Banking Your Life

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Royal Bank of Canada (Photo: Peter Adrien)

Do you know that we are banking our life away? Not literally; but, in some respects, we are robbing ourselves of “life-giving” opportunities. Our educated and sophisticated society thrives on making money from money and, conditions us that we should bank for life (that is to say, that we should put our money in the bank for “the rainy day”). Have you asked ask an investor, entrepreneur, business owner, business manager or accountant, “What is the one thing your business needs the most in order to survive and grow?” After travelling, living and doing business in the Caribbean region for 30 years, I have had the enviable privilege of speaking with many individuals (young and old, male and female), householders and business owners from Belize in the north to Guyana in the south; and, the conventional response is, “credit from the banking system.” I have come to appreciate the nature of the dependence. Living and nurtured in a monetized economy and a bank-centric environment, many if not most of us, would also answer: “credit from the banks!” This strongly suggests that bank credit is the oil for the economy; the oxygen for the business and security for the household – the behavioral change of a dysfunctional education system but the evidence of the crafters of the satellite society.

Well, the recent trend does not point to a “life-giving” banking system – there is a lot of oxygen in the tanks (the banks), but the business sector is not on “life support.” The International Monetary Fund highlights the risk of regional banking systems associated with non-performing loans (NPLs); but laments evidence of high liquidity, large excess reserves with central banks and; persistent decline in private sector credit. For St Kitts and Nevis, it reported, “The banking system has remained stable, notwithstanding the restructuring of government debt held by the banks. However, the growth of private sector credit, while turning positive, has remained very weak, despite the high bank liquidity.” (IMF, September 2, 2015). Saint Lucia, however is feeling the impact of the credit. In its Article IV Report, February 2016, it noted: “Unemployment, however, continued to rise and bank credit to the private sector declined. …Unemployment reached 24.4 percent in 2014 as demand was insufficient to fully absorb the growth of the labor force. Youth unemployment, in particular, rose to an alarming 41.8 percent. Despite some reduction in nonperforming loans, credit to private sector continued to decline, reaching -6.7 percent growth y/y by December 2014. Falling credit, compounded by robust deposit growth, continued to add onto liquidity accumulation in the banking system, raising excess reserves to an all-time high.”

Going back to the question in my informal Caribbean sample, apart from bank credit, I expected a number of related responses which point to the necessary conditions for growing a business, such as: “a saleable product or service,” “a predictable base of loyal customers,” “a well-prepared business plan to chart your course,” “a good business location,” or “an effective marketing strategy.” In fact, what is the ideal or best operating response particularly for a small business? I am convinced that contrary to the conventional wisdom, is it not commercial bank credit! May I suggest that the most applicable response would be “cash” or “cash flow.”

For a business, the real lifeblood is access to cash or the capacity to turn the assets you have into cash or near cash with ease or at a turnaround time that in keeping with the demand of your business operation, business turnaround time or consumer demand trend.

Sadly the empirical evidence reinforce: “when the rainy day arrives, the monies lodged in the largely foreign banks, do not provide the metaphorical protection. It may be life blood to the commercial banks which turn the large stock of private savings into billions of profits from sale of private and commercial mortgages and consumer credit, but it is certainly not the life blood of micro, small, medium-size and large business enterprises particularly those under black ownership.

What is the message? One does not need a college education to know that when we hoard our  national savings in the banking system, we are in effect “banking our life blood away,” not giving ourselves access to the very money we put away for use when required. Under such conditions, contrary to popular opinion, when we pile up our monies in the profit-driven commercial banks, we are not really “banking for life;” we are not really banking for “the rainy day” (of course, we are aware that a privilege class is able to access the stock of money when they want). While we benefit from pulling our resource (monies) together based on the law of large numbers, our modern banking system uses our resources to fatten themselves and charge us a fee for doing that. In this case, one may conjecture that we are placing our treasures where thieves steal.  Matthew counsels us:  “Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal.  But store up for yourselves treasures in heaven, where neither moth nor rust destroys, and where thieves do not break in or steal” (Matthew 6:19-20, NASB)

What should we do? No, the message is not to go back to pre-modern behavior, hiding our monies under our beds! We must keep our monies (savings or profits) in institutions that are able to secure our life savings while it is willing to make use our hard-earned monies for empowering or developing our people, our businesses, and our society when it need it most.

We have a right to be frustrated because with the prolonged economic contraction in the Caribbean, businesses need access to soft financing to supplement their working capital for increasing production, which is a necessary condition for stimulating economic growth. Apart from the commercial banks and credit unions, the conventional wisdom is that a credit facility needs to be established to provide development financing. When production falls, sales decline; profits drops; tax revenue plummets; job losses escalate and; household disposable income is eroded.

Can we end this vicious circle of loading up our commercial banks with our personal and business deposits; lamenting the difficulty in accessing our own savings; stressing ourselves over our inability to inject much-needed capital into our businesses struggling to stay in operation from small returns and; depositing whatever profits generated from sales into the same risk-averse commercial banks? Remember, “I can do all things through Christ who gives me strength” Philippians 4:13, NIV.

Peter Adrien is an author, life coach; business coach, financial counselor, economic adviser and columnist. Visit: www.goadriens.com. Contact him via email: peter@goadriens.com; phone: (869) 668-9752 (St Kitts & Nevis) or (305) 848-7604 (USA); twitter: @goadriens; facebook: http://www.facebook.com/Goadriens

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One Comment

  • 8 Apr 2016 | Permalink | Reply

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