NCB and all that

In his effort to modernize SVG, Milton Cato, of blessed memory, intervened in the economy more than any previous Government. He set up the NPF which evolved into the NIS. He established the Development Corporation to provide loans and factory space to investors. He brought into being the National Commercial Bank(NCB).{{more}} The forces driving him to establish the bank were two-fold. Firstly, the NPF/NIS was putting lots of money into the then existing commercial banks but getting only 2 per cent interest, while the banks were lending it out at 8 percent. Secondly, on his return to office in December 1974 he found the Treasury empty and the banks unwilling to lend Government any money. Vincentians, therefore, faced a bleak Christmas, with the Government unable to pay salaries. At that time Government’s main source of loans was the commercial banks. Mr. Cato was determined never to find himself in that position again and decided to set up his own bank. That bank, the NCB, has been privatized .The issue now is whether the privatization was appropriate. Three factors make me inclined to think it was.

Firstly, all the parties that have governed St.Vincent since the establishment of the NCB, Labour, NDP and ULP have found it difficult to resist the temptation to use the Bank to finance their pet projects. In the circumstances, it would be wise to get rid of the temptation and this is best achieved by privatizing the Bank.

Secondly, overdrafts and direct loans from commercial banks are nowhere near as important in the short-term funding of Government’s recurrent expenditure as they were in the seventies. Today there is far more emphasis on Treasury Bills which are handled through the ECCB. In 2002 the ECCB set up the Eastern Caribbean Stock Exchange and later the Regional Governments’ Securities Market. Through these stock exchanges the Government borrows money directly from the public throughout the OECS region in a manner undreamt of in Mr.Cato’s day. Hence the NCB is not as critical to financing the Government’s budget as it once was.

My third reason for supporting privatisation is that if commercial enterprises run by the Government are to function properly, the staff must be very highly motivated and public spirited. In Mr. Cato’s day, these qualities were far more in evidence. Perhaps many of us still adhered to Victorian values which led us to believe that there was something bigger than self and it was our duty to work for the public good. The change in attitude is not confined to St.Vincent. In England, Thatcherism, if it did not start the trend, intensified it. Mrs. Thatcher, it is alleged, released greed on the world, with her heavy emphasis on the profit motive.

The late Fred Providence and I went to England to study Accountancy at the same time. On many occasions, even in his retirement, I asked Fred when he was going to set up a private firm. The answer was always an emphatic ‘Never! My life has been about Public Service’. Miss Carmen Jack, another competent accountant, evinced a similar attitude. Today some accountants in the Public Service do not even wait until they have retired before they start their own accounting firm.

The issue of public spiritedness has long troubled me. At university, one of my closest friends insisted that I was very naive since I was always talking about returning home to help my country. He chose a different path, never returning to his native island but joined a bank, rose rapidly and made millions. He also started to change wives frequently. It all ended with him being so thoroughly butchered that the police could only recognize his remains through his dentures. Despite the way the life of my dear departed friend panned out, I still think there was merit in his hard-headed approach to life, particularly so in this day and age. Commercial operations are probably better driven by profits than by public spiritedness. With the private sector in control of the NCB there will be more rigorous appraisal of projects and greater control over costs, whilst bonuses will be paid to staff only after proper provision for doubtful debts.

The main objection to the sale seems to be that the NCB is some sort of national symbol. Frankly, I can see this symbol business in the case of a central bank like the Bank of England, the US Federal Reserve and our own ECCB. These banks play a critical role in the development and regulation of the economy. NCB is not quite like this. It is a business enterprise, and commercial not emotional issues ought to take precedence. Only a penny bank can operate in the parochial way some seem to be advocating.

Up to a point, the bigger and more diversified a bank is the greater its chances of survival and development. In the UK, the bank that emerged best from the financial melt down was the Hong Kong and Shanghai Banking Corporation (HSBC). Not only is it the biggest bank in the UK, but more to the point, it also had operational centres all over Asia which were little affected by the financial crisis. The NCB is now part of the Eastern Caribbean Financial Holdings. If, as that name suggests, and has been said, the aim is for it to have operations in all the OECS states, then the bank will be big and diversified by operational centres. As everyone knows, diversification is one of the major ways to counter risk and uncertainty. There is more to it than this. The more OECS wide regional institutions we have, the more we will be able to operate as a united Eastern Caribbean entity rather than as individual village states.

Finally, the valuation of a business is not simple. One, however, does not have to be a rocket scientist to appreciate that the value of an enterprise is ‘what it owns minus what it owes’. In the case of a bank, it will own land and buildings, securities, loans and cash, but you have to minus from that the deposits which it owes to other people. Mr. Cato would have been delighted to learn that just over half of his brain child, the NCB, has been sold for $42million, of which some is to be used to help build the airport and so further develop St.Vincent. It would be interesting to see which of today’s critics will, in the future, be able to achieve a similar feat.