would change significantly in 2009. The average interest earned on those resources was 5.6% compared with 4.2% earned in 2007. Investments which with the exception of the bridge bonds are liquid, amount to $11.3B, down from $13.55B. They earned an average return of 4.3% in 2008 compared with 4.5% in 2007.

Governance, the bridge and Clico
Perhaps the most controversial issue arising out of the financial statements is its investment in the Berbice Bridge. When financing for the bridge was first sought, the Society was approached by Mr Winston Brassington for a $3B investment. Independent consultant Raymond Gaskin questioned both the lawfulness and the viability of the investment and it is understood that on a split-decision the board, with Mr Moen McDoom as Chairman, accepted the advice and rejected the approach but went for $350M, a sum it was “prepared to lose.” Just over one year later the board with Dr Gopaul as Chairman reversed itself, and according to the financial statements bought bridge bonds with a face value of $1.5B. Regrettably the financial statements do not disclose the price paid for those bonds, but it is believed that they were bought at face value. More controversially, not only did the board reverse itself, but from all reports it did so by way of round-robin, ie without a physical meeting of the directors.

The composition of the board has changed significantly since its rejection of the $3B overture. Of the four who voted against the investment Mr McDoom has been replaced by Dr Nanda Gopaul, Director Secretary Mr Maurice Arjoon’s services have been terminated and directors Leon Rockliffe and Steve Bovell were voted off the board. As a result of the changes, the board with one exception is now made up of persons close to the government or the ruling party, some of whom are in receipt of compensation from the public purse. Mr Clement DeNobrega, a professionally qualified accountant who was elected as a director in April 2008 resigned some five months later, apparently dissatisfied with the way the board conducts the business of the Society. Once again there is no accountant on the board nor, as far as I am aware, is there any governance committee in the Society. Mr Kenneth Joseph, Head of NAACIE and the pro-government breakaway trade union organisation FITUG, was appointed by the board to fill the vacancy left by Mr DeNobrega’s resignation. His appointment is to be confirmed at the AGM.

Another possible reason for the reversal of the decision to invest in the Bonds may have to do with note 23 to the financial statements: Events After the Balance Sheet Date. This reports ambiguously that the Society’s retirement benefit plan held at December 31, 2008 a flexible annuity policy with Clico amounting to $110.9M. Note 12 to the financial statements devotes a full two pages to the plan, but did not refer to note 23. The directors should not by their silence encourage speculation that the Society may have undertaken the purchase of the bonds from Clico on the understanding that it could deduct the value of the policy from the purchase price of the bonds. That is a possibility fraught with serious legal implications and requires an unambiguous statement from the board which despite the public furore over the matter has so far not even publicly acknowledged the purchase.

Governance and risk
With the recent purchase significantly altering the composition of the Society’s assets and liquidity position, the Society is betting more than 40% of its accumulated profits on the Berbice Bridge Company meeting its annual interest obligations of about $800M. The financial projections were considered “overly optimistic” by the independent consultant. If the Bridge Company is unable to do so, then the Society could find itself along with other bondholders having to mark down the investment in its accounts. A proper analysis would have to wait on the release of financial statements of the Berbice Bridge Company.

The liquidity situation of the Society will be further eroded as it engages on the construction of a new, near billion-dollar head office in Georgetown. Consulting work in connection with that building is now the subject of a court action, but the investment itself is hardly the type of investment any risk-conscious entity would undertake in an uncertain financial environment.

Governance and the Bank of Guyana
One concern that has been vociferously expressed recently is the non-supervision of the Society by the financial regulator, the Bank of Guyana (BoG). The bank does not dispute that the Society carries on financial business as defined by the Financial Institutions Act which requires it to have a licence issued by the BoG. Yet it has inexplicably failed to enforce this provision. Such laxity by the regulator can have serious implications for any financial institution, let alone one that is subject to the control of persons with strong political affiliations and no private sector experience.

Without such a licence the Society does not operate within the FIA, which among other things provides for single borrowers limits to minimise the impact of a failure of a single loan or investment. Even if the Bridge Company investment was lawful, had the FIA applied to the Society then it would have been prevented from investing more than approximately $1.2B in the Bridge Company. The Society would also have been subject to the reserve requirement and its directors to the “fit and proper test.” It is hardly likely that such a loaded board could collectively be considered “fit and proper” to direct the operations of the third largest financial institution in the country.

Governance and members
The decision by the Society to hold its first ever meeting outside of Georgetown in 2008 followed a contentious meeting in September 2007 requisitioned by members who questioned the board about a fraud, the existence and implications of which it had stoutly denied. Those members were vindicated when the Society was left to make good the fraud to the tune of $73M. This time the dissatisfaction is about the adequacy and contents of the notice of Saturday’s meeting. By law, notice must be given 21 (clear) days prior to the meeting which does not appear to have been the case. Item 8 on the agenda seeks to increase the lending limit from $10M to $12M and beyond, even as the quality of the assets to secure lending has been diluted both by practice and the Berbice Bridge Company Act 2006. The implications are huge – higher lending and lower security will lead to higher provisioning and loan losses.

Governance and the auditors
By a notice in Friday’s newspapers the Society is proposing to replace long-serving auditors Jack A Alli, Sons & Co “in accordance with Rule No. 16 of the Act.” Apart from the statutory rules governing change of auditors there is also professional guidance under which any auditor proposed for nomination should seek professional clearance from the outgoing auditors. My understanding is that this has not been done. This could lead to an absurdity if it had to wait until after the meeting. In any case the outgoing auditors would be represented at the meeting to answer any questions, should these arise.

The proposed new auditors are Solomon, Parmessar & Co, headed by Mr Maurice Solomon, a director of the National Insurance Scheme. At a minimum this late change which appears to have taken the outgoing auditors by surprise must be regarded with considerable concern, since a change in auditors is done only for very good reasons.

Conclusion
Despite the mounting concerns the Bank of Guyana seems unwilling to act in a timely manner. It failed to do so with Globe Trust. It failed to act with Clico in connection with its deposit-taking. It should not fail the members of the Society. A group calling itself the Concerned Members of the NBS (including the writer) will be meeting Tuesday coming to decide on its participation at the AGM.

Recent developments involving Clico, the NIS, the NBS and Hand-in-Hand Trust show how contagion plays out in the financial and credit markets. The role of regulations is to prevent, detect and minimise such contagion. But effective regulations require as well independence and will. The NBS offers the Bank of Guyana another opportunity to show that it is on the ball.

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It’s not too late for President to honour promise to Globe Trust depositors

The Kaieteur News of Thursday April 9, 2009 reported the Office of the President (OP) as stating that I and other (sic) directors of Globe Trust blocked payout of up to $100,000 each to 5,404 depositors of the financial institution. Apparently OP produced a “critique” to support its allegation that it was certain that up to “$235M would have been recovered from the realizable assets of Globe Trust”. I will deal briefly with the allegation, indicate my role in the Globe Trust imbroglio and offer a possible reason for President Jagdeo’s breach of promise.

The allegation though malicious and misleading is not surprising. It is also a mathematical impossibility. Even a junior clerk in the Office of the President could have told the manufacturer of the allegation that 5,404 times $100,000 is $540.4M. Where would the balance of $305.4 M ($540.4 M – $$235 M) have come from? But even the figure of $235 M is what the Liquidator very recently said was actually collected to date.

The architects of the allegation obviously intended to divert attention from my assertion – which I now repeat – that Jagdeo on August 3, 2001 had promised that approximately 2,000 small depositors defined by him as those with savings “in the vicinity of about $10,000 each” would get back their money. Instead of responding to my factual assertion, they create this absurd allegation and spurious diversion.

Second, I never was a director of Globe Trust or had a direct role in the Globe Trust case. Ram & McRae was retained by the institution to advise on and prepare a restructuring plan to address the difficulties being faced by the company. I was not a party to the action No 429/P in which Bank of Guyana (BoG) was the petitioner and Globe Trust was the respondent. I appeared as a witness to explain what came to be referred to as the Ram & McRae plan. I should add that the plan itself had identified as a first step – partly for administrative reasons – the repayment of all the under $10,000 accounts. In other words, there was no opposition to Jagdeo’s pledge which by coincidence was consistent with the Ram & McRae plan.

The basis of the intervention by Globe Trust in the legal action was that the BoG had acted outside of the law (the Financial Institutions Act) when on September 20, 2001 it took possession of Globe Trust “for the purpose of liquidation”. Then Chief Justice Carl Singh in his prompt, written judgment found that the decision by the BoG “manifested its misconception of its powers”; that the determination by the BoG that Globe Trust could not be restored to financial soundness was made “in a manner that was unfair to Globe Trust”; and that Globe Trust had been “unfairly treated”. The Chief Justice however did not hesitate to criticise the directors of Globe Trust for their “failure to act decisively in the face of lax, loose and grossly incompetent management.”

I should add that as set out in the written submission of Attorney-at-Law Stephen Fraser for Globe Trust, its intervention and proposed restructuring plan was not an objection to the Bank of Guyana assuming possession. In fact the point was made by Globe Trust director Professor Clive Thomas and emphasised by Mr. Fraser that the foundation of the Ram & McRae plan was that it would operate under the protection of the Financial Institutions Act. The premature and high-handed manner in which the Bank of Guyana acted leads inescapably to the conclusion that it did not want Globe Trust to survive.

Regarding the President’s failure to honour his commitment, it is possible that he forgot, which is human. But my belief is that when he made his promise on August 3, 2001 he hoped to neutralise popular opposition to an unlawful and politics-driven decision that had already been made but not yet announced – to liquidate Globe Trust. The liquidation announcement came seven weeks later. In the end he got both his wishes, i.e. the liquidation of Globe Trust and preempting any opposition. No need then to bother about any commitment.

A final thought. For years I have tried unsuccessfully to get the President not to make unlawful and unconstitutional spending out of the Lotto funds and more recently out of the Privatisation proceeds. Now OP would have the public believe that I prevented the President from meeting an obligation he made in good faith. Like their math, this just does not add up.

But it is still not too late. The President’s guarantee on Clico involving failures by his people is the equivalent of a blank cheque for billions and billions. He knows the exact and comparatively modest exposure on Globe Trust. It is far easier and clearly less costly for him to honour that commitment. I am not in his way.

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On the line: Guyana Bank for Trade and Industry Annual Report 2008

Guest business column by Robert V McRae, CPA

Come Tuesday afternoon the Guyana Bank for Trade and Industry (GBTI) will be holding its 21st Annual General Meeting at the Pegasus Hotel, a stone’s throw from where it is constructing a new multi-storey head office. The results of the bank for the year continue a trend of excellent performance by the banking sector during 2008 with GBTI’s profit before tax topping the billion dollar mark, increasing by 14% to $1.1B and profit after tax by 18% to $941M. The satisfaction in the results is reflected in the glowing reports by the Chairman Mr Robin Stoby SC, and Mr RK Sharma, CEO, as well as in the self-congratulatory Statement on Corporate Governance about the technical competence, time, communications skill and integrity of the directors.

The Annual Report is once again well laid out with lots of pictures, charts and tables, although unfortunately some of the charts are unlabelled or the descriptions are incomplete; in one case the text has been partially over-written by a photograph while an important paragraph was cut midway in the Chairman’s report.

In his report for the year Chairman Stoby wrote about the second half of 2008 in the future tense while Chief Executive Officer Mr Sharma offers banking statistics that are several months out of date. Up-to-date information would have been so much more relevant and meaningful.

Highlights
Highlights

As Chairman Stoby points out the dividend of $6 per share proposed by the directors is the highest in the bank’s history. Yet this represents a mere 25.51% of the year’s distributable profits compared with 25.13% in 2007. Earnings per share grew by 18.25% over 2007 and a whopping 256.9% over 2004. With the company’s shares trading at $130, the P/E ratio, a popular investment measure, is an attractive 5.5. With increased profits, other measures such as Return on Average Assets and Average Equity have also improved over the year and the past four years.

Measured in terms of share price at the beginning of the year, shareholders receive a return of 41.7% in dividends and capital appreciation, while depositors of interest bearing accounts earned 3.5% (same as 2007) and the average interest earned by all depositors remained constant at 2.6%. With official inflation for 2008 running at 6.4%, the purchasing power of depositors’ funds was actually less than at the beginning of the year.

The interest earned on average loans held declined from 12.4% and 11.7% (15.1% to 13.4% if calculated on balance sheet values) and because the rate of interest paid remained constant, net interest cover declined slightly from 1.75 to 1.65. Once again a major source of income is Foreign Exchange Trading Gains which amounted to $663M or 25% of interest income, up slightly over the previous year. With an increasing share of its assets invested abroad interest earned on foreign bank deposits was $412M, up from $336M in 2007.

Distribution of assets
Of the total of $49.3B of assets, cash and cash resources accounted for 52%; loans and advances 26%; investments 12%; and the remaining 10% held in the form of fixed and other assets. The major borrowing sectors were trade and distribution (41%); agriculture (21%); household (15%); manufacturing (17%); and mining and quarrying (6%). The bias in the lending portfolio reflects the bank’s lending strategy based, as it states, on Quality Lifestyle and Commercial Loans. In fact the lending to the agriculture sector would have been less than half had it not been for a $1.8B facility from the European Union to improve the rice sector. In 2007, agriculture accounted for a mere 7.6% of the bank’s loan portfolio, down from the 9% in 2006.

Cash resources ($12B) are made up principally of deposits with other banks and investments ($11.5B). For what appears to be tax reasons, the cash resources are invested almost entirely outside of Guyana while the investments are mainly in Government of Guyana Treasury Bills.

The logic that dictates that insurance companies invest the bulk of their funds in Guyana while commercial banks are free to do otherwise should interest the country’s policymakers having regard to the new Caricom Single Market and Economy rules.

Effective tax rate
Two years ago the bank’s effective corporation tax rate was 33.1% but this fell to 16.6% in 2007. It has now fallen further to 13.6% in 2008. The reader would be forgiven for being surprised by the disparity between the nominal corporation tax rate of 45% and the 13% rate paid by the bank. The explanation lies in the opportunities offered by the tax laws, including the Caricom Double Taxation Treaty, to exclude from or significantly reduce the rate of tax on certain income. That treaty provides that the interest earned in any of the Caricom states by a resident of Guyana is exempt from tax in Guyana. The interest income which can be earned in the region ranges from zero per cent to no more than 20% so that the treaty made in 1994 and reinforced by the Revised Treaty of Chaguaramas actually rewards banks for taking Guyanese depositors’ funds and investing them overseas.

If Guyana would pay any interest to tax policy it would see how dysfunctional our tax system is. Not only does it reward such practices but adds to them by allowing additional types of interest earned by banks to be exempt from taxation − low income housing and rescheduled debts being the more common examples. Yet the law allows, without limitation, all the expenses incurred in earning tax-free interest to be deductible against the remaining taxable income.

In addition, dividends are tax-free because of a popular assumption that the income out of which dividends are paid has already been taxed. Not only does such a misconception ignore the fundamental concept of source to taxation, but GBTI is one example of the extent to which practice can vitiate logic. Even if we assume that the company is a proxy for the shareholder then the shareholders of the bank would be enjoying an effective tax rate of 13% in 2008 while employees are taxed at 33.33% and a further 5.2% (subject to a ceiling) for NIS, and depositors pay a final withholding tax of 20% on interest earned. Unfortunately this and similar information are entirely missing from the sporadic debate on tax reform which is often shallow and easily dismissed by the government.

Governance
During 2007 the company appointed two new directors, Messrs Michael Cummings and Carlton James, about whom nothing is stated in the Annual Report, bringing the total to ten. The full-page Statement on Corporate Governance speaks of the bank’s sound exercise of corporate governance and identifies only a single committee considered necessary for this. This is the Audit Committee about whose operation during the year little is said. Of a board of ten there are only two executive directors, but only five of the directors are independent. In the case of the Chairman, his law firm is retained to do a range of legal work for the bank and its customers. It is time for this approach to legal work to be discontinued and borrowers be allowed to retain counsel of their choice using standard forms agreed by lenders and the legal profession.

The blog and the BoG
In late February a post on a blog alleged that the bank had applied for a billion-dollar bail-out. The Bank of Guyana reacted swiftly and “categorically denied” that it had been approached by the GBTI for liquidity support. In fact, the Annual Report states at page 55 that GBTI had overnight borrowing of $1.5B from the Bank of Guyana. Surely this could not have been done without an approach and makes the categorical denial by the BoG at best misleading.

In addition, the report shows that GBTI failed to meet its reserve requirement with the Bank of Guyana at consecutive year ends. A shortfall (described as a negative excess in the accounts) of $2.431B at 31.12.07 increased to over $4.078B at 31.12.08. This is a clear breach of the law, represents an unauthorised advance to GBTI by the BoG, is probably interest free and of course constitutes unfair competition. The reserve requirement is a form of insurance for depositors and its “negative excess” constitutes an arbitrary and unauthorised reduction by the bank which the BoG should not tolerate. It should have long instructed the bank to come into line, enforcing such penalties and interest as appropriate.