Republic Bank slashing US$ credit-card limit – Imbert knew only after decision made

THE Ministry of Finance has sought to clear the air amid speculation which became rife after the country's largest commercial bank – Republic Bank Ltd (RBL) – recently decided to slash the spending limit per billing cycle on its credit cards, from US$10,000 to US$5,000.

In a release over the weekend, the ministry said it had noted a lot of "uninformed and speculative commentary" that the bank's change was made on Finance Minister Colm Imbert's instruction.

The ministry said it had become necessary to clear the air on this issue.

It said that not only was Imbert not involved in any way, but that he and the ministry only became aware of the bank's decision after the fact. It added that as a rule, the minister does not interfere with the day-to-day operations and internal decisions of commercial banks.

The ministry also made clear its expectation that there would be consultations rather than unilateral decisions.

In the wake of the bank's decision to slash the US currency expenditure limit on its credit cards, there was speculation that businesses, especially small and medium-sized enterprises (SMEs), would suffer, since it means reduced purchasing power for goods and services sold in US currency.

The release reminded that TT operates on a free market system and foreign-exchange controls were largely abolished in 1993, when the currency was floated.

Tinkering with the system to achieve short-term results, it added, must be avoided, "although this is not to say that interventions should not be made by Government" as and when required.

Republic Bank made this decision to cut credit card limits by 50 per cent on its own, without any discussion with Imbert, the release said.

This was done after the bank's internal assessments showed its credit-card sales had reached an unsustainable level in September, and it had no choice but to reduce the limit in order to stay within its own approved guidelines for what is referred to in the industry as a “short position.”

On being informed of the bank's decision – after the fact – the ministry determined that sales by all banks of foreign exchange using credit cards in TT (overseas transactions) had in fact reached close to US$6 million a day in September.

The release said Republic Bank was responsible for a significant percentage of these sales.

The ministry said it was noteworthy that at the rate of credit-card usage recorded up to the end of August, it was estimated credit card sales using forex would reach US$2 billion this year – 45 per cent higher than the pre-covid level of US$1.38 billion in 2019.

As a first step to alleviate the situation, the ministry said, Imbert requested the Central Bank to inject a further US$50 million into the banking system, on a one-off basis (in addition to the usual fortnightly injection). This was done last Wednesday.

The minister then met with the TT Chamber of Commerce and the Bankers Association last week to discuss the credit-card situation and forex generally, and in particular, ways and means of making forex available to SMEs to buy materials and supplies from overseas suppliers.

The ministry said these discussions were "very useful," and it was expected that a meaningful solution to forex challenges faced by SMEs can be developed and implemented over the next six months.

The ministry said it must be understood that in normal circumstances, as has been the practice for the last 20 years, the minister delegates the management of forex to the Central Bank, and commercial banks and the ministry "does not get deeply involved in the system, unless necessary."

The release pointed out that in view of what recently occurred, when the ministry learnt of RBL's decisions after the fact, and with the Christmas and Carnival seasons approaching, when a further surge in forex demand is expected, the ministry said "appropriate interventions" will be taken as and when required.

"It is also expected that there will be prior consultation on these matters in the future, rather than unilateral action," the release said.