Former Senior Advisor to the International Monetary Fund (IMF) Asgar Ally says that Guyana needs smaller banks but should also court a large western bank to start operating here if it wants to attract large foreign investments.
In the interim, Ally, who served as Finance Minister under a previous PPP/C administration, says that well-known regional banks, such as the National Commercial Bank of Jamaica (NCB), could also bring big players, while creating competition and more local access to financing.
He believes that Guyana’s projected growth in addition to investment potential from the petroleum sector will attract large investments and will create an environment for positive competition in the banking sector.
“What Guyana needs is smaller …banks. Also, there are a lot of investors, particularly from the US [United States] and a big American Bank, say Citi, Bank of America, [JPMorgan] Chase …would be ideal, where the Americans will be comfortable,” Ally, a former Deputy Governor of the Bank of Jamaica, said.
“We have one from the region, a Trinidad Bank, and the view by most is that our foreign exchange is going to Trinidad and Tobago. From my experience and what I know of the balance sheet of National Commercial Bank of Jamaica, I think they would do the country’s financial sector well,” he noted.
Currently First Citizens Bank (FCB) of Trinidad and Tobago is seeking regulatory approval to operate here as part of a proposed purchase of Canada’s Bank of Nova Scotia and financial analysts are closely watching the process given the implications for the banking sector.
Ally said that he could not give a view on that issue until he personally analyses the balance sheets of FCB for the past few years but added that he knows from his work in Jamaica along with keeping abreast of the sector there, that FCB has not only the international correspondent banking relationships but a “solid balance sheet”.
Positing that the establishment of a bank from the ground up here would not be ideal, Ally explained that the “easiest thing” is to buy a bank.
He also observed that Guyana’s expected economic growth has the potential to attract investment from large bankers and those avenues should be pursed aggressively.
According to Ally, Jamaican investors of stellar repute have expressed interest here and it might be wise to forge relationships with those persons.
In 2013, NCB’s 75% shareholder and Jamaican-born Canadian investor and billionaire Michael Lee-Chin was invited here by former president Bharrat Jagdeo to seek possible investment opportunities.
“We are looking at Guyana to see how we can invest, bring capital, bring expertise, create employment, create wealth and eventually… possibly invest in a Guyanese pension fund or a stock market that hopefully one day will be existent in Guyana,” Lee-Chin had said then.
When he left Guyana two days later, he left with optimism about future investment here, especially in the areas of agriculture, telecommunications and financial services. But nothing else was said of his interests until sources pointed out that a Jamaican bank had expressed interest in purchasing Scotiabank.
Ally is adamant that Jamaican investors still want to invest here and when there is an opening of economies post-pandemic, it would be seen. “This country has tremendous potential and I know the Jamaicans know this and would invest,” Ally said.
Greater competition
But for prominent businessman Terrence Campbell, the reality is that foreign banks do not want to do business in Guyana and plans should be made with this in mind, such as inviting more regional participation and giving additional local banking licences. “I believe there should be greater competition in banking so the government should court additional players for the banking sector. The big banks are all withdrawing from the region. So the government is unlikely to attract a …Citi or JPMorgan Chase. The risks to their businesses of operating [retail banking] in this region are simply too great,” he said.
“De-risking is a reality and we need to stop the growing arrogance that our oil economy will make a huge difference to the big international banks. If that were the case, Scotia would not be departing. Practically that leaves two options to the government—regional banks and the issuance of new banking licences to locals. I support both of these options,” he added.
He noted that when Scotia had previously indicated that it wished to exit Guyana, the then APNU+AFC government rebuffed Republic Bank Limited’s attempt to buy, on the very solid ground that such a sale would be anticompetitive but he stressed that this is not a case for FCB.
Said Campbell, “Anti-competitive concerns do not apply to the proposed sale of Scotia to FCB. Some have an issue with the shareholding of the government of TT in FCB. Well, to the best of my knowledge, the GoTT is also a major shareholder in RBL. I know of no law that prohibits the proposed sale on the basis that a foreign government owns significant shares in the buyer. So that will not be a valid ground for objection. I am completely opposed to any attempt by the GoG to arrange a marriage for Scotia. That is likely to fuel the growth of crony capitalism in Guyana.
Suitor
Scotia has chosen a suitor and the regulators should approve unless there are legal or objective reasons not doing so. It would be a bad signal to foreign investors if the GoG blocks the exit of Scotia and/or insists on being a matchmaker.”
Senior Associate at the Americas Program of the Center for Strategic and International Studies in Washington, D.C. and the chief economist at Smith’s Research & Gradings, Scott B. MacDonald, had in 2019 written a report on de-risking of large banks in the region.
“From the perspective of international banks, mainly from Canada, the United States, and Europe, as well as their governmental regulatory agencies, the Caribbean is high risk due to weaker compliance and AML [Anti-Money Laundering] regimes—or at least it has been treated this way. To avoid the pain of being stung by financial fraud, paying large fines, and suffering from reputational risk, many banks opted to radically reduce their exposure to the region. Since 2008, global banks have been under ongoing pressure to cut costs, while a number of institutions have been tagged by large fines. There is also the issue of higher compliance costs,” the report stated.
He had pointed to a 2018 World Bank report which pointed out the de-risking causes. “While more robust vigilance of correspondent banking channels is encouraged, maintaining CBRs comes at a cost to both correspondent and respondent banks. Rising compliance costs associated with more stringent Anti-Money Laundering and Combat-ing the Financing of Terrorism (AML/CFT) regulations and international sanction regimes make the provision of correspondent banking services a less financially attractive business proposition. All bankers interviewed for this study acknowledged that correspondent accounts, including the new ones, cost much more to maintain, thus requiring larger transaction volumes and fees to remain a viable activity,” that report said.
Guyana’s Minister with responsibility for Finance, Dr Ashni Singh has said that both government and the Central Bank remain firmly committed to ensuring the maintenance of a stable, strong, vibrant, dynamic and growing financial sector, especially during the current period as “it is important that the financial sector is adequately equipped to meet the needs of our evolving economy, which as viewers would know is currently going through dramatic changes.”
Dr. Singh has said that government’s primary objective remains the preservation of a strong and stable financial sector and one that is dynamic and competitive.
