It could be argued – and some have – that a small island nation of just over a quarter of a million people, with six institutions offering state-of-the-art domestic banking services – is over-banked. But there’s a changing dynamic in the Caribbean. Barbados is no longer a market in itself, it’s a key part of, and bellwether for, a larger regional arena that is starting to embrace central America, as well as the English, Spanish, French, and Dutch-speaking West Indies – in keeping with a wider political trend toward greater economic convergence, and an eventual single market.
Changing times explain why. Since the acquisition of Barbados National Bank (BNB) by the Trinidadian Republic Bank, not one of the main players in the Barbadian market is Barbadian-majority owned. The origins of Royal Bank of Canada, Scotiabank and Royal Bank of Trinidad and Tobago (RBTT) are implicit in their names. First Caribbean Bank, a joint venture between Barclays and CIBC, claims to be the first true regional bank; Bank of Butterfield, which bought the Barbadian Mutual in 2002 (TK), is Bermudan. “It just wouldn’t be possible for a Barbadian owned bank to compete,” bankers explain.
Sovereignty loss
There’s a certain sadness in some quarters that this is the case. Even taxi drivers bemoan the implicit loss of sovereignty. But Robert Le Hunte, chief executive of BNB, insists that Barbadians are no less well served and that the role the bank has played since acquisition by Republic has, proved to be a “model” of the government’s divestment strategy: “Before, national banks were important because it was felt that the multinationals didn’t have a heart for the country. They only operated at levels where they made a profit. But there was no social component.”
And, he adds, because the national bank had a developmental as well as commercial role, it was prepared to take risks that commercial banks, especially those domiciled outside the country, would not take. The downside in a region composed, like the Caribbean, of small nation states, was that “they just didn’t have the capital, the history, the technology, the research and development (R&D) budget, or the product lines to compete.” Republic Bank, he argues, is perfectly placed to twin the roles of both a national bank and an aggressive, commercial institution. Barbados has been good to Republic, too, contributing to 16% of the Republic Group’s profits, and representing a 30% growth in assets.
Mortgage competitivity
One of the most noticeable sights any visitor to the Barbadian capital, Bridgetown, will notice is a two-storey advert for a 6% savings rate – mortgage rates are similarly competitive, and even Mr Le Hunte’s rivals concede that BNB has put the cat among the pigeons and precipitated a significant margin squeeze across the industry.
Now that First Caribbean Bank is emerging from its teething troubles, the stakes are raised higher – not just in Barbados but across central America and the Caribbean. First Caribbean is the brainchild of CIBC and Barclays, which in an attempt to leapfrog into a top spot in the Caribbean banking market, hit on the idea of a merger. Each has a 43.75% stake in the joint venture, with the remainder owned by private investors and employees.
Managing director Charles Pink explains that the move was a logical response to a rapidly mutating regional marketplace: “Traditionally in the Caribbean you had a number of international banks, and a number of local players. Because of the size of the market, several international banks have moved out [he cites Citigroup, Chase Manhattan and Bank of Montreal] and what you are seeing instead is the growth of Caribbean pan-regional banks, whereby single country banks have sought to prosecute regional strategies by acquiring local players.”
Republic’s buy up of BNB is an example of that, but there are perhaps signs of a continuing trend: the Jamaican National Commercial Bank (NCB), owned by the mutual fund entrepreneur Michael Lee-Chin, is rumoured to have much broader ambitions, and says Mr Pink, “some of the larger Puerto Rican banks are starting to spread their wings.”
The story of First Caribbean, forged in more than 14 nations, hints at some of the challenges of creating an overnight, pan-jurisdictional retail banking operation.
Mr Pink concedes that integration was tough. “Almost everything changed – including the brand, which is not to be underestimated. We rationalised [closed] 20% of the branches we jointly held, which meant we needed buy in from locals, and from unions,” he says.
“We harmonised pay and benefits, introduced new bonus plans, migrated pension schemes; all this had to be negotiated with 16 different trade unions.”
The total cost of the merger was more than $180m, $50m of which was spent putting the merged entity onto one IT platform. Three years on, Mr Pink says First Caribbean can press ahead with its five-year strategy to become market leader.
It won’t be an easy fight. “Is this a competitive market? Yes, it’s very competitive!” says Mariano Browne, managing director of Butterfields in Barbados.
Butterfield Bank is one of the oldest financial institutions in the Caribbean, with its Bermuda origins stretching back to 1758 and a focus on private wealth management in Bermuda, Cayman, Guernsey and London. It’s a recent arrival in Barbados, having only bought Mutual Bank in December 2003. And it’s also the smallest. But, says Mr Browne, Barbados made perfect sense. “We came here because we saw growth possibilities. The country is on the cusp of a new development cycle; the sugar sector is fading in importance, and tourism and financial services are on the increase.”
The bank’s game-plan appears to lie in its confident prediction that Barbados’ new industries will generate the kind of private wealth that the group as a whole likes to manage.
Mr Browne says: “It has been said that a significant proportion of the world’s wealth passes through the Caribbean at some point. Our strategy is based on creating the value added services necessary to maintain a share of [managing] that. We won’t always be just in the retail market in Barbados.”
By dint of size alone, a bank like Butterfields will always confront different business challenges to those met by larger rivals – such as the Canadian-owned Scotiabank, which Barbados managing director Stephen Cozier told The Banker, “has the widest footprint in the English-speaking Caribbean and is working hard to acquire in the Spanish speaking region”.
Mr Cozier has worked throughout the Caribbean and beyond, and, like his counterparts at rival banks, sees Barbados as a small, albeit important part of a larger picture. But he says, the challenge posed by the Trinidadian banks – such as Republic – is considerable.
Combat zones
Indicating a strategic divergence with the smaller Butterfields, Mr Crozier sees the domestic market as all important across the region – if an increasingly hard fought game. Two big battlegrounds are going to be technology – although now that all the high street banks offer internet and telephone banking, the playing field might be level on that score – and mortgage lending, where rates are, in some cases a notch below the base rate.
For the meantime, the arguably more glamourous side of the industry, “offshore financial services”, is still not a major earner for any of the banks. And, as there is only a minimal volume of serious corporate activity on the island, related corporate financing does not contribute meaningfully to the coffers either. But as an indicator of the direction in which the Caribbean banking wind is blowing, Barbados will remain one to watch.
