The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday said that “ample” banking system liquidity of $931 million would ensure the Government’s deficit financing needs did not ‘crowd out’ private sector capital raisings, telling Tribune Business there were “no concerns from that standpoint”.

And, with foreign exchange reserves standing at a “relatively healthy” $809 million at year-end 2012, Wendy Craigg said there was nothing “to date” to suggest the Central Bank would be unable to handle the numerous capital markets transactions anticipated in 2013.

Capital markets executives had previously expressed concern that with $150-$200 million in private fund raisings anticipated this year, and the Government needing to finance its $550 million Budget deficit, there could be major drawdowns on commercial banking system liquidity - particularly in the 2013 second half.

And, with 85 cents out of every $1 thought to leak out of the Bahamas for import spending and other uses, concerns were also raised about the potential draw on foreign exchange reserves.

However, Mrs Craigg told Tribune Business yesterday: “There is ample liquidity in the system. The system is very liquid, so there are sufficient funds for investment purposes in an environment where we have mild credit growth.

“There ought to be no crowding out. There are no concerns from that standpoint.”

The Central Bank governor said commercial banking system liquidity, as at December 26, 2012, stood at $931 million, something she described as “a robust level”.

This was achieved after the Government raised $300 million in long-term registered stock (bond) issues late last year, plus conducted numerous short-term borrowings.

Mrs Craigg said commercial bank liquidity had been aided by weak credit demand, which meant the seasonal drawdown on the foreign exchange reserves by consumers and businesses in the run-up to Christmas was “not at the same rate as in previous years”.

“The environment has changed because credit demand is not as high as it was, particularly at the end of the year, so for the last two-three years we’ve been having elevated levels of liquidity,” the Central Bank Governor explained.

This was unlikely to change in the near term, due to continuing unemployment, and depressed earnings and incomes among Bahamian businesses and consumers.

“It’s still challenging,” Mrs Craigg said.

On the foreign reserves side, Mrs Craigg said the 2012 year-end level of $809 million was still “a bit below where it was the previous year. It’s still a relatively healthy level”.

The Central Bank, she added, would continue to monitor foreign exchange inflow trends from tourist spending and foreign direct investment (FDI). The peak Winter visitor season of March/April is set to provide “a better feel for direction”.

As for the impact on the Bahamas’ foreign exchange reserves from upcoming capital markets financings, Mrs Craigg said: “We’ll have to look at the magnitude of these transactions.

“We haven’t seen anything to date to suggest it’s something we can’t deal with. We have to monitor them and see.”

Much, she added, would depend on whether the capital raised in these transactions was to be converted to foreign currency and sent out of the Bahamas, or if foreign currency was to be raised in these deals themselves.

Proceeds from several of these transactions are indeed set to be converted into foreign currency. Apart from Grand Bahama Power Company’s (GBPC) existing $32 million preference share issue, which will finance the repayment of US dollar loans from its majority shareholder, Emera, there is an expected $40 million preference share offer from Cable Bahamas in the coming months.

That will likely be used to take out US dollar bank debt incurred to finance Cable Bahamas’ $89 million Florida acquisition spree.

Other finance/capital raisings already known about are the Public Hospitals Authority’s $55 million bond/debt issue, designed to replace the bank credit taken out for the Princess Margaret Hospital expansion, and Arawak Port Development Company’s $35 million private placement, which will accomplish the same goal.

The Bahamas Petroleum Company (BPC) is also working on a Bahamian Depository Receipt (BDR) offering to Bahamians, with a likely value of around $5 million.