Even as the Bank of Guyana awaits another round of discussions with Scotiabank on a potential buyer of its operations here, sources say that government will not be forced to accept a proposal on only the merits of financial profitability of the deal for Scotia.
“No one is telling Scotiabank who to sell to but they must understand that they cannot force that buyer on us. We have to do our due diligence and see what is best for Guyana,” a government source told the Stabroek News.
“When they are selling they are looking for [the] highest profits for them. In the same way, we have to look out for the long-term benefits that bank brings,” the source added.
Sources also revealed that government has had discussions with “a few large international banks” but that “none of them have signalled real serious interest in coming as yet”.
“Guyana is a small market that none of the larger United States banks are really interested in because it is not a revenue generator. Also, even with oil and gas, the large companies operating here mostly use local services for payroll and those things. None of them really borrows from here and that is how banks make most of their money. Those companies’ main banks are in the home country where they get financing and other main services done,” one source explained.
And while Scotiabank’s selling to another bank would not be deemed the issuance of a new licence since it is a transfer, government is still cautious.
“We have not licensed so far, since I was at the Ministry of Finance [as then Minister of Finance. We have not issued a new commercial bank licence because if you issue a commercial bank licence to a company from abroad, they will come here and take Guyanese deposits and [that] could put our deposits at risk,” Vice President Bharrat Jagdeo told a press conference this month.
According to the Vice President, the decision to not issue a new commercial banking licence in over two decades is to prevent the risk of financial instability and collapse of the sector here.
“We have licensed a merchant bank where they can only bring money into the country; they are a non-depository taking institution. So they cannot collect deposits from Guyanese; they can only bring in money to lend to people. That is why we said publicly that we will be a bit more liberal in issuing licences for merchant banks, but for 20 odd years there has not been a commercial licence issued for a new bank because of the very same reason. We saw that happened in Jamaica in the late 80s and 90s. They issued so much licences, they balkanized the sector,” he added.
In what Kirkpatrick and Tennant (2002) refers to as “an unduly-hasty liberalization of the financial sector, without prior improvement to the regulatory and supervisory framework”, Jamaica went through a financial crisis that took years to stabilize and large sums of state funds plugged into the sector to aid that process.
Jagdeo said that the Government of Guyana does not want the same fate and will work cautiously to ensure that never happens here.
“The government of Jamaica ended up paying over J$3 Billion. We have been very cautious on these commercial bank licences because of these [issues],” he emphasized.
An economist who held the portfolio of Minister of Finance from 1995 to 1999, Jagdeo said that to prevent the Dutch disease, government continues to pay careful attention to the financial sector and will not allow the Guyana dollar to strengthen too rapidly.
With the exchange rate of between $205 and $210 for US$1 holding firm for more than two decades, the Vice President said that should the value appreciate too rapidly the manufacturing and agricultural sectors could fail.
Shallow and fragmented
“Often, the price of the currency is [driven] by demand and supply, often, in market like ours, where the market is very shallow and fragmented…to avoid the Dutch disease, we have to pay careful attention and not allow the currency to strengthen – the Guyana dollar – too rapidly. It would kill the manufacturing and agricultural sector. There has been a greater supply, to the market, of foreign currency. There is a lot of demand too because there has been construction demand. We are trying to watch the demand and supply carefully,” he said.
And as government keeps keen watch over the local banking sector, the Bank of Guyana awaits word from Scotiabank on its plans for the future here. “We await word from Scotiabank…” Governor of the Bank of Guyana Gobind Ganga told the Stabroek News when contacted for an update on plans for the future.
Asked the reason why First Citizens Bank of Trinidad was not given the green light for the Scotiabank deal, the Central Bank governor said that it is confidential information.
Five years after it announced that Guyana was one of the countries it was pulling out from in the Caribbean, Scotiabank bank earlier this month announced that the agreement for the sale of its banking operations here to First Citizens Bank Limited of Trinidad and Tobago had expired and would be terminated, in accordance with its terms.
On March 3rd, 2021, Scotiabank had announced that it had reached an agreement for the sale of its banking operations in Guyana to First Citizens. The agreement it noted was subject to regulatory approval and customary closing conditions, a release from the bank had said.
The process of how the sale was announced was frowned upon by Central Bank and government as the financial entity was supposed to formally notify it of its intentions.
More than one year after that announcement and the expiration of the agreement of sale, it is still unclear why First Citizens was not granted approval from Central Bank here.
Before the First Citizens deal fell through, another Trinidad and Tobago bank – Republic Bank Limited (RBL) – suffered the same fate under another government .
Then, the APNU+AFC government had expressed fear of a monopoly by RBL as it already had a third of all deposits in the country.
Among the issues it raised was that Republic Bank (Guyana) Limited held 35.4 per cent of the banking systems assets and 36.8 per cent of deposits, and the acquisition of Scotiabank’s operations here would increase this to 51 per cent of both assets and deposits. The Ministry of Finance had said that this raised concerns about an over-concentration of banking services, market domination and ‘too big to fail’ risks.
In announcement of the denial to RBL, government had stated, “This was discussed at Cabinet this morning and Cabinet concurred with the Governor’s pronouncement and they agreed that the reasons given were important reasons and the critical one being concentration, the risks involved and so on, AML/CFT [Anti-Money Laundering and Combatting the Financing of Terrorism] considerations, the lack of supervisory capacity by the bank itself; they are now building that capacity and so on. So when you take all of that into consideration, we did not feel that this application would be in Guyana’s best interest,” then Minister of Finance Winston Jordan had said.
Of note is that given that Scotiabank is a publicly traded company in Canada, any agreement it reaches for its sale has to also meet that country’s rigid regulatory requirements and the buyer would have to be approved there.
It is unclear what happens going forward and if Scotiabank would again engage another bidder and come back to the Central Bank with that proposal or if it would call it quits and spilt its services here and pull out.
