The Tribune

• Reimposes $5m forex ‘ceiling’ after 14 months

• Indicates better handle on currency flows as tourism opens

• Clearing Banks chief: ‘Not jumping through hoops yet’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Clearing Banks Association’s chairman yesterday said he is “not jumping through hoops just yet” despite the Central Bank’s actions signalling the post-COVID recovery is on “an upward trend”.

Kenrick Brathwaite told Tribune Business that the regulator’s reimposition of the $5m “ceiling” limit on commercial banks’ open foreign exchange transactions indicated that the pandemic’s threat to the external reserves and one:one US dollar peg had subsided somewhat as tourism inflows start to pick-up.

The relaxation, which was imposed as part of a four-strong package to safeguard the external reserves in May 2020, forced commercial banks to supply larger quantities of foreign exchange from their own resources as opposed to relying on the Central Bank to replenish them, thereby reducing pressure on the very foundations of the fixed US dollar exchange rate peg.

The “ceiling’s” return will likely be interpreted by many observers as a sign the Central Bank believes the worst of the external reserves pressures, due to tourism’s and the wider economy’s shutdown for much of 2020, has passed.

“I met with the governor [John Rolle] and he basically indicated that to me,” Mr Brathwaite said. “He thinks that the danger portion has already gone, and we’re almost out of the woods with regard to any possible deterioration of our foreign reserves, and that’s why he’s done that. He didn’t see that we were in that danger stretch and he would have to restrict these kinds of things.

“We had a meeting with him, the CBA, last week. The protection the Central Bank did for the foreign reserves, and suspension of the investment currency market for a while, those things did have a positive effect.” The external reserves stood at $2.38bn at end-May 2021, although they have been boosted by the proceeds of the Government’s foreign currency borrowing.

Mr Brathwaite said that based on the meeting with the governor, the restrictions on investment currency market activities - and the buying of foreign real estate and securities by Bahamians and locally-domiciled vehicles - will be “next” to be relaxed by the Central Bank “in the not too distant future”.

Mr Rolle had previously told this newspaper that the Central Bank will “be able to provide a clear signal” by the 2021 third quarter on when it will ease restrictions preventing Bahamians from making up to $100m per year in overseas investments via this facility.

Other measures imposed by the Central Bank, which combined saved an estimated $500m in external reserves, included a bar on dividend repatriations by the Canadian-owned commercial banks and the National Insurance Board (NIB) liquidating its overseas investment holdings. The dividend restriction has already been relaxed, and this week’s move means two of the four measures have now been lifted.

Mr Brathwaite, meanwhile, who is also Bank of The Bahamas’ managing director, told Tribune Business that “the upswing and uptick looks very significant” when it came to the economy’s gathering post-pandemic revival although it has yet to stem the level of banking industry loan arrears amid the wait for all tourism sector workers to be recalled.

“Once the Central Bank starts to make these sorts of decisions they’re giving us hope the economy is on an upward trend,” he said. ‘I don’t see any reservations or things changing these decision, unless we have a real setback related to COVID-19.

“But I don’t think the world is out of the woods yet because we still have these countries going back into lockdowns, and our economy is extremely fragile. It’s always been fragile. While the signs are positive, I’m not jumping through the hoops yet.

“We have a lot of people waiting to be vaccinated. It’s a personal choice, but it affects a lot of people. We need to consider that in the context of our small economy. It’s good the tourism numbers are swinging back so quickly, but they can swing down as swiftly as they swing up.”

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, yesterday said the Central Bank’s reintroduction of the $5m foreign exchange transaction “ceiling” indicated the regulator believes there is greater certainty over foreign currency inflows and outflows as the economy continues to re-open.

“I think the best way to describe it is that the Central Bank has a clear understanding of patterns that are taking place with the foreign currency outflows,” he said. “It’s also the Central Bank saying we have an understanding of inflows.

“What the Central Bank is doing is shifting the management of US dollar flows back more to normal, and is a sign that they’re prepared to take on the responsibility and don’t need the same level of support from the banking sector.

“It is a positive sign. I wouldn’t say the worst is behind us. I’d say the position for the next six to 12 months is more optimal in terms of foreign currency inflows as long as outflows stay as muted as they have been,” Mr Bowe added.

“The tourism numbers are indicating to them some of the spend, and there are foreign direct investment (FDI) projects that have some inflows to move over the next few months.” Mr Bowe singled out Sandals’ $37m upgrade as just one example of incoming FDI inflows.

Explaining its move, the Central Bank said: “Reflective of the diminishing negative pressures on foreign exchange market activities and the outlook for improving tourism inflows, the Central Bank determined that the relaxed ceiling on the long Bahamian Dollar (B$) open position limit on foreign exchange transactions for commercial banks, which was implemented in April 2020, will revert to a maximum of $5m on both net long and short exposures.

“Since April 24, 2020, the $5m ceiling was suspended on long exposures, in order to require banks to supply larger quantities of foreign exchange from their internal resources, before replenishing supplies through the Central Bank. This was a conservation measure, given the reduction in foreign currency inflows from tourism.

“As of July 1 2021, the Central Bank also increased the minimum B$ ope position limit, which would apply to commercial banks with branch operation structures inside The Bahamas, or with Tier 1 capital of less than $20m, to $1m. This will afford such entities some increased flexibility in their foreign exchange trading activities.” All this regulates the purchase and sale of foreign exchange to the Bahamian public.