The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ foreign exchange reserves remain “relatively healthy” despite having declined by $70 million year-over-year, the Central Bank’s governor acknowledging recent “challenges” in continually rebuilding them.

Wendy Craigg, responding to Tribune Business questions on the recent International Monetary Fund (IMF) report on the Bahamas’ financial services sector, said the external reserves were currently benefiting from traditional capital inflows associated with the peak tourism season.

“Currently, our reserves stand at $823 million which, although nearly $70 million below the corresponding period last year, is still a relatively healthy position in light of current circumstances,” Mrs Craigg said,

“In recent weeks we have observed some tourism-related increase in reserves, which is typical around this time of the year, and will help to meet the routine demands on the pool arising from payments for various imports.”

She acknowledged that foreign currency reserve levels remained a key indicator for Bahamian policymakers, as they showed how rapidly the country was able to build savings from tourism and foreign direct investment (FDI) capital inflows.

Healthy foreign currency reserves were also key to maintaining confidence in the Bahamas’ one:one exchange rate peg with the US dollar, but Mrs Craigg said the recession had impacted the country’s ability to grow and rebuild them.

“In recent years, we have been challenged in terms of our ability to rebuild our external reserves pool at the rate experienced in earlier years, given the mildness in economic growth in these two key areas,” Mrs Craigg said.

“This is a challenge we share with many other small island states, because of our heavy dependence on tourism and the external environment, which clearly has not been favourable in recent years and remains fraught with many uncertainties.”

Elsewhere, the Governor said the Central Bank was proposing to implement a ‘light touch’ regulatory regime for small, fledgling Bahamian credit unions when it took over the sector’s supervision.

Tribune Business revealed yesterday that three small credit unions, currently suffering from a $0.5-$1 million collective “shortfall”, have to either be merged with stronger counterparts or wound up before regulatory responsibility for the industry is transferred from the Department of Cooperatives to the Central Bank.

Mrs Craigg declined to identify the three credit unions involved, merely saying: “We are aware that several small entities are the focus of ongoing discussions between the Department of Cooperative and the Bahamas Credit Union Cooperative League.

“The goal is to find a meaningful way forward with respect to their operations, along the lines of the options mentioned.”

She added that the Credit Union Institutional Strengthening Project aimed to balance enhanced regulation, seen as strengthening the industry’s resiliency, with fostering its continued growth.

A draft Credit Union Bill and accompanying regulations have undergone several reviews and amendments, Mrs Craigg said, with both documents set to be released for public comment in the upcoming months.

“There is broad agreement that credit unions are important providers of financial services to their members, and that an enhanced supervisory and regulatory framework would serve to strengthen the resiliency of the sector,” the Governor told Tribune Business.

“As the regulator having responsibility for financial sector stability, the Central Bank’s goal will be to safeguard the stability and soundness of the sector and, in so doing, promote public confidence in these operations.

“So far, we have worked with the sector to ensure that the proposed legislative framework safeguards the unique character of credit unions, while providing for effective supervision and the future growth of the sector.

“In our work, we are making effort to ensure that the new environment does not hinder the future growth of the sector, and so we will be proposing a ‘lighter touch’ regime for nascent credit unions to include, inter alia, less onerous prudential norms and reporting requirements.”

Mrs Craigg said there had also been “significant progress” made towards establishing a Bahamian credit bureau, an initiative designed to enable all lenders to better assess the creditworthiness of borrowers.

The draft Credit Reporting Bill is set to be released for public consultation this summer, she added, with the Central Bank now moving to establish a committee that will choose the bureau’s provider.

“The selection will be conducted through an open bidding process that will include the use of a Request-For-Solution and an evaluation methodology for assessing potential credit bureau service providers,” Mrs Craigg said.

“We will continue to be guided by the International Finance Corporation in all facets of this project, and we envisage achieving substantial completion within 12 months.

“This is a major undertaking, and we are taking all the necessary steps to ensure that the comprehensiveness of our approach and its appropriateness for our situation.”