By: Dr Armstrong Alexis
October 29, 2024
Thank you for having me here this morning to share some thoughts with you as your keynote speaker.
Indeed, you are this year celebrating your 50th year of service to the Caribbean Community, and during this time, you would no doubt have been exposed to many keynote speakers, many perspectives, and an abundance of views, advice, do’s and don’ts from those who have been brave enough to stand before you, the leaders of banking in the Caribbean. I am not a banker and can hardly stand among my peers as a standard-bearer consumer of banking services. Truth be told, I often struggle to make good use of the outstanding services you offer the citizens of our beloved Region. I hope, however, that the perspectives I shall share this morning, will plant some thoughts that will germinate, causing you to reflect on your impressive past and inspire you to stay the course and maintain your commitment to be that collective voice that protects, promotes and strengthens the regional banking sector.
In responding to media personnel after winning the Olympic 100 meter gold meddle in Paris on August 3rd, Saint Lucian athlete, Julian Alfred, stated, “I never run against anyone, I do it for myself and just want to finish the season in style”. As an institution that emerged from the bosom of Caribbean civilisation, you the Caribbean Association of Banks, have been doing it for us for the past 50 years and I want to start my brief address, by congratulating you for your service to the Region. Indeed, you have done it with style and we are better off for the unrelenting progress that you have championed over the past 50 years.
Words do not fully capture my profound pride after listening to your Chief Executive Officer Ms. Wendy Delmar when on September 14th, 2022, she represented our collective interests before the United States House of Representatives Committee on Financial Services, making the case for better understanding and appreciation for the impact of de-risking on the financial services sector in the Caribbean. The Caribbean Association of Banks has been a true and faithful servant of progress and development in the Caribbean and it is important that any discourse on regionalism, must recognise the contribution you have made in building a sound financial architecture that continues to be exemplary to this day.
I am therefore happy to be in your midst this morning and I offer my congratulations to you on your fiftieth anniversary as the cornerstone organisation carrying the mantle for adequate and responsive banking services to the Caribbean Community (CARICOM). Indeed, I recognise your Association as one of the enduring symbols of the Caribbean Community whose basic core values of unity, integrity, cooperation and collaboration mirror those of the integration enterprise amongst our 15 Member States and 6 Associate Members. Your commemoration of 50 years of service to our Region comes only one year after the Community’s celebration of its fiftieth anniversary since the signing of the Treaty of Chaguaramas which established CARICOM. The commitment you have displayed to the regional integration enterprise has been reiterated as the pathway to growth, sustainable development and resilience for CARICOM Member States, while recognising that the foundational arrangements for the CARICOM Single Market and Economy (CSME), whilst still a work in progress, cannot be achieved without the commensurate banking and financial services necessary for establishing a robust and sound financial architecture that meets international standards and that can be branded as uniquely Caribbean.
It is against this background that I briefly reflect on the CAB journey and address the importance of a resilient banking sector as a major driver of growth and sustainable development in the Caribbean Community. In effect, the Caribbean Single Market and Economy (CSME) promises a single enlarged economic space for the pursuit of efficient and productive economic activity under common rules and regulations for all CARICOM Nationals. That is the vision for the Community within which a resilient CARICOM banking industry would be expected to discharge that essential intermediation role regarding the allocation of scarce economic resources.
The Revised Treaty of Chaguaramas anticipates a fundamental role for the banking sector and makes provision for the Committee of Central Bank Governors as well as clearly outlining the need to remove all discriminatory restrictions on banking, insurance and other financial services. It is no wonder therefore that at the eighth Conference of Heads of Government of the Caribbean Community in 1973, CARICOM Heads of Government mandated the establishment of the Caribbean Association of Indigenous Banks, the precursor to the Caribbean Association of Banks to serve primarily as a body to satisfy the financial needs of the people of the Region whilst at the same entrusted with the responsibility to manage regional and international regulatory requirements and standards.
CAB Inc From Birth to Maturity
It must be said that the founding fathers of our regional integration movement understood fully, the structures and services that were of critical importance for regional progress and development. It is, in fact, that from inception, they deemed it important to establish the Caribbean Association of Indigenous Banks, within a year of establishing the Caribbean Community, yours was one of the first bodies formed to provide that critical support system for a successful regional integration project. I understand that for the first twenty (20) years of its existence, the Caribbean Community Secretariat nurtured and coordinated the activities of your Association in collaboration with member banks until a permanent secretariat was established in 1998. The eventual re-branding as the Caribbean Association of Banks Inc. has led to the broadening of the membership and maturity of the organisation towards delivering on its vision as the ‘collective voice’ of the CARICOM banking industry.
Nothing that is relevant to the times remains static and I commend you on keeping up with the fast pace of the evolving financial and banking sector regionally and globally. I must, however, caution that your fundamental responsibility to support CARICOM Member States in mitigating the risk of reliance on external providers and share in the ownership and development of a financial services industry with the capacity to satisfy the financial needs of the people of the Region, must remain critical to your core principles and a continuing definition to who you are.
You have navigated significant challenges of the prevailing financial landscape – domestic, regional and international and as I know that you will no doubt agree, the external pressures that you have to endure, manage and navigate, require that you remain attuned with both internal desires and external shifting norms. The CARICOM Secretariat has been at your side before, and we remain amenable to continuing partnering with you as you face the headwinds of a constantly changing global banking services sector.
Structural Features of the CARICOM Banking Industry
Without a doubt, the banking industry is the most dominant segment of CARICOM financial systems with assets accounting for over 130% of regional GDP. I am told that the banking system in the Community appears to be reasonably sound, with capital adequacy ratios in the majority of Member States, comfortably exceeding international benchmarks and standard. Additionally, banks in the Region have maintained their profitability notwithstanding the stresses in the system which include the undercapitalisation of some financial institutions and the deterioration in the credit quality of loan portfolios, with non-performing loan ratios reaching as high as 20% in some jurisdictions.
That notwithstanding, concerns have been expressed that despite the size of the assets base and overall profitability, banks remain somewhat shallow as evidenced by the average ratio of credit to GDP which is lower in CARICOM than the industrialised world and even some emerging regions. Additionally, lending by commercial banks appears to be narrowly focused on the largest businesses notwithstanding regulatory action to prevent high concentration of risks in loan portfolios. The notion that the prevailing elevated levels of excess reserves in the banking system are due to weak growth in credit to the private sector has been characterised by the ongoing concern about the access to capital by small and medium-sized and even micro businesses. Then there is the high cost of banking services along with large interest rates. In keeping with one of your core values which is to be truthful, transparent and deliver what is promised, I urge you to relentlessly pursue options to secure benefits for the marginally bankable bulk of Caribbean citizens, who, with a little impetus, have the potential to contribute to an expanded banking service sector for all.
I recognise that overtime, there has been some deepening in market-led financial integration within the Community and even a revival of retail credit. However, the level of market concentration and the interconnectedness of the regional financial system with the implementation of the free movement regimes under the CSME, have increased the potential for contagion risk in the Community. This is an area that requires the ongoing focused attention of the Central Banks in the Community.
I am also aware that some Finance Ministers have called for a relook at the prevailing huge interest rate spreads as well as promoted the use of the excess liquidity in the banking system to boost sustainable investments in Member States. Resolving this issue and expanding access to finance will require a multi-pronged approach involving bold public policy and incentivising the required response from the banking industry.
Building a resilient banking industry in CARICOM requires focused attention on addressing some of these limitations. So how do we describe a resilient banking industry in CARICOM. Very simply, I posit that our interest in CARICOM is best served when banks continue to safeguard customer deposits while operating reliable and trusted payments systems. Additionally, banks must provide good quality jobs and be capable of providing adequate financing for personal and business growth. Moreover, banks must adopt the posture of good corporate citizenship and contribute to the public purse.
Of course, building resilience in the CARICOM banking industry is not without its challenges. As small, open, highly vulnerable economies, CARICOM Member States are particularly susceptible to external economic shocks which have often derailed national economic plans and programmes. Some CARICOM Member States have also grappled with banking crises during the last 20 years or so which have led to some restructuring and transformative changes in the sector. In the post-crisis period, the policy response has been to strengthen the national and regional architecture for financial stability as well as the resilience of the banking system. CARICOM Central Banks have therefore established national Financial Stability Units and Crisis Preparedness and Management Committees as well as taken steps to promote greater cooperation and coordination among safety-net partners. Central Banks have also prepared and publicised national financial stability reports and there is ongoing work to standardise macro-prudential policy and systemic risk indicators as well as to map the interconnectedness of cross-border financial entities. There has also been a resurgence of interest in providing enhanced protection to depositors in order to restore and maintain market confidence.
One of the externally driven pains affecting banking in the Caribbean is the loss of correspondent banking relationships. I started my address by expressing my profound pride in the representation of Ms. Delmar at the US House Committee on Financial Services. Such advocacy supports the overall intent and determined conviction to build awareness about the realities that such measures can have on our banking sector in the Caribbean. Member States’ adherence to international standards for Anti-Money Laundering – Counter Terrorism Financing (AML-CFT) as well as the banking sector’s effective application of the relevant protocols for domestic and cross-border banking transactions remain critical to robustness of systems and the external perceptions of the Community. Both the CARICOM Secretariat and the Caribbean Association of Banks remain vigilant in monitoring developments and advocacy regarding the safeguarding of existing correspondent banking relationships even as we explore other avenues that would allow beneficial access to the global financial system.
The COVID-19 Pandemic constituted a major shock which tested the strength and resilience of the banking sector in CARICOM and accelerated the transformation and Fintech innovations which now prevail within the industry. Indeed, in this crisis, banks became part of the solution and must be commended for speedily rising to the occasion and effectively supporting governments in providing emergency relief to citizens as well as their customers. The digitalisation of banking processes brings new efficiencies to the industry, but also pose inherent risks which can be costly if appropriate risk mitigation strategies and plans are not deployed. Moreover, new internet-based banking infrastructure also provide considerable opportunities that can either become centre points for competition or turning points for enhanced services to operators in an increasingly sophisticated banking environment. I have no doubt that you are equipped for the latter.
The CARICOM Single Market and Economy: Progress and Prospects
As mentioned before, it is generally acknowledged that CARCOM integration and, especially the CARICOM Single Market and Economy, is essential as a driver of regional economic growth, social mobility, prosperity and sustainable development. Regional integration will strengthen the resilience of the Community and reinforce Member States’ capacity to withstand the shocks and risks emanating from the global economy and provide a basis for engaging on the international stage where our collective impact would be greater than the sum of our individual efforts. Building banking system resilience also requires a regional approach. This is provided for in the Revised Treaty of Chaguaramas which states that the Council for Finance and Planning “shall have primary responsibility for economic policy co-ordination and monetary integration of Member States.” In this regard, Ministers with responsibility for Finance, with the concurrence of the Conference of Heads of Government, have agreed on an agenda for macro-economic initiatives aimed at complementing the evolving market integration infrastructure in order to release the potential benefits of the CARICOM Single Market and Economy.
Within the context of building a resilient banking industry, I would like to mention four (4) initiatives that are currently occupying the attention of CARICOM Member States. First, there is the initiative to modernise and develop a regional credit reporting mechanism so as to enhance the retail credit market in the Community. Secondly, there is the initiative to modernise and build out the deposit insurance system in the Community. Third, the matter of the development and regulation of the regional securities market as a platform for the creation of an integrated capital market in the Community has been a long outstanding initiative. Fourth, there is the issue of financial consumer protection – promoting fair and transparent practices in lending operations, data use and decision-making as a platform for financial inclusion and stability. These initiatives all seek to provide a consistent legal and regulatory framework that will support the build-out of a resilient banking industry in the community. The CAB can undoubtedly play a critical role in the rolling out of these initiatives, and I look forward to engaging you further on this.
Allow me the opportunity to invite the CAB to reinvigorate its partnership with the Secretariat to address priorities in credit reporting, deposit insurance, financial consumer protection and the CARICOM securities market. These are all components of a robust banking and financial services sector and areas in which the association of banks have both the mandate and expertise to contribute to. The CARICM Secretariat perceives its partnership with the CAB as a symbiotic one and a marriage that can potentially deliver tangible results for the growth and stabilisation of banking in the Caribbean. We have the ability to cast the net wider and bring in marginalised demographics whose lives can be enhanced if they can one day enter the fray of the bankable, and we possess the means to support Member States in modernising their banking and financial services. So why not do it? The onus is on us so to do and the time is now. There is an imperative for action as our Region emerges from the ravages associated with the COVID-19 pandemic and as we face a tumultuous future made worse by the Russian war on Ukraine and increasing instability in the Middle East. These all conspire to derail our collective efforts and constrict our expansion. Our institutions must therefore step up and resist the forces that threaten to destabilise our economies and affect and even reverse our hard-fought progress.
Conclusion
In conclusion, I leave with you, one key message which I hope will inspire you, and that is we, CARICOM people and institutions, have the means to secure a bright future for our Region and its citizens. Our initiatives hold the potential to transform the financial landscape in CARICOM Member States and help to secure the foundations for building out a resilient banking industry as an efficient and dynamic intermediator of the allocation of financial resources within the Community. I encourage us all to commit to having the consultations at the institutional and national levels to ensure that all stakeholders are involved in the process of designing and finalising the legal and regulatory frameworks that will allow for the operationalising of these initiatives.
I have sought to situate the issues surrounding the building of resilience in the banking industry within the context of the design of the macroeconomic infrastructure which supports the functioning of the CSME. I hope I have stimulated your thoughts on how you can collaborate with governments, people and other institutions to ensure that the evolving legal and regulatory frameworks are fit for purpose and appropriate to ensure the fulfilment of the needs of all stakeholders.
I wish you all a successful conference and look forward to your continued successes as we work together build a viable, sustainable, and prosperous Community for all citizens of the Caribbean Community. I thank you for your attention.
(The above remarks were made by the deputy secretary general at CARICOM)
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