Liquidity Problem

17 September 2014


A Different Type of Liquidity Problem for Institutions in Trinidad & Tobago

As at Tuesday, 16 September 2014

This commentary is the first in a series that engages Firstline Securities Limited’s institutional investors to consider Firstline for its Asset Management / Treasury Management needs. The series will focus on what is Firstline’s value proposition, developing an Investment Policy Statement, securities available in the local market, constructing a portfolio and active versus passive management.

Following the global financial crisis of 2007 – 2009 all corporate entities globally (inclusive of Trinidad & Tobago) were forced to review the riskiness of their balance sheets. In most cases the response was to consolidate around core business lines and deleverage. The actions of corporate entities along with expansionary fiscal and monetary policies utilised to combat economic decline have created a new problem for some corporate entities. Too much liquidity!!!

Over the period 2009 – 2013 commercial banks excess reserves held at the Central Bank of Trinidad & Tobago have increased approximately 225% from TT$2.0B to TT$6.5B. At its peak excess reserves stood at TT$8.27B in September 2013. The last measure of excess reserves as at June 2014 was TT$6.29B.

This quantum increase in excess liquidity caused by accommodative monetary policies have driven interest rates on deposit accounts and yields on short-term focused mutual funds  downwards precipitously. The rate on offer for Special Saving accounts most applicable to institutions have moved from 1.74% in 2009 to 0.41% in June 2014.

The chart below shows the surge in surplus liquidity from 2009 – 2014 and the simultaneous drop in interest rates on special deposits to commercial bank clients.

Source: CBTT Monthly Statistical Digest July 2014

Presentation1

The bottom line is that successful corporate entities, credit unions and mutual funds are all struggling with too much liquidity which is now starting to be a drag on financial performance.    

Firstline Securities Limited offers comprehensive coverage of local and international markets with a bias for the energy sector. Firstline offers a number of unique opportunities to put surplus cash to work either as your asset manager or investment advisor. Please contact us for more details at info@firstlinesecurities.com or at 868.633.4638, we can discuss your investment needs in detail and craft a portfolio that makes sense for you. We look forward to hearing from you.

 

For the next issue of the Firstline Securities Blog we develop the Investment Policy Statement, which details an institution’s investment activities as well as its risk and return preferences. To take a look at our previous posts visit us at www.firstlinesecurities.com/blog

 

Osmond Prevatt
Portfolio Manager

Comments are closed.