The case for the amalgamation of ECCU indigenous banks

Editor: On November 27, 2018 Republic Financial Holdings Limited (RFHL) announced that it had entered into an agreement with Scotia Bank to purchase Scotia bank’s operations in a number of Eastern Caribbean Currency Union (ECCU) countries namely Anguilla, Antigua and Barbuda, Dominica, Grenada, St Kitts and Nevis, St Lucia, and St Vincent and the Grenadines. The Eastern Caribbean Dollar is the official currency of these countries.

This development is in keeping with the trend of acquisitions of legacy commercial entities/assets in the ECCU by regional conglomerates e.g. Grace Kennedy, Massy Group and Goddard Enterprises Ltd from the more developed countries of the Caribbean Community (CARICOM) –Jamaica, Trinidad and Tobago and Barbados. The acquisitions have occurred in a variety of sectors:

i. Financial services: Insurance and banking in St Lucia, Antigua and Grenada

ii. Wholesale & Retail; e.g. Supermarket chains and department stores in St Lucia and St Vincent;

iii. Automotive;

iv. Catering

The decision to sell the operations of Scotia in the ECCU has generated angst among a number of countries and its citizenry. The expansionary ambitions of these conglomerates should not be viewed with trepidation but as a distinct opportunity and motivating factor for the governments and citizenry of the ECCU to marshal and combine their relevant resources to confront the many regional and global political and economic challenges.

If one examines the development of RFHL one would observe that from its base in Trinidad and Tobago it has grown from humble beginnings into a banking and financial juggernaut in that country. RFHL has total assets of approximately United States Dollar 10.5 billion. This can be attributed to its disciplined approach to good business and governance practices. Also, very importantly it operates in a country with a population of 1.4 million persons with a large number earning high incomes from the buoyant and significant oil and manufacturing sectors.

The ECCU countries are not a single market and economy. Economically, they operate individually and given their small populations – ranging from 10,000 to 180,000 – their markets are small. There is still much economic and commercial fragmentation among them. This fragmentation is the single largest hindrance to their achieving meaningful, dynamic development and to continue improving the level of sophistication of their societies.

Even though they opted for independence as single states, the ECCU countries have established a network of vital institutions such as the regional court, the currency and central banking arrangements. This deliberate, collaborative policy was defined in the Treaty of Basseterre which these countries formalized (1981) among themselves and in which these institutions and others have been embedded and provides the overarching framework for the functioning of their arrangements.

The concept of shared sovereignty, as envisaged by the treaty, has proven to be a successful formula for the stability and development of these countries in the past and, with the new challenges, will be even more vital in the future. In addition, a much more closely coordinated and economically advanced ECCU would substantially increase per capita incomes.

This historical spirit of co-operation should thus provide the impetus for meaningful action in respect of advancing the initiative of amalgamating the indigenous banks in the ECCU.

The ECCU would be in a much better position politically and economically to confront external challenges if it does so from a unified position. As an aggregate entity their population would number over 600,000 thus improving greatly their growth and viability prospects. By merging the financial and human resources of the ECCU, it would be better placed/strengthened to respond as opposed to individual islands attempting to ‘go at it’ with external entities/challenges.

The merging of the financial and human resources of the ECCU would create an amalgamated indigenous bank. This bank would have an asset value of at least Eastern Caribbean Dollar (ECD) 13 billion dollars. This compares favourably to the asset value of the largest indigenous banks of ECCU which individually have an asset value of at most ECD4 billion. The amalgamated bank would therefore be in a much better position financially as well as from a human resource perspective to confront the challenge of the sale of Scotia bank e.g. by being able to purchase it. This bank would not have the financial wherewithal of a Republic Bank but would certainly be able to comfortably acquire and manage new banking operations.

The recent major banking development in the ECCU re the proposed sale of the Scotia bank operations is in keeping with the trend of global business consolidation with a view to improving company fortunes. This is another eventuality which provides the governments and citizenry of the ECCU with an opportunity to consider and analyse the most optimum options for pursuing their development aspirations.

Kwame Venner
Economist