A curious double standard is being applied by the Bank of Nova Scotia (BNS) by its decision to sell its operations in nine 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 the responsibility to approve a bank, an important consideration is whether such approval is in the “best interests of the Canadian financial system”.
Despite these existent circumstances in Canada, BNS is attempting to sell its holdings in nine 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 nine 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 per cent of total assets in the banking sector and more than 50 per cent 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 the 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 Organization 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 nine 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 capitalized, and figures available in the auditor’s (KPMG) statement of January 8, 2016, reveal that EC$59.41 million was transferred to head office. Further, in 2017, the branch declared profits of EC$28.24 million, but listed EC$30.2 million as “due to Head Office”, leaving retained earnings in 2017 of EC$4.785 million, down from EC$6.521 million 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 recognize a moral obligation to sell its Antigua holdings to local entities, giving the country’s financial sector a chance to thrive.
(The writer is Antigua and Barbuda’s Ambassador to the United States and the Organization 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.)
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