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WorldJuly 1 2014

Opportunities abound for Trinidad and Tobago's banks

Awash with liquidity and riding on the back of the country's impressive economic growth, the picture looks healthy for Trinidad and Tobago's banks, with opportunities in SME financing and online banking set to maintain this momentum.
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Opportunities abound for Trinidad and Tobago's banks

Trinidad and Tobago’s banking sector is by far the largest in the Caribbean, with about half of regional assets and Tier 1 capital being held locally, and lenders based in the country are proud to highlight its strength and stability.

“Total assets are in excess of $25bn, the capitalisation ratio for most banks exceeds minimum 8% by [some distance], many banks are rated by Standard & Poor's and Moody’s, and some of the banks have been in operation for more than 175 years,” says Larry Nath, president of the Bankers Association of Trinidad and Tobago and chief executive of First Citizens Bank. While formerly state-owned First Citizens was created only in 1993 to gradually bring together the assets of other banks, and listed on the local stock exchange last year, the other large locally owned lender, Republic Bank, was founded in 1837, under the name of Colonial Bank.

After the ups and downs the banking sector experienced since Trinidad and Tobago gained independence from the UK in 1962 – which included early anti-foreign investment sentiment and the dire economic downturn of the recent years – Trinidadian banks have shown resilience and are now awash with liquidity.

Where to go?

As the global economy picks up and businesses are likely to increase their financing requirements, Trinidad and Tobago's banks’ main goal will be to deploy this liquidity effectively without taking on unwanted risk. The central bank expects a 2.5% gross domestic product (GDP) growth this year, up from 1.5% for 2013.

Among the areas of potential growth, better penetration in the small and medium-sized enterprises (SMEs) sector is the more obvious as this segment tends to rely on its own reserves to finance growth and would benefit the most from better financial markets knowledge – which in turn would reduce loan risk.

“The SME segment provides [between 25% and 30%] of GDP, it employs almost 200,000 people, it includes restaurants and even the guys selling ‘doubles’ [a typical Trinidadian dish] on the side of the road,” says Anya Schnoor, chief executive of Scotiabank in Trinidad and Tobago, where the Canadian lender has been operating for the past 60 years. “A lot of companies want to grow but don’t have funds to put in a new fridge [for their restaurant business] or other equipment they need, so we’ve created a special fund, [which lends at] more favourable and flexible conditions.”

There was so much interest in Scotiabank’s SME fund when launched last year that the bank increased its capital for its second such initiative – to TT$150m ($23.32m) this year, from TT$100m. The SME programme also includes seminars to improve entrepreneurs’ financial literacy. Indeed, Scotiabank sees so much potential in the initiative that Ms Schnoor joined the roadshow, taking it across the country.

Export opportunities

As economic conditions are expected to improve thoughout much of the Caribbean, Trinidadian manufacturers that export their goods are expected to become more active and provide additional growth opportunities to lenders.

Mr Nath says: “We’re seeing a sense of growing optimism; the central bank’s confidence index shows that manufacturers believe they will hire more people over the next 12 months. There are opportunities in factoring, invoice discounting, remittances and payments. We have an office in Costa Rica and we regularly provide referrals to Costa Rica and from Costa Rica to Trinidad.”

Higher exports and trade, especially with partners outside of the region, is something that Citi would particularly welcome, says Catalina Herrera, the bank's chief executive for Trinidad and Tobago, who is keen to continue leveraging on the lender's international presence.

Home growth 

Opportunities are also available domestically, particularly in retail. Given the high mobile phone penetration of the country (about 1.4 mobile phones per person, according to data from local banks), reducing the number and size of branches would help keep cost down and provide faster services. Local knowledge and sensitivity, however, are needed here too.

Ms Schnoor emphasises how the push toward mobile and online banking needs to be gradual to avoid alienating customers who still very much prefer talking to staff in person. “Everybody has a mobile phone and they use all sorts of apps, but when you put on a [banking] app, all of a sudden [they don’t trust it]," she says. "There’s a tendency still to go into a bank and have a conversation with somebody, that’s the personal touch that people like. So we try to do some of customers’ transactions online and still offer [branch services].”

Suresh Sookoo, chief executive of Royal Bank of Canada (RBC) in the country, agrees, but has begun to see some encouraging data from his call centres. “Contrary to the culture of Trinidad and Tobago, where customers want to go in the branch and see [someone they know], we have an average of 100,000 calls per month [the country’s total population is about 1.3 million]. So this is working, but if clients resist it, we have to tweak it – if a client calls and asks to speak to a branch manager, we don’t want the attendant trying to help them, [we put the call through to the branch],” he says.

Given RBC’s acquisition of Royal Bank of Trinidad and Tobago in 2007, after an absence in the country of 20 years, Mr Sookoo also sees potential for the two businesses to complement each other. “RBC used to be in Trinidad and Tobago and after a long history left in the 1980s, partially because [the government] tried to reduce foreign [investment in the country],” he says. “We spend lots of time on residential mortgages, personal loans, credit cards and auto-financing... We’re trying to reposition ourselves as a business and corporate bank [too].”

As Trinidad and Tobago continues to be open to foreign investment and trade, and with the economic cycle turning up, the future looks promising for its local banks.

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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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