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Bank sale may ease Caribbean de-risking woes

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CIBC FirstCaribbean is selling its majority shares to a Latin American and European conglomerate, and this pending multi-million-dollar transaction has Barbadian banking and finance university lecturer, Jeremy Stephen, speculating that it may be good news for the region.

Stephen thinks that with the transfer of 66.73 percent of the Canadian-owned bank to GNB Financial Group Ltd, a wholly owned subsidiary of Europe-based Starmites Corporation S.ar.L, of the Gilinski Group, could end the chokehold American banks have in their financial correspondent relationship with the region.

The Gilinski Group has banking operations in Colombia, Peru, Paraguay, Panama, and Cayman Islands with approximately $15 billion in combined assets, and Stephen said that should the Gilinski Group choose to place the FirstCaribbean assets under one of the south or central American territories, or Europe then the regulatory standards would give it more room than the strict compliance regime of Canada, FirstCarib­bean’s current head office.

“Wherever the head office is, in Colombia or Europe, wouldn’t have the same burden in terms of reporting standards and risk measures that the Canadian would have to take on. So maybe the bank would be willing to take on a bit more risk.”

Operating in 16 regional territories from Trinidad and Tobago in the south to Turks and Caicos Islands in the north, FirstCaribbean is one of the premier banks through which Caribbean persons and businesses conduct international financial transactions.

But in what is commonly referred to as ‘de-risking’, large banks mainly in the US have been closing their correspondent relationship with regional finance houses, making it difficult for people in the region to perform international money transactions ranging from sending cash to relatives or friends, to purchasing goods and services.

This de-risking was prompted by the US’ introduction of large fines on banks that conduct money laundering, financing of terrorism or other suspicious financial activities.

As a Canadian concern, FirstCaribbean is governed by that country’s financial practices which are consistent with that of the US.

Most correspondent banks have deemed financial transactions with the Caribbean too small to expend their resources on verifying sources of money sent out or into the region. So they eliminated risks of large fines from US authorities by ending relationships with local banks.

Bloomberg, the global business and financial data producer, quoted a banking expert saying the FirstCaribbean sale as, ‘positive’ from a risk standpoint, “the only time we hear about the Caribbean is when there’s a problem.”

Caribbean Community (CARICOM) chairman and St. Kitts and Nevis, Prime Minister Dr. Timothy Harris, said recently, “the practice [de-risking] has a harmful effect on the flow of remittances from those living and working abroad to their loved ones and business associates at home who rely on this source of funds to provide for their sustenance,”

“The practice has a harmful effect on commercial trading activity that disrupts the flow of payments for services rendered. What was once an overnight bank-wire transfer of funds from the US is now taking as many as three months, or more, for delivery.

“This is particularly harmful to small island developing states.”

University of the West Indies, Cave Hill Campus, lecturer Stephen told Barbados TODAY newspaper that some ‘radicalisa­tion’ of operations could be expected from the Gilinski Group.

“They seem very forward-thinking when it comes to banking in a high-risk region. So on that front alone ... it just remains to be seen what the intent is for this particular acquisition.”

Noting that, however, the bank will need resources from American correspondent banks, he added, “so it may very well temper the risk that these guys are going to take going forward.

“But I definitely think they will take a lot more risk than the Canadians would.”

In announcing the $797 sale earlier this month FirstCaribbean stated that it is ‘subject to the approval of local regulators’.

Updated 4:33 pm, December 2, 2019
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