Haiti - Economy : The BRH modifies the mode of constitution of the mandatory reserves of banks

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Haiti - Economy : The BRH modifies the mode of constitution of the mandatory reserves of banks
02/08/2018 09:02:01

Following the decision of the Bank of the Republic of Haiti (BRH) to modify the method of constitution of the mandatory bank reserves on the liabilities in "dollars" which will come into effect on August 18, 2018, the BRH in a note explains its decision and the implications for the Haitian banking system.

Reserve requirements are a portion of the savers' deposits that commercial banks are required to keep available in their coffers and in their accounts domiciled at the BRH. Since December 2017, banking institutions operating in Haiti must apply the following coefficients: 44% for deposits in gourdes and 49.5% for those in "dollars".

In the case of mandatory reserves in "dollars", the BRH may decide that a part of these reserves be established Gourdes instead of a mode of consitution of 100% in "dollars"

Explanation of the decision :

The decision of the BRH concerns only deposits denominated in "dollars". For these deposits, the method of constitution of reserve requirements will be as follows:

92.5% of the 49.5% in foreign currencies and 7.5% of the 49.5% in Gourdes.

Prior to this decision, banks were required to set up reserves as follows:

95% of the 49.5% in dollars and 5% of the 49.5% in gourdes.

As a result, the situation has become more restrictive on liquidities Gourdes because banks must constitute + 2.5% (7.5% -5% = 2.5%) of 49.5% compared to the previous situation.

This decision will be effective August 18, 2018.

Implications of the decision :

a) The BRH absorbs 1.8 billion Gurdes liquidities (through the additional 2.5% from the 49.5%) of the banking system, which will no longer be available from 1 August, when the decision will take effect.

b) The BRH releases $ 27.5 million (through the 2.5% released from the 49.5%) in the banking system, which increases the ability of banks to make this liquidity dollars available for the banking system

c) The BRH makes less cash in Gourdes available for foreign exchange transactions.

d) If a bank remains active in the foreign exchange market despite a shortage of reserves, it runs the risk of incurring penalties of 1/10th of 1% of the amount of the recorded reserve deficit each day.

Note denomination "dollars" :
The BRH points out that apart from the US dollar, foreign currency liabilities include other foreign currencies such as the euro and the Canadian dollar, but the US dollar is predominant. For simplicity, the use of the word "dollar" was preferred in this note to the term "foreign currencies".

HL/ HaitiLibre