Canadian Banks performance in the Caribbean

Canadian Banks Definition of Confidence in the Caribbean

rikparkhill_garybrown

Royal Bank of Canada, Bank of Nova Scotia and Canadian Imperial Bank of Commerce are by far the Caribbean’s three largest lenders, dominating both personal and commercial banking. Combined, they’ve written off more than $1 billion […] in the region since the Great Recession – The Globe and Mail

The government through its agent the Central Bank of Barbados removed in April 2015,  the regulation for commercial banks to maintain a minimum savings rate. The immediate response by at least one bank was to lower the rate to .5%, the others were not far behind. The Central Bank to coincide with the announcement engaged in an aggressive advertising blitz to promote the benefits of holding government bonds. From all reports there was a good response by the public to the bond offer and government was quick to conclude it was a demonstration of confidence in government’s policies. BU is of the view the response by Barbadians was to the orchestrated strategy of dangling a higher interest rate bond offer a gullible public found too good to refuse.

From all reports the banking system in Barbados remains clogged with cash. In their defence the the banks will probably suggest good deals are hard to find; the state of the economy makes lending to the tourism and property unattractive, and lending to government given its protracted financial woes is not an option. The decision by the government to hoodwink Barbadians by borrowing  from individuals [savings bonds] transfers the risk from commercial banks to the government. Former Prime Minister Owen Arthur asked the government at the time to make the public aware of what is at stake and described the bond offer as not a ‘worthwhile investment’. Time will tell if the idea of widening the banks margin by jettisoning the minimum savings rate  will encourage a reduction in lending rates. Time will tell!

To better determine the level of confidence in the market, a better indicator to keep an eye on is the decisions being made by the Canadian banks in the Caribbean. In February 2015 an interesting article titled Trouble in Paradise: Inside Canadian banks’ billion-dollar Caribbean struggle was inserted into the public space. The message of the article was loud and clear, the Caribbean has become a bad place for Canadian banks to do business and shareholders are worried. Consequently, Canadians banks across the Caribbean have been ‘slimming’ operations which has seen branches being closed and long serving employees shown the door.

The Canadian banks have had a long association with the Caribbean dating back to the nineteenth century and have extracted enormous profits from the region – in the same way the former telecommunications behemoth Cable & Wireless found out, all good things eventually come to an end.

It is interesting to note one of the big three Canadians banks replaced its CEO Rik Parkhill. It is not unusual for the Canadian Banks to rotate green behind the ears Executives in the region. What is more interesting about Parkhill’s replacement this time around is his background in risk management. With an impaired loan portfolio approaching 50% it is obvious what Gary W. Brown’s mandate from senior executive is:  clean up the balance sheet and make ready for sale.

Not a vote of confidence in doing business in Barbados AND the rest of the Caribbean eh?

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15 Comments on “Canadian Banks Definition of Confidence in the Caribbean”

  1. Due Diligence July 28, 2015 at 12:21 PM #

    David

    Minor clarification – you said “With an impaired loan portfolio approaching 50%……”

    From the Trouble in Paradise article:

    “Today, more than half of CIBC’s total gross impaired loans—or loans that show any signs of trouble—originate in the Caribbean. At Scotiabank, the equivalent share is 35%. In other words, this tiny cluster of islands has the potential to generate bigger writeoffs than both banks’ monstrous Canadian lending portfolios. As for RBC, 11% of its Caribbean lending portfolio is impaired, versus just 0.33% of its equivalent Canadian business. Now we know why Caribbean loan margins were so fat: The outsized returns reflected higher risk. In finance, after all, there is no free lunch.”

    So, while FirstCaribbean’s total loans represent only about 10% of CIBC’s total loans, more than half of CIBC’s impaired loan were originated it the Caribbean,

    The level of impaired loans of all three banks originated in the Caribbean are several times greater than the impaired loans in Canada as a percent of of total loans.

    Also from the article.

    “Scotiabank was the first financial institution to acknowledge the pain. As the lead lender to a developer that bought resorts on Cable Beach in the Bahamas, the bank suffered a $75-million hit on its $200-million loan in 2010. Through a complex restructuring, a Chinese bank stepped in to bail out the developer, ultimately financing a project comprising six hotels, a 100,000-square-foot casino, 200,000 square feet of convention facilities and an 18-hole golf course. A year later, CIBC wrote down its investment in FirstCaribbean by $203 million.”

    I believe the Bahamas resort is the Baha Mar, which is now in Chapter 11 protection.

    Also

    “It was then largely quiet until January, 2014, when RBC shocked its peers with plans to sell its Jamaican operations to Sagicor, incurring a $100-million loss. The year since has been chock full of charges and pullbacks, including another $420-million writedown of FirstCaribbean’s goodwill; the closing of RBC’s Caribbean wealth management business; and scores of loan-loss provisions from all three lenders.”

    Let us hope that Sagicor does a better job of managing the Jamaica business than RBC.

    If GOB is hoping that the Canadian banks will be extending the financing to fund the 1% GDP growth it is projecting, it may be disappointed.

    Like

  2. Simple Simon July 28, 2015 at 1:10 PM #

    @David?”the Baha Mar, which is now in Chapter 11 protection.”

    Who owns Baha Mar? Who has not paid their debt?

    Which bank used poor judgement and made the bad loan?

    And why is it that these bad decision makers stick the rest of us with interest rates of up to 24% on consumer loans. Even when we have been the banks customers for decades and have always honoured our debts?

    Mek it simple so that even a Simple Simon can understand.

    Like

  3. Simple Simon July 28, 2015 at 1:11 PM #

    I think that the big boys are nowhere as bright as they would like us to believe.

    Like

  4. Due Diligence July 28, 2015 at 3:51 PM #

    SS

    Baha Mar Resorts To Chapter 11 Bankruptcy, Blames China Construction For Delays

    http://www.forbes.com/sites/erincarlyle/2015/06/29/baha-mar-resorts-to-chapter-11-bankruptcy-blames-china-construction-for-delays/

    If the big boys were “as bright as they would like us to believe” they would not be writing off hundreds of millions of bad loans they made in the Caribbean

    Like

  5. David July 28, 2015 at 4:31 PM #

    @Simple Simon

    A big part of our problems in the Caribbean is located on the. Spectrum of greed. Unbridled conspicuous consumption defines us.

    Like

  6. Lawson July 28, 2015 at 9:22 PM #

    It is quite simple once you had something someone wanted now you do not , you have less than 300000 people , you know the money is moving to better opportunities why is anyone surprised, I walk the roads everyday maybe one good idea would be to take the completion date 2013 off the unfinished buildings all around that hardly inspires confidence

    Like

  7. William Skinner July 28, 2015 at 11:15 PM #

    @ David,
    Every time some multi-national business decides to leave or downgrades its presence we act as though the heavens will fall. We should be noting the tremendous growth of our credit unions and the positive impact they have been having on our economy for the last thirty or so years.
    Banks are no more sophisticated than the factories that enjoyed tax holidays and then disappeared after they exploited the workers. It may shock some to know that banks are mere retailers , that go broke and make bad investments. Quite frankly they are really no different from car dealerships and supermarket chains. Stop glorifying them .

    Like

  8. William Skinner July 28, 2015 at 11:37 PM #

    Some not “aome” apologies

    Like

  9. David July 29, 2015 at 5:30 AM #

    @William

    You obviously missed the point of the blog.

    The performance of the Canadian Banks in recent years is indicative of a problem we need to solve. What our governments have been telling us is flawed.

    Like

  10. Bush Tea July 29, 2015 at 7:43 AM #

    @ Lawson
    Look carefully and you will discover that to a VERY large extent, it is people that you know well, who are behind these ‘unfinished building slated for 2013 completion’.
    People in deep love with money, looking for a quick buck …and who manage to ‘discover’ that our politicians are crooked, ..and that local banks lend to the ‘right’ people on a whim.

    @ David, DD etc
    Why not give us an honest GUT feeling of how those bad loans are distributed based on ‘rightness’. Any bets that the issue raised by Lawson is indicative of the problem these banks face with disproportionate bad debts?

    ‘Right’ people who could NOT raise a single cent in loans in Canada come down here (or are sent by bank insiders) are receive MILLIONS in loans to invest in shiite. They give a few free trips and hundred dollar bills to our brass bowl politicians, pretend to ‘buy a property’ for the record …and then disappear with the funds….probably shared with their insider bank friends…

    Why the hell wunna think there is hardly EVER and prosecutions?….just write offs…?

    Lotta shiite…
    It is SOOOOO easy to piss on a brass bowl….

    @ Simple Simon
    Don’t be simple.
    Those bad debts CANNOT be caused by local blacks.
    To borrow 10 cents, we need 100 dollars in collateral PLUS all your land AND your mother’s name and address and photos of her panties.

    ANY SET OF PEOPLE WHO CANNOT EVEN KEEP THEIR OWN MONEY (OWN A BANK), DESERVE TO HAVE THEIR ASSES EXPLOITED.

    Brass bowls….

    Liked by 1 person

  11. lawson July 29, 2015 at 9:34 AM #

    Bt what was that cahill woman doing before she wanted your money

    Like

  12. Due Diligence July 29, 2015 at 10:16 AM #

    lawson July 29, 2015 at 9:34 AM #

    “Bt what was that cahill woman doing before she wanted your money”

    That is what we are trying to find our.

    She has done a good job of covering her tracks since Venture Exchange Network in 2004

    Like

  13. Simple Simon July 30, 2015 at 2:14 AM #

    @Bush Tea July 29, 2015 at 7:43 AM “@ Simple Simon Don’t be simple. Those bad debts CANNOT be caused by local blacks. To borrow 10 cents, we need 100 dollars in collateral PLUS all your land AND your mother’s name and address and photos of her panties.
    ANY SET OF PEOPLE WHO CANNOT EVEN KEEP THEIR OWN MONEY (OWN A BANK), DESERVE TO HAVE THEIR ASSES EXPLOITED. Brass bowls”

    Please not that no where did I write or even suggest that “local blacks” caused the bad debts of the Canadian banks operating in the Caribbean. I’ve banked with Canadian banks in the Caribbean for almost 50 years and I’ve never caused them even a single cent in bad debt…yet for every new loan they treat me as though I was a stranger who has now come and ask all over again the same set of foolish questions over and over again…like my address even though they routinely send statements to me…and I even so I am not hard to find since I’ve only lived at 2 addresses in Barbados in my entire life, and I will have only one more address St. X cemetery when I die so the bank will still be able to find me…but still the banks treat me and people who look like me as potential criminals.

    Like we know that you have done anything yet, but we suspect that you will do something criminal anytime now.

    Like

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