When Barbados and its CARICOM neighbours began an international campaign in 1972 to end the United States economic and diplomatic isolation of Cuba they knew their goal was akin to a two-edged sword.
Yes, they believed a successful initiative that would remove Cuba from the diplomatic deep freeze would help bring economic relief to millions of Cubans who were hard hit by Washington’s economic embargo that was imposed in 1962.
Also true, Jamaica, Guyana, Trinidad and Tobago, Grenada, Barbados and the others were aware that an end to the trade blockade and an easing of US travel restriction could mean a loss of American tourists.
But what they probably didn’t think about was how a thaw in US-Cuba relations would affect commercial banking in the islands that dot the Caribbean Sea and the Atlantic Ocean.
For those who didn’t think about it, the hard financial facts of life are coming into full view. For within weeks of US President Barack Obama letting it be known that the two countries were going to establish diplomatic ties, Canadian banks placed Cuba on their radar screen. As a matter of fact, it was there before the White House.
“We see a very attractive long-term marketplace in Cuba,” David McKay, chief executive officer of Royal Bank of Canada told the Toronto Star newspaper. “We’ve been anticipating this for quite some time. It’s not a surprise and it’s played into some of our recent strategic moves.”
One such strategic move was the sale of RBC’s Jamaica operations to Sagicor, the Barbados headquartered insurance conglomerate. Not only did it sell the business but it did so at a reported loss, suggesting it was in a hurry to leave.
“Part of our thought process around exiting Jamaica was not only did we not have a market presence and the capability to compete in the market, but we saw Cuba as presenting a long-term competition for the US tourist dollar to Jamaica,” asserted McKay.
But Jamaica wasn’t alone in being hit by Canadian bank restructuring. RBC has reduced its operations in Barbados and other parts of the Caribbean at a time when the Canadian Imperial Bank of Commerce and ScotiaBank are also taking a hard look at their profit and loss statements and how they function in the Caribbean.
“All of the Canadian banks that have Caribbean operations have struggled there,” said Dan Werner, a financial services sector analyst in Canada to a Toronto financial columnist.
Craig Fehr, an analyst with Edward Jones in St. Louis, Missouri shares that assessment. “What we’re seeing is the banks are doing a thorough evaluation of their business mix and figuring out what makes sense long-term – and what is probably best left in the hands of someone else,” Fehr said.
That’s not good news for the Caribbean, Barbados included. As the region’s economies continue to falter, there is no indication that robust fortunes are on the horizon. For example, Jamaica is going through a tough restructuring programme with the International Monetary Fund (IMF) and while it has passed the IMF tests it is far from being out of the woods.
Then, there is Barbados.
Its economy is in the throes of another recession and the prospects for an early recovery are said to be so bleak that Standard & Poor’s, the Wall Street credit rating giant, downgraded the island’s rating to its lowest point in decades, pushing it down to “B” from “BB.” The Bahamas, Belize, St. Lucia and Grenada are all suffering economically.
Ominously, RBC’s focus on Cuba and its declining interest in the rest of the Caribbean are likely to become a pattern for the other Canadian banks, CIBC and Scotia Bank, to follow.
They may already be planning to make the shift to Cuba. RBCs sale of its Jamaica business occurred before Scotiabank announced plans to cut 1 500 jobs and shut more than 100 branches in its international network, many of them in Mexico and the Caribbean.
As if it didn’t want to be left out of the loop, CIBC, whose FirstCaribbean International Bank is a major player across the region, said in September that it was taking fresh guard, if you will, at the banking wicket by placing emphasis on managing expenses in the Caribbean.
Fehr thinks the “bread and butter source of profitability for Canadian banks is perhaps losing some of its momentum, so they’re looking for different avenues for growth and employ capital to different areas going forward.”
But will reduced global oil prices mean cheaper airline fares to the Caribbean and a stronger than anticipated US economy give Americans more disposable income so they can take vacations in the Bahamas, St Vincent, Barbados, the Cayman Islands and elsewhere?
While those developments may fuel some growth, they are not expected to give the Caribbean the much desired shot in the arm they are hoping would give the banks a good reason to change what seems to be a course that leads to Cuba and elsewhere in Latin America and away from CARICOM member states.
A Canadian-Cuban banking connection would be one more thing the Caribbean must be thinking about.
“Ominously, RBC’s focus on Cuba and its declining interest in the Caribbean are likely to become a pattern for the other Canadian banks, CIBC and Scotia Bank, to follow.”
