Foreign banks may abandon Caribbean
By VERNE BURNETT Saturday, November 7 2015
ECONOMIST Dr Terrence Farrell said yesterday that foreign banks will eventually withdraw from the Caribbean region.
Making a presentation at a Financial Regulation Mini-Conference, “Current challenges and historical perspective†at the Arthur Lok Jack Graduate School of Business, he said, “Foreign multi-national corporations make decisions based on their global assessment of their interests.†The Mini-Conference was the first of a series to be undertaken between the Arthur Lok Jack Graduate School of Business and the Henley Business School at the University of Reading.
Earlier, the Dean of the School, Professor John Board, spoke about Financial Markets: Competence and Crisis; and Professor Adrian Bell, Chair in the History of Finance at the school, spoke about Lessons from the Past: Modern Finance in the Middle Ages. Dr Farrell said over the last 15 to 20 years the Caribbean region has been in turmoil with major failures of banks and insurance companies and cross-border acquisitions, many of which he said were adverse.
He said the region was well banked and one estimate from the International Monetary Fund (IMF) puts total financial assets at 124 percent of regional Gross Domestic Product (GDP) with banking assets accounting for 91 percent of regional GDP, which he said were strong numbers.
However, he said the banking system in the region had experienced many challenges with multiple failures of banks and non-bank financial institutions in Jamaica in the 1990s, which followed earlier failures in Trinidad and Tobago in the 1980s.
He added that in the Eastern Caribbean, which has a number of small banks, there were failures in Antigua and Anguilla. Observing that these were all indigenuous banks, Dr Farrell said the indigenuous banks have had greater exposure to the public sector with dependence on government and deposits from public sector agencies.
He said foreign banks have dominated banking in the region, accounting for 60 percent of banking system assets, but the number of foreign banks have declined significantly.
He pointed to a first wave of withdrawals from the region which followed the pressure for localisation, and said that in more recent times there had been a second wave of withdrawals from the region. He said Royal Bank of Canada which had returned by taking over RBTT, now seemed to be retreating from retail banking in the Caribbean, having recently sold its business in Jamaica to Sagicor Financial, and its operations in Suriname to Republic Bank. He said First Caribbean International Bank seemed to be reassessing its place in the Caribbean and Scotiabank also seemed to be reconsidering by avoiding public sector lending, and scaling back its lending to the tourism and hospitality sector in the region.
Dr Farrell said the failures of local banks were due to weak economies; weak credit administration; fraud, mismanagement and weak corporate governance; the high costs of operation and over-exposure to public sector credit.
By contrast, he said foreign banks had a higher rate of return in the Caribbean than their branches in North America, or anywhere else, but this higher rate of return is no longer certain because of weaker economies and the cost of doing business in the region has been increasing.
By VERNE BURNETT Saturday, November 7 2015
ECONOMIST Dr Terrence Farrell said yesterday that foreign banks will eventually withdraw from the Caribbean region.
Making a presentation at a Financial Regulation Mini-Conference, “Current challenges and historical perspective†at the Arthur Lok Jack Graduate School of Business, he said, “Foreign multi-national corporations make decisions based on their global assessment of their interests.†The Mini-Conference was the first of a series to be undertaken between the Arthur Lok Jack Graduate School of Business and the Henley Business School at the University of Reading.
Earlier, the Dean of the School, Professor John Board, spoke about Financial Markets: Competence and Crisis; and Professor Adrian Bell, Chair in the History of Finance at the school, spoke about Lessons from the Past: Modern Finance in the Middle Ages. Dr Farrell said over the last 15 to 20 years the Caribbean region has been in turmoil with major failures of banks and insurance companies and cross-border acquisitions, many of which he said were adverse.
He said the region was well banked and one estimate from the International Monetary Fund (IMF) puts total financial assets at 124 percent of regional Gross Domestic Product (GDP) with banking assets accounting for 91 percent of regional GDP, which he said were strong numbers.
However, he said the banking system in the region had experienced many challenges with multiple failures of banks and non-bank financial institutions in Jamaica in the 1990s, which followed earlier failures in Trinidad and Tobago in the 1980s.
He added that in the Eastern Caribbean, which has a number of small banks, there were failures in Antigua and Anguilla. Observing that these were all indigenuous banks, Dr Farrell said the indigenuous banks have had greater exposure to the public sector with dependence on government and deposits from public sector agencies.
He said foreign banks have dominated banking in the region, accounting for 60 percent of banking system assets, but the number of foreign banks have declined significantly.
He pointed to a first wave of withdrawals from the region which followed the pressure for localisation, and said that in more recent times there had been a second wave of withdrawals from the region. He said Royal Bank of Canada which had returned by taking over RBTT, now seemed to be retreating from retail banking in the Caribbean, having recently sold its business in Jamaica to Sagicor Financial, and its operations in Suriname to Republic Bank. He said First Caribbean International Bank seemed to be reassessing its place in the Caribbean and Scotiabank also seemed to be reconsidering by avoiding public sector lending, and scaling back its lending to the tourism and hospitality sector in the region.
Dr Farrell said the failures of local banks were due to weak economies; weak credit administration; fraud, mismanagement and weak corporate governance; the high costs of operation and over-exposure to public sector credit.
By contrast, he said foreign banks had a higher rate of return in the Caribbean than their branches in North America, or anywhere else, but this higher rate of return is no longer certain because of weaker economies and the cost of doing business in the region has been increasing.