I saw an article in the Barbados Business Authority of last Monday written by my erstwhile friend up North, Tony Best, speculating on the possibility or the likelihood of American banks returning to the Caribbean.
He did not offer a conclusive prognosis, obviously, but there was a slight hint that American banks might be looking again worldwide for expansion possibilities, in the light of being subjected to tighter regulations in the United States.
One of the reasons why I believe that American banks left the Caribbean in the 1970s and 1980s was their lack of profitability. The bedrock of banking in the Caribbean is the deposit portfolio of the banks.
Barclays Bank Dominion, Colonial And Overseas bought out the Colonial Bank operation and since 1926 fought for business with the three Canadian banks, namely Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Royal Bank of Canada. Together they garnered the lion’s share of deposits in the Caribbean.
Barclays Bank in particular was also able to reap the pick of sugar cane funding as can be shown by the rather easy equitable mortgage arrangements. In addition, businesses of the major plantation owners and firms such as S.P. Musson & Sons Ltd, Plantation Ltd, Shipping & Traders Ltd were aligned to the mentioned banks.
There was not much accommodation for the small traders who often found themselves obliged to borrow from legal firms or stores. Additionally, governments, with limited income from taxation, traditionally leaned on the old banks for budgetary support, especially in paying civil servants.
When the American banks came in, they were constrained to pay higher deposit interest rates in order to lend and establish a foothold. In addition, they were forced to offer competitive loan interest rates. Thus their profitability was restricted.
In Barbados, in particular, with economic interest centred on sugar cane, rum and, more recently, tourism, there was not much scope in a dependence on slowly rising manufacturing industrialization. Sure there is much profit in funding manufacturing, and the American banks did have some degree of success, but insufficient to warrant a long-term favourable prognosis.
The advent of the indigenous banks offered the American banks an easy way out, and they left; not only in Barbados, but also in other islands of the Caribbean.
The advantage of the indigenous banks was that in most cases they were started by governments and were able to operate on both sides of the balance sheet, as well as offer attractive tax benefits to depositors.
In the case of Barbados, the Barbados Savings Bank with its portfolio of savings on the one hand, and investments in Government securities on the other, was a recipe for success at the beginning.
The markets throughout the Caribbean are different nowadays. For American banks to come, they will have to find niche markets where they can be profitable.
Establishment like Bank of America and Citibank in retail banking will be most difficult as Canadian banks, one of which has merged with Barclays Bank, and indigenous banks will be formidable competitors.
Additionally, credit unions are already giving the banks a run for their money, literally. Mention must also be made of quasi-banking operations such as car firms and direct involvement of governments.
Where there is a market, and one that the governments may very well exploit, is venture capital and development funding. This is a future in the world economy.
One may fault the Government for closing the Barbados Development Bank, whose charge was to seek development funding for on-lending. To date no effort has been made by Government or the private sector to establish a venture capital institution to pave the way for future growth possibilities.
I might be accused of offering the argument that the deposits are the only assets of Barbados and that they should be used to generate progress faute de mieux (for lack of something better), in the light of failure of Government guarantees. But there is a difference between direct funding and issuing guarantees, and unfortunately our Government needs to look carefully at spending cash.
Here is where American banks can gain a useful foothold and may be able to capitalize on business opportunities to the deficit of the local banking community.
• Harry Russell is a former banker. Email quijote70@gmail.com
