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Bank De-risking: An Emerging Threat to Caribbean SIDS’ Survival

The following extracted from the Caribbean Trade Law and Development website hosted by Alicia Nicholls […]whose content is focused on Trade law, development and policy through a Caribbean lens. Bank De-risking: An Emerging Threat to Caribbean SIDS’ Survival by caribbeantradelaw Alicia Nicholls De-risking actions by banks in advanced economies are an emerging threat to Caribbean…

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SIDS_CaribbeanThe following extracted from the Caribbean Trade Law and Development
website hosted by Alicia Nicholls […]whose content is focused on Trade law, development and policy through a Caribbean lens.

Bank De-risking: An Emerging Threat to Caribbean SIDS’ Survival

by caribbeantradelaw

Alicia Nicholls De-risking actions by banks in advanced economies are an emerging threat to Caribbean SIDS’ financial inclusion and sustainable development. This reduced risk appetite by banks is in response to an increasingly stringent regulatory environment aimed at combating the twin threats of money laundering and terrorist financing. De-risking actions have impacted Caribbean countries in two main ways: the severance of correspondent […]

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29 responses to “Bank De-risking: An Emerging Threat to Caribbean SIDS’ Survival”

  1. David Avatar
    David

    This is the kind of information our media and government actors should be creating awareness in the region. Instead our priorities appear to be located elsewhere. In Barbados the dearth in the media and wider space on financial and trade matters belies the fact we are labelled an educated people.

  2. caribbeantradelaw Avatar
    caribbeantradelaw

    Thanks David! 🙂 Kudos on your work as well!

  3. David Avatar
    David

    Here is another interesting article on the contentious and controversial TPP.

    Trans-Pacific Partnership Agreement Text Finally Online!

    by caribbeantradelaw

    Alicia Nicholls At long last, the full text of the Trans-Pacific Partnership Agreement has finally been revealed. The TPP creates a free trade area encompassing 12 Pacific-rim countries. It has been mired in controversy due to the secrecy of the negotiations and concerns by civil society groups about its intellectual property and investment provisions, as […]

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  4. Sargeant Avatar
    Sargeant

    The Gov of the Central Bank of Barbados was in Canada recently and had discussions with Head Office personnel of the major Canadian Banks that conduct business in Barbados.

    One would hope that this potential development was on the agenda.

  5. David Avatar
    David

    @Sargeant

    When you combine TPP and dissipating risk appetite for the Caribbean region by international banks one wonders what the HOGs in Caricom are thinking/doing. How do we mitigate. This is something we can’t stop, we have to find ways to tiptoe around and ring fence the risk it poses.

  6. caribbeantradelaw Avatar
    caribbeantradelaw

    I saw in one of the articles http://www.compasscayman.com/journal/2015/10/14/Bank–de-risking–poses-serious-problems-for-Cayman/ I read while conducting research for this piece that there is apparently a CARICOM regional taskforce on the issue of the de-risking. I have not been able to find anything concrete on it though in regards to its progress so far. Perhaps one of your readers may be able to enlighten us on this.

  7. Bush Tea Avatar
    Bush Tea

    @ David
    How do we mitigate. This is something we can’t stop, we have to find ways to tiptoe around and ring fence the risk it poses.
    +++++++++++++++++++++++++++++++

    Or…
    There comes a time in the affairs of men, when perhaps the best that we can do ..is to select a nice location at Coral Ridge and draft an impressive sounding eulogy….

    Normally such a time comes after three score and ten, but we have been accelerated to this position by the collection of JAs that we have allowed to misdirect our destiny in the last 30 years….
    …as a result it looks like we will be lucky to reach two score and ten….

    Cuhdear Boss…. if we could not figure out CSME – when WE were in charge, …what is the chance of figuring out TPP…?

  8. David Avatar
    David

    @CaribbeanTradeLaw

    Thanks, how do you see De-risking affecting Caribbean Ingenious Banks who do not have a present in developed markets?

    http://blogs.iadb.org/caribbean-dev-trends/2015/10/07/de-risking-and-correspondent-banking-a-caribbean-example/

  9. caribbeantradelaw Avatar
    caribbeantradelaw

    Our local banks depend on links with correspondent banks in foreign countries in order to serve their customers’ foreign transaction needs. So a reduced appetite for doing business with banks in the region can spell disaster for our financial system. There are serious implications and I think it is something we in the region really need to come together and work on. Btw, Louis Parris wrote an excellent set of articles on this as well. You might want to check them out too: http://www.nationnews.com/nationnews/news/67823/-risking-disruption-cross-border-transactions-ii

  10. David Avatar
    David

    @Bush Tea

    Our little islands have to withstand the might of WTO rules, NAFTA and now TPP. Given our dependence on financial intermediaries to support the Offshore sector what are we to do? We appear as a collective to be unwilling to leverage a regional knowledge capital. Want to be optimistic about outcomes but our track record is uninspiring.

  11. caribbeantradelaw Avatar
    caribbeantradelaw

    @David With respect to TPP, I have not gone through the text completely as yet but I am not quite sure the trade diversion effects will be as impactful on CARICOM countries as they would be on other countries, certainly not in the way that NAFTA was. As for the de-risking, since we are not the only ones affected, there is scope for us to leverage our collective bargaining rights with fellow SIDS and other affected developed countries to raise awareness about this issue and push for a prompt international solution to the problem. As you say though, our track record leaves a lot to be desired on many things but this is an issue on which we cannot afford to have disharmony among us.

  12. Violet C Beckles Avatar
    Violet C Beckles

    http://abcnews.go.com/Technology/wireStory/world-bank-climate-change-result-100-million-poor-35060346

    Barbados is in this with the Caribbean , We must remove the DBLP government ,

  13. NorthernObserver Avatar
    NorthernObserver

    The biggest challenge faced by every government regardless of their location is revenue collection. As these authorities see ‘leakage’ through what was their proverbial net, they fight to keep what was “theirs”. The ensuing rules and regulations, and subsequent compliance policies are a huge headache. The so called ‘risk assessment’ officers have new clout, for the costs of being found to be non-compliant outweigh the benefits (profits) of certain activities. Appreciate the true intent is to make the reporting requirements so onerous and invasive as to deter those who would consider such banking-taxation products/strategies; both corporate and individual.
    The core challenge however, relates most to what is in ‘our own backyard’. Exactly why these various entities are seeking to avoid local collection methods.
    It is a massive non-confidence motion against governments in general, and their inability to avoid their own internal corruption and deliver services in a cost effective manner. When the tax payer views the collectors as incompetent, the tolerance of strategies used to avoid that incompetence increases.
    At a more microscopic level, the Bajan MofF made comments recently about a ‘certain profession’ for whom a vast number of tax returns were unfiled (or filed elsewhere?) The fall in corporate tax revenue has been so astounding, it extends beyond who isn’t paying to WHERE are they paying. And St.Lucia as one example, you only have to look at the Board directors, has become a favourite destination for Bajan money.
    Bajans have a term for this, it is “dah fah lick yah”. The incidence of paying tax out of resident jurisdiction is systemic.
    Naturally, part of the issue relates to the relative tax rates. Why pay say 20% when 2% is available elsewhere.
    As these few paragraphs began, this is a global issue. And the smaller economies will get squeezed, as the larger ones seek to keep what they see as “theirs”.

  14. David Avatar
    David

    @NorthernObserver

    You are an intelligent guy. Many Barbadian companies/ professional outfits have incorporated in St. Lucia to avoid taxes and the other obligations locally registered have to suffer.

  15. NorthernObserver Avatar
    NorthernObserver

    @David
    This is perfectly understood….yet, does that make it correct?
    It is the end of every society, when citizens/their corporations opt to pay taxes, albeit at lower rates, to foreign governments and not contribute to the systems which they actually use daily.
    This is the ‘dah fuh lick ya’; Bim taking taxes from foreign entities and then trading local taxes to other foreign nations. ALL at lower rates.
    This is no small contributor to the challenges facing risk assessment folks. Apart from legality, the legitimacy of funds is baffling. As RBC did earlier this year, they finally throw their hands up in the air, and the decision is to err on the side of caution.

    PS I’m not as intelligent as you think LOL I couldn’t get in to 6th form

  16. Bush Tea Avatar
    Bush Tea

    Don’t shortchange yourself NorthernO… you ain’t miss one shiite in sixth form….
    Um is all those six form graduates who are currently dropping the bone in search of the shadow ….by offering low taxes /tax holidays to foreigners who don’t give one ^%&* about Barbados …..while creating conditions that practically FORCE productive locals to run to other jurisdictions.

    It is called GREED management.

    So we have Sandals here contributing little or nothing…
    We working on CAHILL ….where WE will bear all the costs… (and the shame.)

    meanwhile… Sagicor is leaving
    …our utilities are run by foreigners
    …BS&T is gone
    …BL&P is gone
    Money Brain is in Canada …as are Lawson, Hants (and thankfully Sargeant 🙂 )
    …Lime and FLOW have combined to screw us harder…

    ..and now ..we are bringing back Owen to sell what little is left of what those before him (who mostly avoided sixth form) were able to sacrifice and save to accumulate….

    six form brass bowls!!

  17. Sargeant Avatar
    Sargeant

    @David

    The devil is in the details, I don’t think that some of the politicos far less the layman knows what the deal means. We can take our cue from the former PM of Canada whose Gov’t negotiated the deal. Among their campaign promises was to support the auto industry with one billion dollars over the next decade and to protect dairy farmers to offset any losses arising out of the deal, of course small islands have shallow pockets and can’t provide the same kind of support for their citizens.

    http://www.cbc.ca/news/business/trans-pacific-partnership-details-1.3308248

  18. NorthernObserver Avatar
    NorthernObserver

    @Sarg
    Canucks have nothing to worry about, they are the world champions at hidden barriers to entry.

  19. David Avatar
    David

    How are small open economies to survive especially when compounded with inept leadership?

    OECD Trims Growth Forecast and Warns of Trade Deceleration in Latest Economic Outlook

    by caribbeantradelaw

    Alicia Nicholls The Organisation for Economic Cooperation and Development (OECD) has again trimmed its global growth forecast slightly downward in its second economic outlook for the year, reflecting the weakness in Emerging Market Economies (EMEs). The Paris-based grouping predicts global GDP will expand by just 2.9% in 2015, down from 3% forecasted in its Interim Outlook this September. Eight years […]

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  20. Sargeant Avatar
    Sargeant

    @BT

    Money Brain is in Canada …as are Lawson, Hants (and thankfully Sargeant 🙂 )

    +++++++++++++++

    Barbados’s loss is Canada’s gain 🙂

  21. Bush Tea Avatar
    Bush Tea

    @ Sargeant
    Barbados’s loss is Canada’s gain
    +++++++++++++++++++++++++++
    Bushie knows that only too well…
    Thank David for the opportunity to at least engage you and other Baje/Canadians via BU…

    LOL
    Nothing pleases Bushie more than cussing wunna donkeys…. 🙂

  22. Due Diligence Avatar
    Due Diligence

    CIBC FirstCaribbean is an example of De-Risking by one regional bank.

    The following is cut and pasted from the Investor Relations pages of its website.

    “CIBC FirstCaribbean seeks to create value for our shareholders by generating consistent and sustainable earnings while achieving strategic growth.

    To do so, we are investing in our core businesses, maintaining a lower risk discipline aligned with our strategy, and underpinning our activities with industry-leading fundamentals.”

    The following is from its re-stated Income Statement for the year ended October 31, 2014

    FirstCaribbean International Bank Limited
    Unaudited Year ended Oct 31, 2014 Restated*
    (expressed in thousands of United States dollars)

    Interest and Similar Income $ 455,175
    Interest and Similar Expense $ 86,386
    Net Interset Income $ 368,789
    Operating Income $ 159,526
    $ 528,315
    Operating Expenses $ 349,259
    Loan Loss Impairment $ 206,283
    Impairment of Intangible Assets $ 115,946
    Total Above Expenses $ 671,488
    Income (Loss)before Taxation $(143,173)
    Income Tax Expense $ 6,505
    Net Income Loss) for period $(149,678)

    As a result of Loan Loss Impairment Charges and Intangible Asset Impairment Charges (for Goodwill previously recorded in the CIBC/Barclays merger) totaling US$322 million, the bank recorded a loss in fiscal 2014 of US$150 million.

    As that (taking US$150 million losses) is clearly unsustainable, the bank has adopted a lower risk discipline in it risk management policy.to create value for its shareholders by generating consistent and sustainable earnings while achieving strategic growth.

    In a capitalist world that (adopting a lower risk discipline in it risk management policy) is as it must be, to create value for its shareholders.

    And even after adopting a lower risk discipline in its risk management policy, CIBC FirstCaribbean still recorded a Loan Loss Impairment Charge of US$35 million in the 3 quarters to July 31, 2015.

  23. NorthernObserver Avatar
    NorthernObserver

    CIBC was the hardest hit of any major bank by far. Given their strict internal controls, it is almost unbelievable how this happened. And while CIBC did ‘acknowledge the problem’ and claim ‘it would be fixed’, the details are closely guarded secrets.

  24. Due Diligence Avatar
    Due Diligence

    NorthernObserver

    The closely guarded secrets are to make fewer high risk loans that will have to be written off,

  25. NorthernObserver Avatar
    NorthernObserver

    Now Scotiabank is ordered by the fed to tighten its money laundering controls.
    http://www.federalreserve.gov/newsevents/press/enforcement/enf20151110a1.pdf

    Appreciate ‘money laundering’ is like ‘terrorism’; a broad catch all intended to convey some form of wrong doing without any proof of wrongdoing. Just more paperwork and costs.

  26. Due Diligence Avatar
    Due Diligence

    NorthernObserver

    That will be a good template for the MOF and CBB Guv to use to update their supervisory framework

  27. Sargeant Avatar
    Sargeant

    @Northern Observer
    Given their strict internal controls, it is almost unbelievable how this happened
    +++++++++++
    “Strict internal controls”, well it’s about time they have hit every bump in the world during the last 30 years, if there was a corporate equivalent to Joe Btfsplk it would be CIBC. At one time it was second to RBC now its number 5

  28. David Avatar
    David

    Agree with you Sargeant, CIBC of the big Canadians banks in the region appear to make the more questionable decisions over time.

  29. lawson Avatar
    lawson

    BT ..I was telling people how brilliant Barbadians are, I notice today one of your dentists is suing because of his arrest while travelling with dental parts in his back pack. Most Canadians are dumb we probably would have tried to sneak it through customs so not to have paid duty on it, but bajans are all above board so they wouldn’t be as stupid as being shown in the nation paper with a device that that maybe they haven’t paid duty on.
    What I as a canuck have found about money in Barbados…. is it is not hard to meet expenses…..they are everywhere

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