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AmericasAugust 3 2009

New challenges for sober times

On top of the economic slowdown, Trinidad has other matters to contend with, including the government bail-out of its largest insurance company, Clico, and the acquisition of its second largest bank, RBTT, by Royal Bank of Canada. Writer Brian Caplen
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New challenges for sober times

Trinidad and Tobago's banks are in the midst of a huge upheaval - some of it crisis related and, following the collapse of Clico, the insurance arm of CL Financial Group, in January, the rest due to longer-term structural changes in Caribbean banking.

The country's second largest bank, RBTT, is busy integrating with its new owners, Royal Bank of Canada (RBC); state-owned First Citizens is busy absorbing Caribbean Money Market Brokers (CMMB), the brokerage arm of the failed CL Financial Group; Republic Bank faces an uncertain future with 55% of its shares now held in trust by the central bank, also a result of the CL collapse; and Scotiabank is centralising parts of its Caribbean back office, with many processing operations now carried out in Trinidad. As all of this is happening, banks must also pay attention to the more mundane aspects of the economic slowdown such as reduced business opportunities and rising delinquencies.

"What we have seen in Trinidad is a substantial slowdown. The level of credit in the system has dropped from 19% growth last year to 2% this year," says Sharon Christopher, deputy-CEO of First Citizens. "Our emphasis before was just on getting the business [in a highly competitive market]. Now we have shifted our focus to make sure we don't get delinquencies on the books. Staff need to pay very close attention when making new loans."

In its last financial year, ending September 2008, First Citizens recorded only 0.67% in non-performing loans; now that figure has moved up to 2% - still low but a sign of the economic deterioration. Even so, the bank is on course, says Ms Christopher, to deliver the double-digit profit growth it has achieved every year since its foundation in 1993.

Integration process

At RBTT, the challenge has been to carry on business as normal at the same time as integrating with RBC and introducing a new core banking system. "The RBTT model was legal-entity driven, with each country [the group included 10 commercial banks with branches located throughout the English-speaking Caribbean, Suriname, the Netherlands Antilles and Aruba] running its own business," says Suresh Sookoo, RBTT's CEO.

"The RBC model is radically different and separates functions from the country heads so that, for example, the heads of finance, IT and operations, etc, report into Trinidad. What we are saying to the country heads is: 'your job is now to spend more time with the customer'. It has been a long journey because key staff now have two reports - the functional head in Trinidad and their country head - and that takes time to get used to," he says.

Even though the merger took place a year ago, much of the restructuring has taken place only at macro level, with many customers and ordinary staff yet to feel its impact. "They have been waiting to exhale," says Mr Sookoo. But all of this is about to change, he says, with the unrolling of new personal and business banking models. Capital markets will be run regionally, with a focus on the top 50 credits, including the sovereigns.

"We used to have a British-style hierarchy, now we will have a much flatter model. Now the branch manager will personally open the door in the morning and greet the first 10 customers. Things will feel different. It is not just a question of flipping a switch. The culture will change from a transactional model to a sales model," says Mr Sookoo.

An oft-heard critique of foreign-owned banks in Trinidad and Tobago is that decision making is carried out at a bank's headquarters, in RBC's case Toronto, and takes longer. However, Mr Sookoo says that he now has more autonomy than he did under the old RBTT board. A decision on the name for the bank has yet to be taken, but the branding is sure to contain the RBC shield.

"The goal is to be the number one bank in the Caribbean and make Trinidad the launch pad for the bank to move into the Spanish-speaking Caribbean, central and South America, " says Mr Sookoo.

Dramatic bail-out

While Trinidad's banks did not have any exposure to the US subprime crisis, the financial sector had its own mini shock early this year when Clico, the country's largest insurance company, had to be bailed out. The government injected TT$1.2bn ($200m) but analysts believe the final cost will be much higher due to the company's high gearing.

Richard Young, managing director of Scotiabank, says: "CL is a big worry. It is not transparent and we hear the government is funding it with a loan that will be repaid when the assets are sold. Estimates of the losses started at TT$8bn and now we have heard estimates as high as TT$25bn, which starts to get frightening."

But the demise of CL, which had three parts - insurance, an investment bank and a brokerage operation - also presents opportunities. First Citizens had expressed interest in acquiring the brokerage operation, CMMB, two years ago, long before the group's troubles appeared, but this came to nothing. Due to the crisis, the government needed banks to take over CL assets, and First Citizens was a natural home for CMMB.

"We have taken it over at no cost to First Citizens and with the ability to put unforeseen exposures back to the government," says Ms Christopher. "We want to diversify, so it is a good fit for us. We have a securities company that only does repo business. CMMB has a very strong regional presence and has helped many of the smaller islands to raise capital. CMMB did work for corporate in Trinidad but had no retail presence."

First Citizens is another bank following the trend to look at the wider region, with moves planned into Cuba, Costa Rica and Panama, as well as the eastern Caribbean presence that comes with CMMB.

However, as is the case with RBTT and RBC, the branding of CMMB within First Citizens is a work in progress. "There is a lot of anger in the region against CL as people lost money. We have to see how badly the brand has been damaged," says Ms Christopher.

Apart from absorbing CMMB, Citizens is going to establish an Islamic bank which will be set up before the end of this year and there are plans for a bank dedicated to small and medium-sized enterprises.

Meanwhile, Republic faces uncertainty as it was owned 55% by Clico Investment Bank and Clico. A statement from the Trinidad ministry of finance and Republic said: "The minister [Karen Nunez-Tesheira] emphasised the government's commitment to resolving the issue of the sales of the Republic Bank shares in a manner that contributes to reinforcing the stability of the financial system. All available options for the ownership of the shares are being examined and a solution that is in the best interests of all stakeholders and the country as a whole will be arrived at. In the interim, the shares will remain the property of the CL Financial Group, held in trust by the central bank of Trinidad and Tobago."

RBTT's Mr Sookoo says: "Republic is really caught up in the CL thing. Will it be sold or nationalised? Certainly it will be distracted for some time."

Unfazed by crisis

The other major player in the Trinidad and Tobago banking market is Scotiabank which, despite the crisis, is still opening new branches. In order to do this at low cost, the bank has set up three sales centres where customers can buy products from representatives, but there are no cash operations apart from ATMs. This saves the not-inconsiderable cost of installing a vault.

For some time, internationally the bank has been moving towards the concept of shared services between locations. Scotiabank's Mr Young, says the country fares well in an analysis of skill levels and costs.

There is already a regional call centre that shares the work with Jamaica. This year the decision was taken to make Trinidad and Tobago the regional hub in such areas as collections, processing of loan documents, operational support and human resources. "It is going as deep as we can," says Mr Young, adding that this task needs to be done sensitively if there are job losses overseas.

Mr Young is philosophical about the recession, saying that things were booming so much previously that some kind of slowdown was overdue. "It is not all gloom and doom," he says, "but the country needs tight management of its businesses, which was not the case before. We needed some sobering."

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