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Scotiabank obligation for decades of profits

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By Sir Ronald Sanders

(The writer is Antigua and Barbuda’s Ambassador to the United States and the Organisation of American States.  He is also a Senior Fellow at the Institute of Commonwealth Studies at the University of London and at Massey College in the University of Toronto.   The views expressed are his own)

A curious double standard is being applied by the Bank of Nova Scotia (BNS) by its decision to sell its operations in 9 Caribbean countries to Republic Financial Holdings Limited (RFHL) of Trinidad and Tobago.

In Canada, banks cannot be sold to foreigners without the expressed approval of the Government of Canada.  The Canadian banking act is quite specific in two relevant areas.

First, no bank or bank branch can carry on business in Canada without obtaining the approval of the Finance Minister and the Office of the Superintendent of Financial Institutions (OFSI).  This is especially important in the context of the Prime Minister and Minister of Finance of Antigua and Barbuda, Gaston Browne, insisting that his Government’s agreement is required before BNS can sell its Antigua holdings to RFHL or any other potential buyer.

Second, while the Canadian OSFI assesses applications for the incorporation of banks and makes recommendations to the Finance Minister, it is the Minister who has the ultimate responsibility for approving the incorporation of banks and foreign bank branches. Importantly, in discharging responsibility to approve a bank, an important consideration is whether such approval is in the “best interests of the Canadian financial system”.

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Despite these existent circumstances in Canada, BNS is attempting to sell its holdings in 9 Caribbean jurisdictions without consultation with, or approval from, the Governments concerned.

Clearly, while a standard exists, and is operated, in Canada with respect to Government approvals, BNS appears to be expecting the 9 Caribbean countries to accept a lower standard.  Those nine countries are: Anguilla, Antigua and Barbuda, Dominica, Grenada, Guyana, St Kitts-Nevis, St Lucia, St Maarten, and St Vincent and the Grenadines.

In the case of Guyana, both the Governor of the Central Bank, Dr Gobind Ganga, and Minister of State, Joseph Harmon, have stated that should the sale of BNS’ holdings be sold to RFHL, which already has a presence in the country, the latter would own at least 53% of total assets in the banking sector and more than 50% of total deposits.   That situation troubles Opposition Leader and former President, Bharrat Jagdeo, as much as it worries the government since RFHL would be able to exert control over interest rates and lending policies.

The Government of Antigua and Barbuda’s resistance to sale of BNS’ holdings in Antigua to RFHL is different, but equally important.

Like every other Caribbean country, Antigua and Barbuda’s financial services sector has been subject to a process of ‘de-risking’ by which global banks in the United States, the UK and parts of Europe have withdrawn correspondent banking relations (CBRs).   CBRs are vital to bank transactions.  Without them, bills for goods and services incurred overseas cannot be settled, and monies for goods and services, earned from overseas cannot be received.  In other words, CBRs are crucial to the Caribbean’s participation in the global financial and trading system.  Without them, economies would wither, companies would collapse, and unemployment and poverty would rise.

In part, the domestic banking sectors in Antigua and Barbuda, and other Eastern Caribbean countries, have lost CBRs, and could lose more, because they are regarded as too small and not capable of producing enormous profits that would compensate global banks for ‘risking’ continued operations in their countries.

This is one of the reasons given by BNS for disposing of its operations in the nine countries.  BNS said, “these transactions are not material to Scotiabank” which is “trying to shed regulatory burdens”.  These burdens, incidentally, are imposed by the Organisation for Economic Cooperation and Development and the Financial Action Task Force, both external to the Caribbean.

By calling for BNS to sell its Antigua holdings to a consortium, comprising the Government and local banks, the Antigua and Barbuda Government says it is seeking “to strengthen the local banking sector, improve its resilience, and enhance the nation’s utilization of its own wealth, including keeping profits at home for re-investment in economic growth and social development”.

A sale of BNS’ holdings in Antigua to RHFL would not achieve the objective of enlarging the indigenous banks and increasing their capacity, making them more attractive for global banks to continue to provide CBRs.   Indeed, for Antigua and Barbuda and other Eastern Caribbean countries, the situation would worsen since they would lose BNS’ built-in CBRs with its headquarters in Canada; their indigenous banks would not be strengthened; and they would be faced with another bank (RHFL) which requires CBR’s to conduct business.

Therefore, the Antigua and Barbuda concern with enlarging the capacity of its indigenous banks and enhancing their resilience is a legitimate concern in the best interest of its financial system.

There is a further consideration.  In none of the 9 jurisdictions, which BNS calls “non-core markets” for its business, is anything more than branches being sold.   BNS is not selling the Scotia brand or any association with Scotiabank, so ‘goodwill’ is questionable.  It is selling assets and liabilities of a branch.

In this connection, it is important to note that the Antigua branch is not capitalised, and figures available in the auditor’s (KPMG) statement of 8 January 2016, reveal that EC$59.41 M was transferred to head office.  Further, in 2017 the branch declared profits of EC$28.24 M, but listed EC$30.2 M as “due to Head Office”, leaving retained earnings in 2017 of EC$4.785 M, down from EC$6.521 M in 2016.  All of this seems to suggest that the Antigua branch has been transferring the bulk of its retained profits to BNS’ Head Office.

BNS operated in Antigua for over 50 years.  It derived all the money to meet its costs and make yearly profits that it transferred to its headquarters in Canada from clients in Antigua and Barbuda; none of that money, except for the initial small capital expenditure, many decades ago, came from outside.  To the very end, it transferred relatively large profits made in the small Antigua and Barbuda market to its parent company.

Surely, in its desire to leave “to focus the Bank’s efforts on markets with significant scale”, BNS should recognise a moral obligation to sell its Antigua holdings to local entities, giving the country’s financial sector a chance to thrive.

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In Other News

REQUEST FOR EXPRESSIONS OF INTEREST

(CONSULTING SERVICES – INDIVIDUAL SELECTION)

 

OECS MSME Guarantee Facility Project

Loan No.: IDA-62670, IDA-62660, IDA-62640, IBRD-88830, IDA-62650

Assignment Title: Senior Operating Officer (SOO)

Reference No. KN-ECPCGC-207852-CS-INDV

 

The Governments of Antigua and Barbuda, Commonwealth of Dominica, Grenada, St. Lucia and St. Vincent and the Grenadines have received financing in the amount of US$10 million equivalent from the World Bank towards the cost of establishing a partial credit guarantee scheme, and they intend to apply part of the proceeds to payments for goods, and consulting services to be procured under this project. 

The consultant will serve as the “Senior Operating Officer (SOO)” for the ECPCGC and should possess extensive knowledge of MSME lending with some direct experience lending to Micro, small and medium-sized businesses, knowledge of the internal control processes necessary for a lending operation and the ability to design and implement risk mitigation procedures. The ideal candidate should possess an Undergraduate Degree from a reputable college or university, preferably in Business, Accounting, Banking or related field, with a minimum of 5 years’ experience in lending, inclusive of MSME lending. The initial employment period will be for two years on a contractual basis. Renewal of the contract will be subject to a performance evaluation at the end of the contractual period. The assignment is expected to begin on September 30th, 2021.  The consultant will report directly to the Chief Executive Officer of the ECPCGC.

The detailed Terms of Reference (TOR) for the assignment can be viewed by following the attached link below. 

 

https://bit.ly/3iVannm

 

The Eastern Caribbean Partial Credit Guarantee Corporation (ECPCGC) now invites eligible “Consultants” to indicate their interest in providing the Services. Interested Consultants should provide information demonstrating that they have:

  • An Undergraduate Degree from a reputable college or university, preferably in Business, Finance, Banking or related field; and
  • Minimum of 5 years’ experience in MSME lending. Applicants should also have:
  • The ability to design and implement risk management procedures 
  • Extensive knowledge of MSME lending with some direct experience lending to small and medium-sized businesses
  • Extensive knowledge of MSME banking operations
  • Knowledge of the internal controls necessary for a lending operation and the ability to design and implement risk management procedures
  • Experience developing and presenting information in public, including responding to questions in real-time
  • Experience lending to MSMEs located in the ECCU
  • Knowledge of marketing and communicating with the MSME sector
  • Ability to draft procedures to be used in a lending operation
  • Familiarity with the mechanics of a loan guarantee program
  • Exceptional written, oral, interpersonal, and presentation skills, and
  • Proficiency in the use of Microsoft Office suite.

The attention of interested Individual Consultants is drawn to Section III, Paragraphs 3.14, 3.16, and 3.17 of the World Bank’s Procurement Regulations for IPF Borrowers July 2016, [revised November 2017] (“Procurement Regulations”), setting forth the World Bank’s policy on conflict of interest. A Consultant will be selected in accordance with the Approved Selection Method for Individual Consultants set out in the clause 7.34 of the World Bank Procurement Regulations for IPF Borrowers. 

 

Further information can be obtained at the address below during office hours 0800 to 1700 hours:

Eastern Caribbean Partial Credit Guarantee Corporation

Brid Rock, Basseterre,

St. Kitts.

Expressions of interest must be delivered in a written form by e-mail by August 11th, 2021, to [email protected]. 

 

For further information, please contact:

Carmen Gomez-Trigg                                                            Bernard Thomas

Chief Executive Officer                                                          Chief Financial Officer

Tel: 868-620-8144                                                                  Tel: 869-765-2385

Email: [email protected]                                          [email protected]