A consortium led by ExxonMobil made its first significant oil discovery in Guyana’s offshore Stabroek Block in 2015. It announced its most recent find on October 7. It now reports reserves equivalent to 10 billion barrels of crude.
Oil money began flowing to the country’s coffers in 2020 and will continue to grow as production increases. Current estimates put full production at 750,000 barrels a day midway through this decade. Exxon is partnered with US-based Hess Exploration and China National Offshore Oil Corporation in Stabroek.
Thanks to the oil rush, Guyana will likely see its economy grow 16% this year, the highest growth in the region and among the top five in the world, according to the International Monetary Fund (IMF). The economy grew by 14.5% in the first half of this year.
All of the activity that spins off oil will have a positive impact on banks and their performance
Next year is expected to be better still. The IMF forecasts 46.5% growth in 2022 and the World Bank is projecting 49.7%. The UN Economic Commission for Latin America and the Caribbean has a more modest number, but it is still an eye-popping 32%.
Despite the spectacular forecasts, Guyanese president Irfaan Ali’s government and the financial sector know that serious work is still needed to make sure that the oil revenue becomes a stimulant for the entire economy.
“Guyana is going to be one of the fastest-growing economies globally. I anticipate strong investor interest as a result of the policy environment we are creating,” said senior minister for finance Ashni Singh in a written statement.
Wider impact
Shawn Gurcharran, chief financial officer for Guyana Bank for Trade and Industry (GBTI), says that ExxonMobil’s repeat discoveries bode well for the economy and the banking system. Guyana currently has six commercial banks serving a population close to 800,000.
However, Mr Gurcharran also recognises that oil by itself is not going to change things. “Truth be told, the oil guys will do what they need to do to pump oil. It is up to us to take advantage of the opportunity to ensure broad, sustainable growth,” he says. “All of the activity that spins off oil will have a positive impact on banks and their performance.”
The government, in an early October presentation on economic performance, forecast an expansion in financial services to accompany rapid growth in construction, infrastructure and the service sector in the coming years.
The country’s banks are ready, seeing stronger balance sheets, more liquidity and falling levels of non-performing loans (NPLs). Liquid assets at the end of June 2021 were 193% above the government requirement, up from 116% a year earlier, while NPLs dropped to 4.7%, from 6.4%, according to the the central bank, Bank of Guyana. Demand deposits by businesses were up 13.7%, increasing 4.1% for individual customers in the first half of this year compared with 2020.
Facilitating trade
In late September, GBTI became the third bank in the country to enter into a trade finance facilitation programme with IDB Invest, a division of the Inter-American Development Bank (IDB). Demerara Bank entered the IDB Invest programme in November 2020, with the Guyanese subsidiary of Republic Bank following suit a month later.
Marisela Alvarenga, chief of IDB Invest’s financial institutions division, believes the trade finance programme will help banks mobilise capital for local businesses. “While the Guyanese economy will see a lot of US dollar influx mainly through direct investment, we also see that there will be a need for supply and value chain support to fill the gaps,” she says. “Trade finance is very important for importing goods, including raw materials, for the all infrastructure that is expected.”
The agreement with GBTI is envisioned as part of a larger effort to create a hub for investment focused primarily on the small and medium-sized enterprises (SMEs) which are the backbone of job creation in the country, as elsewhere in the region.
Mr Gurcharran says the programme will be key once revenue from the oil stream starts percolating through the economy. “SMEs have an opportunity to provide [services for] companies like Exxon, but many have never dealt with the international market. The trade finance facility will give them access, so they can compete and provide services to the booming oil and gas sector,” he says.
The programme also helps the banking industry. Banks in Guyana, similar to the rest of the Caribbean, continue to have difficulty with international relations, including maintaining correspondence banking agreements. The country might be flush with oil, but big international banks remain skittish.
The programme, according to Mr Gurcharran, “allows us to leverage credit lines, increasing our credibility and creditworthiness in the international market. It is a good option to have because it broadens funding and sources of funding for the bank.”
