Economist projects oil pushing Guyana’s banking assets to over $3 trillion

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Economist Winston Brassington

– says lending rates in Guyana can be improved

With the projected economic growth in Guyana on the back of oil and gas exploration and production, an economist is projecting that Guyana’s banking assets could rise to $3 trillion, ushering in indirect benefits for Guyanese.

In all, six ExxonMobil-operated Guyana producing projects are predicted by 2027, with plans for an eventual 10 in total. Additionally, oil revenue is expected to triple when the Liza Unity FPSO begins production at the Liza Phase 2 next year.Guyanese economist Winston Brassington recently participated in an American Chamber (AmCham) webinar where he made these projections. According to Brassington, who once headed the National Industrial and Commercial Investments Limited (NICIL) Privatisation Unit, the growth of Guyana’s oil and gas sector will be parallel to the growth in local banking assets.

“When we look at how the sector has grown in the last 30 years, from 1990 to 2020, we’ve seen strong growth in the assets of the banking sector, in a compound annual growth rate of bank assets of about 13.5 per cent in the last 30 years. We know that we’re growing very fast in this decade, because of oil and gas.”

“Some speak of a fivefold increase in GDP by the end of the decade. If we see that, then our bank assets will grow from end of last year of $168 billion to over 3 trillion GYD. And that’s using a compound annual growth rate of 17 per cent,” Brassington said.

Brassington, who these days heads the gas-to-shore task force, went on to note that with the growth in banking assets, banks would have more leeway to pass on the benefits to consumers. As it is right now, the economist noted that there is room for improvement when it comes to lending rates.

“Now with all of this in context, I believe that lending rates can come down substantially. Once it’s trending down, I think it can come down much further. At 5 per cent, it would still be considerably above the average lending rates in the US.”

“If we use the Bank of Guyana statistics, if the bank were to double their loan to assets ratio, then total loans can increase significantly. If we look at the banking sector growing as we project, by 2025 we can have Private Sector loans and advances at over $700 billion,” Brassington further explained.

Guyana, with ExxonMobil as the operator, began producing oil on December 20, 2019, in the Stabroek Block. Guyana’s oil revenues are being banked in the New York Federal Reserve Bank, where it is earning interest.

Developmental drilling has started on Exxon’s second development, the Liza Phase 2 project. Back in May 2019, Exxon was granted approval by the Environmental Protection Agency (EPA) to go ahead with its Liza Phase 2 Development offshore Guyana.

The oil company had said that the project will have the capacity to produce 220,000 barrels of oil per day. Exxon had also revealed that the Liza Phase 2 development was funded at the cost of some US$6 billion, including a lease capitalisation cost of approximately $1.6 billion, for the Liza Unity FPSO vessel. For the Phase 2 Development, six drill centres were planned, along with approximately 30 wells – 15 productions, nine water injection and six gas injection wells.

The US$9 billion Payara development, the third development, will meanwhile target an estimated resource base of about 600 million oil-equivalent barrels and was at one point considered to be the largest single planned investment in the history of Guyana.

The Yellowtail development, which will be oil giant ExxonMobil’s fourth development in Guyana’s waters, will turn out to be the single largest development so far in terms of barrels per day (bpd) of oil, with a mammoth 250,000 bpd targeted.