• Bank blames ‘market conditions’ for slash
• Loretta advises: ‘Withdraw every penny’
• Bahamians paying RBC to secure savings
By NEIL HARTNELL
Tribune Business Editor
A former Cabinet minister yesterday urged Bahamians to pull their money from Royal Bank of Canada (RBC) after it cut interest rates on savings accounts and term deposits to zero.
Loretta Butler-Turner, who temporarily replaced Dr Hubert Minnis as the Opposition’s House of Assembly leader prior to the 2017 general election, told Tribune Business that the Canadian-owned bank’s move would result in depositors/savers losing money as the value of their holdings is eroded by the highest inflation rate The Bahamas has seen since 2013.
With the International Monetary Fund (IMF) projecting a 5 percent rise in consumer prices this year, she argued that RBC’s decision to eliminate any return individuals and companies can earn on their deposits was a further sign that the bank needed “to close down and push put”.
RBC, in a statement issued to Tribune Business, justified the October 1, 2021, move as “a response to local market and economic conditions” impacting its business and the interest rates offered to depositors with savings accounts and term deposits.
It did not define or explain these “conditions”, although it argued that the move was taken amid “historically low interest rates”. However, it is likely to have been influenced by the continued build-up of surplus liquidity in the overall Bahamian commercial banking system, which hit $2.443bn at end-August having expanded by some $213.5m during the first eight months of 2021.
The former figure represents money available to RBC and the other commercial banks for onward lending as mortgages, personal and consumer loans, but for which they are unable to find qualified buyers to extend it to. “They’ve got too much money sitting around idle,” one source said.
This problem, already significant prior to COVID-19, has been worsened by the pandemic’s devastating economic fall-out for households and businesses. Unable to gain a return on these funds, several sources yesterday suggested RBC’s decision to go to 0 percent interest rates was actually a bid to shed deposits that it did not want.
That, though, could not be confirmed. RBC said: “Like all financial institutions, RBC Royal Bank periodically makes amendments to the products we offer and adjusts them according to various internal and external factors.
“On October 1, we changed our interest rates on savings accounts and term deposits to 0 percent until further notice. This is happening in a period of historically low interest rates. RBC implemented this change in response to local market and economic conditions that effect our business and our approach to the interest rates we offer clients.
“For more than 100 years we have provided dedicated service to the country and have been a good corporate citizen through our charitable donations and community programmes. RBC values the business of all our clients here in The Bahamas and around the world. We remain committed to working with our clients to provide them with the products and solutions to meet their needs.”
RBC, in announcing the move to clients via notices posted at its branches, said: “Please be advised that effective October 1, 2021, interest rates on our Bahamian dollar deposit accounts will be adjusted. All Bahamian dollar savings accounts are now non-interest bearing until further notice.”
As for term deposits, which are more geared to wealthier individuals and corporate clients, RBC added that it will honour existing interest rates until the contractual term expires. Once this happens they, too, will earn no return on their deposits.
“New Bahamian dollar term deposits will be offered at a rate of 0 percent until further notice,” RBC added. “For existing clients with a Bahamian dollar term deposit, the term deposit will be allowed to run at its contractual interest rate until maturity. Renewal/roll overs of existing Bahamian dollar term deposits will be at a rate of 0 percent.”
This drew a blistering response from Mrs Butler-Turner, who wrote on social media: “Firstly I would advise any Bahamian or resident of The Bahamas who has any money in this bank to withdraw any penny... without hesitancy.”
While acknowledging that the Bahamian penny is no longer legal tender, she added: “According to this notice, your money gets absolutely nothing; zilch; nada. For depositing your money in their bank, essentially the value of your money is devalued. Yes, devalued, because of the various fees charged. You are paying them to keep your hard-earned money.
“Even if you put your money in a rock hole or under a mattress it is more valuable than keeping it in RBC. Flipside, your money is used for loans and they incur interest, plus collateral from the borrower. On top of this, each month your reward for putting your money in their bank is taxed with service fees and all manner of other fees.”
With inflation projected at 5 percent, this means that the value of deposits/savings with RBC will be eroded as customers are earning no returns on these funds. And, given that virtually all banks were offering low deposit rates anyway, often a small percentage of 1 percent, depositors at all banks are likely to lose out as consumer prices suffer the highest increase since 2013.
Mrs Butler-Turner, noting that RBC was embroiled in other recent controversy over its decision to stop dispensing $20 notes from its Automated Teller Machines (ATMs), added: “Seriously, they really need to close down and push pat. And to think that they extract such huge returns from our Bahamas government. This is utterly unfathomable, unbelievable and unconscionable.”
In a subsequent interview with Tribune Business, Mrs Butler-Turner said RBC had “been quite egregious in several things they’ve done” and “it seems as if they’re slashing everything”.
She added that “the saddest thing about this is that this is the Government’s primary bank”, with RBC often leading syndicated financing for The Bahamas at both local and international level, as well as providing successive administrations with significant overdrafts.
And, arguing that numerous Bahamian staff have been laid-off amid branch closures and RBC’s digital drive, Mrs Butler-Turner said: “Their customer service leaves a lot to be desired.... To my way of thinking, it’s totally illogical that you are cutting the human resources factor and cutting out what little incentive existed for savers.
“What really, really bothers is this is the bank my grandfather, Sir Milo Butler, fought for Bahamians to work in during the 1960s. As a child this was the only bank we went to, the main branch in Bay Street. It has featured significantly, been there for eons of years, and he agitated for it to be Bahamianised.
“RBC has been with us for over 100 years since 1908, and is historically the bank that Bahamians went to. They’ve done well in The Bahamas, and to turn around and withdraw any type of incentive for savers is a real slap in the face. It’s not even a percentage of a percent.”
Banking and financial services industry reaction was mixed, with some suggesting RBC’s move was another step in a long-term strategy to exit The Bahamas and other Caribbean territories that it remains in.
Others, speaking on condition of anonymity, pointed out that if RBC was charging service fees without paying any interest then effectively “you’re charging depositors/savers to take their money. And, while questioning whether the other Canadian banks, CIBC and Scotiabank, will follow suit, they added that not all depositors will get 0 percent.
“Philosophically, the Canadian banks have been 80 percent of the profit from 20 percent of the customers, let’s cater to that 20 percent,” one banker speculated. “I believe they will have a dual rate system where regular customers get regular rates. That’s the business you don’t want.”
Suggesting that none of the Bahamian-owned banks, namely Commonwealth Bank, Bank of The Bahamas and Fidelity Bank (Bahamas), will follow RBC’s lead, the banker said the trio had started to see an increase in business from customers switching from the Canadian-owned banks.
Gowon Bowe, Fidelity Bank (Bahamas) chief executive, said the BISX-listed institution had kept deposit rates at 2 percent and was offering higher for persons willing to place their money for the long-term. He added that RBC’s decision could not be divorced from the low interest, difficult to find qualified borrowers environment, while pointing out that US rates were equally low.
RBC’s move to lower deposit rates from a percentage of 1 percent to zero is thus not a massive leap. However, it may provide ammunition for the newly-elected Davis administration’s bid to licence as many as three Bahamian-owned commercial banks as pledged in its election manifesto.