Positive Economic Outlook
For the past decade, Haiti’s economy has recorded positive year-over-year growth (4.5% during FY14) and is expected to continue on this path in the short-run according to IMF forecasts. Following the January 12th earthquake, which killed over 300,000 people and caused extensive damage to virtually all sectors of the country, the international community provided considerable financial support in the form of grants, loans and debt forgiveness, which created an opportunity for the country’s economy to grow exponentially over the next few years.
Evolution of the GDP (In Bn of USD)
*Source: Banque de la Republique d'Haiti / World Bank
Insufficient Supply of Credit
The insufficient supply of credit to the economy from the banking sector has nonetheless hindered this potential for growth by incapacitating part of the private sector and hampering innovation. Currently, total credit to the private sector represents 19% of GDP in Haiti compared to 48% of GDP for Latin America and the Caribbean. Additionally, it seems that the current economic environment does not incentivize banks to take on more risks: On the one hand, the loan-to-deposit (LTD) ratio for the entire banking sector hovers around 42.5%* compared to a 65% average for the Caribbean, illustrating how liquid the sector is. On the other hand, the fact that banks are consistently reporting strong earnings and high ROE (21.9% in September 2013)* suggests that interest revenues fueled by high interest rates, are strong enough to compensate for the lack of lending.
Public policy has protected the financial system from crises for many years since the implementation of the BRH Prudential Norms although has indirectly impacted the availability of credit. These norms, which are among the strictest in the region, have protected the banking sector and contributed to the stabilization of the monetary and financial system of Haiti for many years. However, it would seem that this protection has come at the expense of expanding access to credit. In June 2014, 74.6% of the banking sector’s most liquid assets were lodged at the BRH*. Currently the cash reserve ratio for commercial banks is 37% for the national currency and 39% for foreign currency*.
Given this situation, the private sector and in particular SMEs (small and medium sized enterprises) find it hard to finance the launch of their projects, these being critical to developing the middle class and stimulating domestic economic growth. It follows that the current credit paradigm in Haiti does little to serve small businesses and rising entrepreneurs.
*Source: Banque de la Republique d'Haiti