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.
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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.
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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
