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THE HOYOS FILE: Heartened by banks


Pat Hoyos, [email protected]

THE HOYOS FILE: Heartened by banks

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MANY YEARS AGO, probably back in the late 1990s, the people who bring you Banks Beer in Barbados noticed the trend towards less sugary drinks. To fill the perceived demand they introduced a brand called Canadian Exposure.

The phrase conjured up subzero weather and with it, it was hoped, a cold, refreshing taste.

These days, according to an article recently published in the Globe & Mail, the three big Canadian banks are suffering from just the opposite: Caribbean exposure.

A surfeit of impaired loans is making it hot, hot, hot for the Canadian banks in the region, according to the newspaper’s Tim Kiladze (pronounced KIL-uds).

In his article published in late February and titled Trouble In Paradise: Inside Canadian Bank’s Billion Dollar Caribbean Struggle, Kiladze says the Royal Bank of Canada (RBC), the Bank of Nova Scotia and the Canadian Imperial Bank of Commerce (CIBC) have written off more than CAN$1 billion in the region since the great recession of 2009.

Kiladze says their shareholders barely noticed when the three banks started suffering from what he termed “this tropical malaise” a few years ago.

They are noticing now. In fact, writes Kiladze, “this tiny cluster of islands” could generate bigger write-offs than both CIBC’s and Scotiabank’s huge Canadian lending portfolios.

What started as a corporate lending problem “has morphed into a mortgage market meltdown,” he asserts.

Kiladze says in January 2014 RBC stunned its banking competitors by announcing plans to sell its Jamaican operations to Sagicor Financial Corporation, incurring a CAN$100 million loss.

Workforce

According to the Jamaica Observer, RBC had lost over J$9 billion (about US$78 million) in recent years, mainly due to bad debts. It closed four of its Jamaica branches, leaving 13 open, and cut its workforce by 10 per cent.

Those RBC branches have been merged into the current operations of the Sagicor Bank, which until mid-2014 had just five branches in Jamaica, being the pan Caribbean bank until its rebranding in 2012. Sagicor is now a significant player in the Jamaica banking industry.

Today, says Kiladze, “more than half of CIBC’s total gross impaired loans – or loans that show any signs of trouble – originate in the Caribbean. at Scotiabank, the equivalent share is 35 per cent.”

Last November, Scotiabank announced that it would close 35 of its 200 branches in the Caribbean, with the loss of over a thousand jobs.

Here’s my question: Why haven’t we heard of similar woes facing Republic Bank?
It has stated that although things could be better it’s doing okay (my feeble words, not theirs). And why is Sagicor rushing in where angels now fear to tread, buying RBC’s failing Jamaican operations? Are they just downright crazy?

Or is that when you have been accustomed to having things a certain way for a long time it becomes hard to adjust to more nuanced situations?

Is the Caribbean only bankable when you have consistently high profits and can use it as a training ground for your rookies? What about the hard working people who live here and are not going anywhere? Why are they suddenly unbankable?

It seems clear that the three big Canadian banks are trying to “right size” their operations in the region. That may see them selling off more branches (if someone wanted to buy them) or closing them to rationalise their revenue versus expenditure, and so forth.

What I am trying to say, I guess, is that I am glad to see two of our biggest financial institutions showing enough faith in our region that they are moving forward at a time when their bigger foreign counterparts seem to be in retreat.

If you live in the Caribbean you know there is more to life than just money. Perhaps this is what is on the minds of the regional conglomerates, like Republic, Sagicor, Massy Group and others, for whom Caribbean exposure is no big thing – it is just a normal day in the sun.

Birth of a Republic

By the 1970s, the nationalistic cry for local ownership of banks in Trinidad made the big banks worry they might be nationalised. A majority stake in Barclays Bank Trinidad and Tobago was sold to local interests and renamed Republic Bank.

In 1989, Barclays sold its remaining sizeable minority stake in Republic to the then CL Financial, which still owned one third of the bank’s shares in 2009, when the tattered and tarnished empire of Lawrence Duprey was taken over by the Trinidad government.

Similar nationalistic forces led Royal Bank of Canada (RBC) to put its holdings in Trinidad into a subsidiary, Royal Bank of Trinidad and Tobago (RBTT), and by 1987 RBC owned only 47 per cent of the shares, which it sold. By 2007, RBC wanted them back and made RBTT’s shareholders an offer they couldn’t refuse US$2.2 billion.

Barclays teamed up with CIBC West Indies Holdings Ltd. (CIBC) in 2001 to form FirstCaribbean International Bank and five years later exercised its option to sell off its shares completely, with CIBC putting up a cool US$1 billion to buy them.

Thus both Republic Bank and CIBC FirstCaribbean can claim 1837 as their ancestral start-up date in the region, the date when the forerunner to Barclays, the Colonial Bank, opened to provide banking services to a post-slavery region.

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