The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamians must not let concerns over 20 percent-plus fee increases distract them from the true banking “elephant in the room” - the “tremendous untapped potential” for job and business creation from the near-$3.5bn locked in the country’s financial system.

Rupert Pinder, assistant professor of economics at the University of The Bahamas (UoB), told Tribune Business that citizens must “not overlook that the banks’ primary function” is to serve as the intermediary between savers and borrowers. In this crucial function, they prudently advance the former group’s funds to the latter as loans for home purchases, construction, business start-ups and expansion and other productive purposes that grow the economy.

Warning that the controversy over rising bank fees threatens to become a sideshow, or distraction, from The Bahamas’ main banking issue - the $3.456bn in excess liquid assets, representing funds available for productive lending purposes but which remain stuck in the banking system - he urged the commercial banks to “find more creative ways” to unlock this and drive greater growth by extending credit to worthy borrowers.

Mr Pinder also called on the banks, both the Canadian-owned trio of Royal Bank of Canada (RBC), CIBC Caribbean and Scotiabank, as well as BISX-listed Commonwealth Bank, Bank of the Bahamas and Fidelity Bank (Bahamas), to strike a balance where fees are not seen as a profit-earner but adjusted to cover the costs involved in providing services to customers.

Speaking after the Central Bank’s semi-annual banking fee survey found some customer categories suffered 20 percent-plus increases during the 2025 second half, the UoB professor told this newspaper that his focus on ever-growing excess surplus liquidity as The Bahamas’ main banking issue has not shifted.

“It’s consistent with what I’ve said all along,” Mr Pinder said. “It goes right back to this excess liquidity that the banking system has above its statutory reserve requirements.”

While acknowledging that the excess liquidity figure may be closer to $2bn, rather than $5bn, when the commercial banking sector’s investments in Bahamian dollar government bonds or Bahamas Government Registered Stock (BGRS) is accounted for, he nevertheless described this number as still-high with institutions enjoying minimal to no growth in their net lending to borrowers.

“Banks are financial intermediaries, and to the extent to which banks are financial intermediaries, their primary business is lending in my view,” Mr Pinder said. “They obviously have to be compensated for transactions and to ensure they are able to earn a fair return on investment.

“While there is a discussion and certain controversy around fees, we must not overlook that the banks’ primary function is as a go-between between borrowers and savers. I would like to see where a greater or larger proportion of the revenues generated for the banks; that there is a greater emphasis to the extent they find more creative ways to reduce the amount of excess liquidity.

“The banks ought to be rewarded by profits to the extent to which they are able to reduce excess liquidity in the banking system. How do we address the issue of affordable housing? How do we address the issue of small and medium-sized enterprises (SMEs) having greater access to capital? Those are areas that the banks need to give greater focus to so that it accrues benefits to both job creation and benefits to the wider economy.”

Asserting that increased credit access for SMEs should remain a top policy priority, Mr Pinder asserted: “In 2026, given the amount of excess liquidity in the system, the banks should not be talking about the need to improve profitability or revenues by way of increased fees.

“That is not to suggest other areas of banking operations should be subsidising any sort of loss-making or reduced profitability. I’m not saying that. There should be adjustments to fees or prices in relation to increasing costs. I’m not discounting that. That is an important point. There should be adjustments to fees as costs and expenses rise.

“But, looking at the data, it suggests there is tremendous untapped potential for the banking sector to collectively address excess liquidity. That’s the elephant in the room. It’s not bank fees. The critical issue is addressing the excess liquidity in the banking system. That’s where there’s significant untapped potential.”

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, and head of the Clearing Banks Association, said the Central Bank survey is “telling only half the story” and “needs to look at the other side of the coin” by examining the ever-increasing costs that impose pressure on the industry to raise fees. He noted that major expenses, such as staff payroll, electricity and cyber security, have all increased in recent months and years.

He also told Tribune Business that the “squeeze” on interest margins, sparked by “lethargic” credit market growth in the six years following the COVID-19 pandemic, has also left Bahamian commercial banks less able to subsidise fees given the reduced earnings from their core business.

And Mr Bowe said consumers - sometimes correctly, sometimes wrongly - are conflating customer service, and a perception that standards have declined as banking continually moves and evolves to automation, with rising fees and challenging whether they are receiving value for money.

The Fidelity chief, suggesting that the shift to digital banking and decline in face-to-face interactions between customers and bankers was influencing perceptions of declining service standards, said: “We have two issues that get conflated and lead to criticism. One is the perception of customer care, and customer service.

“There is a general sentiment that the quality of customer care and service has deteriorated compared to what it was in the past. Some of that is valid criticism, and some of it relates to how the way business is done has changed.” Mr Bowe said that referred to how digital banking is replacing personal interaction.

“What happens in some cases is that it’s a system decision, and that leaves the impression that customer service is deteriorating and, when you combine that with the fees being charged, the question is: Am I getting value for money? Because customer service is getting conflated with fees, it leads to questions in the minds of the consumer.”

However, Mr Bowe said this ignored all the costs banks incur in providing services to customers, including account and system maintenance; compliance and Know Your Customer (KYC) costs; and other administrative-type expenses that have to be covered by fees. And, given the industry’s importance to the economy as the financial intermediary between savers and borrowers, he argued that all stakeholders have a “vested interest” in the survival of the banks and services they provide.

The Fidelity Bank (Bahamas) chief executive added that the reduction in lending profits has left the industry less able to subsidise fees at levels that are below service costs. “When we look at fees, fees are but one component,” he told Tribune Business. “The lead earnings of the banks are net interest income.

“What we don’t speak about is the credit environment is lethargic. For the past six years since COVID, that has led to a greater squeeze on margins where the banks’ traditionally earned their greatest income. When interest rates were a lot higher, the banks subsidised a lot of the services they provided - teller services, foreign currency services - which were covered by other lines of business.

“As margins are squeezed, the cost becomes put under the spotlight. Do I continue to eat the cost, or do I get compensated for what I provide in services to customers?” Mr Bowe acknowledged that the banks have “done a poor job of educating consumers about why there’s a push to digital”, with some perceiving it as being implemented by “brute force”.