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Economic troubles weigh on Caribbean banks

Bank earnings across the Caribbean are down, as the region's lenders continue to struggle against a difficult economic backdrop. But there are still some bright spots, with a handful of banks managing to boost their asset base and retain impressive profitability.
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Economic troubles weigh on Caribbean banks

Trinidad and Tobago’s RBC Financial Caribbean maintains the leading position in The Banker’s Caribbean community (Caricom) ranking by Tier 1 capital, with a total of $2.73bn. It is one of four Trinidadian banks in the top 10, with Republic Bank, First Citizens and Scotiabank in third, fifth and seventh place, respectively.

The country's strong presence in the ranking is unsurprising as it remains the largest financial centre in the Caricom region in terms of its banking sector. Trinidad and Tobago’s lenders account for nearly 50% of the region’s total Tier 1 capital, 43% of total assets and about 40% of total pre-tax profits.

Pre-tax profits by country

Profitability spread

Size is not everything, however, and analysing different parameters shows how Trinidadian banks underperformed compared to lenders from other Caricom countries. The cost-to-income table is led by Cayman Islands’ Atlantic Security Bank, with an impressive 15.35% cost-to-income ratio, followed by the Bahamas’ Inteligo Bank with 29.74% and St Kitts-Nevis-Anguilla National Bank with 34%. The best ranking Trinidadian bank by this measure is Scotiabank Trinidad and Tobago, which recorded 41.84% efficiency.

In terms of return on capital (ROC), Scotiabank Jamaica is the highest ranking bank in Caricom by a significant margin, having recorded an ROC ratio of 76.42%. It is followed by National Commercial Bank Jamaica with an ROC ratio of 52.52%, Inteligo Bank with 40.89% and Cayman’s Atlantic Security Bank with 33.56%.

The smallest of the top 20 Caricom banks, the Bahamas's Inteligo Bank, also performed well in terms of profitability. It recorded the best return-on-assets ratio in the region – 4.39% – and one of the largest increases in pre-tax profits, with a 55.49% hike.

Difficult times

With the exception of some outliers, banks’ earnings across the Caricom region continued to decline in 2012, as the region remained stuck in what may be its toughest economic cycle in decades, with falling gross domestic products, weak fiscal positions, mounting public debt and growing unemployment. The region’s small economies are dependent on international trade and highly exposed to economic shocks and natural disasters – both of which have hit hard over the past few years. Banks have been suffering, as businesses and households, struggle under continued pressure.

On an aggregate level, the pre-tax profits of the region’s largest 20 lenders decreased by a massive 145% compared with the previous financial year. The worst performers were Belize’s BCB Holdings, which closed the financial year in the red with losses totalling $15.1m, and the region’s largest lender, RBC Financial Caribbean, which just about remained in the black with pre-tax profits of $5.19m, representing a 90.72% decline on the previous year. Profits also took a sharp downturn at St Kitts-Nevis-Anguilla National Bank, decreasing by two-thirds.

The bleak macroeconomic picture and poor fiscal positions have forced a number of Caricom countries to restructure their public debt in the past couple of years. Jamaica had to undergo two such restructurings in the space of just three years, while Belize and Grenada were unable to meet their sovereign debt repayments in 2012. Credit rating agency Moody’s expects more Caribbean sovereigns to follow the same fate.

Holding on

On a microeconomic level, banks’ capital adequacy indicators offer a more reassuring picture. All of the top 10 banks by capital to assets provide ratios in excess of 10%. Scotiabank’s operations in Saint Lucia, the Bahamas and Barbados occupy the top three spots in the capital-to-assets ranking, with ratios of 32.85%, 26.3% and 23.82%, respectively.

In the face of the ongoing challenges, some banks also managed to expand their assets by a significant margin. Inteligo Bank, one of the most improved Caricom lenders overall, grew its assets by 22.87% to $850m. It is followed by Atlantic Security Bank and Scotiabank Barbados, which grew their assets by 16.08% and 11.33%, respectively.

The largest capital increases table also offers some promising results. Haiti may still be struggling in the aftermath of the devastating 2010 earthquake, but the country's Unibank managed to expand its Tier 1 capital by 29.98% to $108m. As a result, the bank climbed the Caricom ranking by one place and now sits in 17th position. It also expanded its assets by 10.98% to $1.3bn, and maintained a similar level of pre-tax profits, recording $26.98m.

Top 20 Caricom banks
Top 10 lowest cost-to-income ratio
Top 10 Tier 1 capital increase

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Silvia Pavoni is editor in chief of The Banker. Silvia also serves as an advisory board member for the Women of the Future Programme and for the European Risk Management Council, and is part of the London council of non-profit WILL, Women in Leadership in Latin America. In 2019, she was awarded an honorary fellowship by City University of London.
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