BANKING ON CHANGE

The growth of indigenous Caribbean banks into true multinationals has led to major changes in the regional financial sector in recent years.

Illustration by Russel Halfhide

In the minds of many, banking conjures up a picture of a sober-suited
bank manager sitting behind a mahogany desk, the same desk that has been
used by every one of his predecessors since the establishment of the bank.
He is a man of substance, who meets the future by ignoring it, and doggedly
conducts business in a time-honoured, conservative fashion. An unchanging
symbol of an unchanging world.

Whether that picture was ever accurate is questionable, but it is certainly
not true of the modern banker. They are still men of substance, of course,
but they no longer look to the past as a guide to the future. Like all other
commercial activities, banking is changing. Caribbean banks are meeting the
future head on, and anticipating change in order to adapt and survive. Change
in the sector is an unavoidable reality — and is gathering pace.

Until relatively recently, the Caribbean banking sector was dominated
by non-Caribbean banks, such as the Bank of Nova Scotia and the Royal Bank
of Canada, the Canadian Imperial Bank of Commerce (CIBC) and Barclays Bank,
working in territories across the Caribbean and usually directed from a head
office outside the region. Their competition, the indigenous banks, were generally
small, often working in a single country.

The picture has changed significantly during the past few years. The international
banks are still a huge presence in the region, and many indigenous banks
are still small and still operating in just one or two territories. But the
Caribbean now has multi-territory banks of its own, banks of considerable
size that are providing genuine competition to their larger international
rivals, which are, in their turn, being forced to change the way they do business
in the region.

In October 2002, UK-based Barclays Bank and Canada’s CIBC combined their
retail, corporate, and offshore Caribbean banking operations to form FirstCaribbean
International Bank (FCIB). FCIB has total assets of US$9 billion, and more
than 700,000 active accounts, 3,000 employees, 80 branches, and 120 ATMs
in 15 Caribbean countries.

FCIB now has its headquarters in Barbados, a country that
has seen enormous changes in its retail banking sector during the past two
years, apart from the disappearance of Barclays and CIBC and the appearance
of FCIB. In 2003, Trinidad and Tobago-based Republic Bank acquired a controlling
interest in the Barbados National Bank (BNB). Republic Bank has assets of
more than US$3.1 billion, and employs more than 4,000 people throughout
the Caribbean. Then in December 2003 the Bank of N.T. Butterfield, whose
headquarters are in Bermuda, acquired Barbados’ Mutual Bank, and in 2004
Trinidad and Tobago’s RBTT Financial Holdings acquired Barbados’ Caribbean
Commercial Bank (now called RBTT Bank Barbados). The RBTT Financial Group
includes nine commercial banks, with branches located throughout the English-speaking
Caribbean, as well as the Dutch-speaking countries of Suriname, the Netherlands
Antilles, and Aruba.

It is no accident that two of the indigenous banks that have brought the
most change to the banking landscape in Barbados and the wider Caribbean
— Republic Bank and RBTT — have Trinidad and Tobago as their home. That country’s
industries have been front-runners in turning national companies into pan-Caribbean
businesses. Trinidad and Tobago’s banking sector is no exception.

Both Republic and RBTT can trace their history back to the colonial years
of the mid 19th century. They gradually developed into strong locally owned
national banks, and are now two of the region’s largest indigenous, multi-territory
banks. They have achieved this status primarily by buying smaller indigenous
banks in various Caribbean countries.

Maurice Franklin, a banking and insurance industry specialist and partner
at PricewaterhouseCoopers in Barbados, says: “Republic’s and RBTT’s strategy
is to move through the Caribbean; they are certainly looking at size, so
they can take account of any synergies there are to make sure they are real
regional players. It’s not necessarily that size means strength, but certainly
they recognise that they could not survive as smaller banks for the indefinite
future.”

In its report on the banking sector in Barbados for 2002, PricewaterhouseCoopers
wrote: “There is a steady movement towards reduced regulation in the Caribbean
with regards to cross-border investment, interest rates, and exchange controls.
The advent of the Caribbean Single Market and Economy [a free-trade area
of Caribbean Community (Caricom) states due to come into effect this year]
framework will accelerate this process in a global economy where barriers
to trade in services keep coming down. Market liberalisation will become even
more crucial to the economy.”

The liberalisation of the trade in services, including banking, both in
the Caribbean and internationally, means banks must grow in order to survive.
(Liberalisation, of course, can also make it more feasible for them to grow.)

“As financial institutions develop a larger capital base,” PricewaterhouseCoopers
says, “and as market controls are relaxed, significant opportunities arise
in terms of new products and markets. Their established branch networks and
relatively stable customer base give banks an excellent opportunity to bring
new products to market.”

Size makes it more affordable to introduce the technology that banks nowadays
need to function effectively, and which underlies many of those new banking
products.

Internet banking is, in theory, a service that any bank can offer. In
practice, it is expensive to design and set up, and may be viable from a
business point of view only if the bank has a large enough number of customers
to use the service. Internet banking is an example of a service that provides
additional value to the customer (in terms of convenience, for instance),
but benefits the bank by reducing its costs. (Banking online can mean fewer
customers need to visit a branch of the bank, which reduces salary costs or
even the number of branches the bank needs to maintain.) The same is true
of the automated teller machine, once a “modern” convenience, now taken for
granted. Imagine the queues if everyone that used an ATM still had to go
into the branch.

Being able to offer new services increases the number of clients the bank
has and the amount of business they do with the bank; it provides the bank
with a deeper pool of savings to invest, which in turn makes it possible
to offer an even wider range of products and, of course, to increase the bank’s
profits.

 

While acquiring or taking a shareholding in smaller banks benefits the
big “players”, it can also benefit smaller banks such as BNB.
“BNB was looking at strategic alliances . . . it recognised for a long
time that it could not remain on its own and compete viably. It needed a
partner, hence the acquisition by Republic,” Maurice Franklin says.

The small indigenous banks face competition on two fronts: from the international
banks that operate in the Caribbean and from the large indigenous banks.
The smaller banks need to “look at mergers, or be absorbed into another bank,
or come together to form a new bank”, Maurice Franklin adds.

However, the Caribbean’s small indigenous banks are fighting back, and
indigenous banks great and small do have common aims and a common competitor:
the international banks. These common aims and dilemmas can be seen within
the Caribbean Association of Indigenous Banks (CAIB). Established in 1974,
the CAIB is a “community of locally incorporated/owned banks and other financial
institutions in the Caricom region, which provides an opportunity for discussion
of issues impacting on the banking and financial services community as well
as for the sharing of experiences”.

The CAIB has 41 members (and three honorary members, the Caribbean Development
Bank, Caricom, and the Caribbean Centre for Monetary Studies), which between
them have a total asset base of approximately US$16 billion.

Just one of its aims is to provide “a forum for the exchange of ideas
and information on various aspects of operations in order to broaden the
scope and knowledge of its officers”. Given the fact that even the large
indigenous banks are small by international standards, co-operation between
competitors is essential.

Banking, after all, is at the heart of every economy. Money must be spent
for businesses to make profits and provide jobs; savings must have a secure
home, and be available for investment in the companies that provide those
jobs. Money has to flow, and the banks are its means of moving. As Dr Omar
Davies, Jamaica’s minister of finance and planning, told a CAIB meeting:
“To the extent that it facilitates the movement of funds from savers to investors
in both the private and public sectors, there is no doubt that the financial
sector — and, more importantly, the banks, which are usually one of the biggest
players in the sector — plays a pivotal role.”

The fusty old banker of our imaginations, if he ever existed, could certainly
not survive today. Increasingly affluent customers grow more demanding by
the day. They want services that meet their changing needs and expectations.
And like their customers, the banks themselves are banking on change.

Commitment to financial innovation

Caribbean Money Market Brokers Ltd (CMMB) is the first full-service brokerage
house in Trinidad and Tobago with an office in Barbados as well. With a mandate
to create an active secondary market in bonds and fixed income securities,
CMMB has emerged as a pioneer in the regional financial services landscape.

After the short span of four years, CMMB has over US$800 million in assets
under management, and is well poised to expand its product and service offerings
to other islands in the Caribbean. Currently, CMMB provides a full range
of fixed income products, such as fixed income paper, Caribbean and Latin
American bonds, money market accounts, and portfolio management services.

CMMB’s research publications have pioneered a whole new resource for the
securities market in the Caribbean, creating a more informed market, and
establishing a vital source that both regional and global investors can turn
to for reliable information. These publications include: the Caribbean
Bond Guide, Money Matters, Fixed Income Quarterly, Stock Market Quarterly,
and Emerging Markets Weekly.

CMMB Securities Ltd, a sister company of CMMB, actively trades in equities,
which allows CMMB to provide a complete range of services catering to all
their clients’ investing needs.

Most importantly, CMMB is a different kind of company. The moment you
walk through their doors you feel a warmth and energy uncommon in the financial
sector. Focused on respect and love, the company encourages a fun-loving
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and transparency.

CMMB Trinidad
1 Richmond Street, Furness Court
Independence Square, Port of Spain
Trinidad and Tobago
Telephone: (868) 623-7815
Fax: (868) 624-4544

CMMB Barbados
1 Whitepark Road
St Michael
Barbados
Telephone: (246) 426-2020
Fax: (246) 426-2058

www.mycmmb.com