Enhancing Credit Monitoring Systems for Banks in Guyana: Liquidity and Reserve Requirements within the Banking System
Abstract:
This study evaluates the effectiveness of
credit monitoring systems and the adequacy of reserves liquidity and
provisioning requirements within Guyana’s banking sector. Effective credit risk
management is critical in modern financial systems, particularly in light of
global concerns regarding problematic debt. Consistent with principles advanced
by the Basel Committee on Banking Supervision (BCBS), the research assesses
whether banks in Guyana adequately monitor individual credit exposures and
maintain sufficient provisions to mitigate potential losses. Using a
mixed-methods approach—including literature review, interviews, questionnaires,
and field observations—the study examines regulatory oversight by the Bank of
Guyana and compares domestic credit risk practices with international
standards. It also analyzes trends in financial sector growth and shifts in
risk appetite amid Guyana’s rapidly expanding oil-driven economy. Key findings
show a significant improvement in asset quality, with non-performing loans
(NPLs) declining from 13.98% in 2016 to 3.57% in 2023. This reduction coincides
with strong growth in performing loans, largely driven by economic expansion
linked to the oil and gas sector. As of December 2023, the banking system
remained highly liquid. Average liquid assets exceeded statutory requirements
by 81% (G$148.8 billion). Licensed Deposit-Taking Financial Institutions
(LDFIs) held G$332.6 billion in liquid assets, reflecting a 15.4% increase over
December 2022. While this indicates financial strength, it also suggests excess
liquidity potentially stemming from a conservative lending approach. Although
banks utilize established credit assessment tools—such as CAMPARI, 4M Risk
Analysis, credit scorecards, and SWOT analysis—challenges remain in regulatory
enforcement, technological modernization, automation, and institutional
capacity. An overly cautious lending stance may constrain credit growth and
limit broader access to financing. The study recommends adopting advanced
credit scoring technologies, strengthening regulatory frameworks, enhancing
automation and capacity-building initiatives, and improving debt monitoring
systems. It also calls for a sector-based risk assessment approach and a review
of policies restricting private sector foreign borrowing. Overall a balanced
strategy that strengthens risk management while improving credit accessibility
is essential to support Guyana’s continued economic transformation and
financial stability.
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