When Bajans and Canadians drive in Toronto or Barbados they are struck by an interesting sight: well-known Canadian banks seemingly at every major artery.
Where commercial enterprises and low and middle income households co-exist in harmony, one can find a branch or two of a Canadian bank.
That’s particularly true of, say, Holetown and surrounding areas, Sandy Lane included. Royal Bank of Canada, the Canadian Imperial Bank of Commerce and its FirstCaribbean International Bank and the Bank of Nova Scotia are all within walking distance of each other. Their crowded branch networks serve local families, visitors and firms with quiet efficiency and equal acceptance.
But Barbados isn’t alone. The pattern is repeated in almost every English-speaking Caribbean country.
Now, the presence of the well managed and financially sound Canadian banking institutions is coming in for close scrutiny as questions are being raised about the long-term impact of activities of foreign banks. And with FirstCaribbean Bank which CIBC owns cutting back on its staff levels and other operations, the issue of the Caribbean’s banking future and ultimately the well-being of the economies of the region is being re-assessed.
Poor economic management
The International Monetary Fund (IMF), the global financial policeman and economic enforcer when its members go astray, Barbados is one of them, recently had something to say on this matter as the region continues to feel the effects of a mix of poor economic management, increasing competitiveness and a prolonged global financial crisis.
“Financial sector linkages have increased continuously in the Caribbean with cross-border capital flows and financial conglomerates dominating the financial system,” the fund said in a report prepared by its Western Hemisphere Department.
“While the greater interconnectedness can heighten risks and likelihood of contagion, it can have positive impacts provided the regional authorities take steps to prevent the systemic risk.
“Financial sector reform measures aimed at bolstering and harmonizing prudential regulations in line with international best practices, the strengthening and enhancement of financial sector supervision to include cross-border linkages through consolidated supervision, increased cooperation across supervisors in the region and the establishment of deposit insurance and crisis resolution frameworks will be critical to maintain financial sector stability and minimize the repercussions of any negative shocks.”
In other words, Barbados, The Bahamas, Trinidad and Tobago, Jamaica, Grenada, Dominica and others should take decisive and defensive steps to prevent any serious financial damage should unforeseen developments occur in Canada and spill over onto the Caribbean.
The authors of the report seem to feel that Canadian banks can bring the troubles from North America to the Caribbean. Actually, Barbados and its neighbours have reaped significant benefits from the presence of the Canadian banks. When the global financial crisis first struck with a vengeance, the well financed and efficiently managed CIBC, Bank of Nova Scotia and Royal Bank shielded the region from possible contagion against which the IMF is now warning.
Indeed, Barbados’ banking system was ranked 21st in the world and third in the Western Hemisphere behind Canada and Chile in 2008 when the World Economic Forum placed it ahead of the United States, Germany, Israel and most members of the European-Union. South Africa, Norway, Hong Kong, Singapore, Switzerland, Chile, France and Namibia were on the list of the world’s safest banks five years ago.
Barbados was placed in such august company mainly because of its strong ties with Canadian banks, dating back in some cases to at least a century.
Obviously, the Canadian Bankers Association, an influential industry institution, sees the picture differently from the Fund.
“Banks in Canada avoided the perils of the recent global financial crisis because they were well managed, well capitalized and well-regulated,” Terry Campbell, the association’s president said in a statement to the National Post, Canada’s leading daily business paper: “Banks in Canada are among the best capitalized in the world, exceeding [international standards] by significant margins and have been early adopters of new capital requirements before banks in many other countries. This is important because it allows the banks to continue landing and also provides a cushion against loan losses, which tend to increase during economic downturns.”
Strong systems
For its part, the National Post was quick to insist Canadians take their banks for granted, but explained that the IMF itself had acknowledged “at least so far, the Caribbean had benefitted from strong Canadian banks that did not squeeze off credit in the financial crisis. But the point is, that could change if troubles start to emerge” in Canada, say, in the collapse in the bubbly real estate market.
It asked the question: “What would happen say, in the event that Canadian banks suddenly found themselves fighting fires on the home front? Isn’t it likely they would divert capital and resources away from the Caribbean and look back to where the problem arose? How about the offshore financial services sector which has grown by leaps and bounds in the Caribbean?
“The heightened regulatory uncertainty brought about by ongoing global regulatory reforms poses a key challenge, which may lead to a revised strategy by major financial groups to move away from international financial centres,” said the Post.
Earlier this year, the United States Internal Revenue Services demanded financial information from FirstCaribbean Bank with headquarters in Barbados on Americans with accounts in that financial institution. That was seen as a shot across the bow of the Canadian banks and their activities in Barbados and elsewhere in the Caribbean.