Sector rails against Scotiabank shake-up

Scotiabank’s surprise exit sends shockwaves through the region’s banking industry

[dropcap]T[/dropcap]he Bank of Nova Scotia is consolidating its international operations — good news for Scotiabank but not so good for the Caribbean where it is closing its facilities in nine countries, including Saint Lucia.

Scotiabank has a long history in the Caribbean, operating in the region since 1889. This latest move narrows its focus to core Caribbean markets, jettisoning Antigua, Dominica, Guyana, Grenada, Anguilla, St Kitts and Nevis, St Vincent and the Grenadines, St Maarten and Saint Lucia but retaining operations in a dozen other countries such as the Dominican Republic and The Bahamas. The off-loaded banks will be sold to Trinidad and Tobago-based Republic Financial Holdings Ltd for US$123 million.

Scotiabank, which earned US$9.1 billion this year, may be withdrawing from parts of the Caribbean but it is certainly not easing off international markets, with heavy investments in Latin America boosting its balance sheet in 2018. The bank said its international banking unit has grown

17 per cent year on year and contributed US$3.1 billion to overall growth in 2018.

SIZE AND SCALE

So why are these nine Caribbean countries no longer a part of the bank’s long-term strategy? Scotiabank said it wants to simplify its business model and divesting is merely a matter of size and scale. The bank played down the aspect of risk, with Scotiabank Senior Vice President Stephen Bagnarol telling media: “There are growing compliance and regulatory requirements. That is globally what is happening [but] it is just a question of where you want to focus. It is not about de-risking these markets but focusing on larger scale and size markets.”

However, an earlier statement from Scotiabank President and CEO Brian Porter indicates that de-risking, while not the major impetus, was still very much a part of the bank’s decision. He said: “Exiting these non-core operations is consistent with a strategy that began five years ago to sharpen our focus, increase scale in core geographies and businesses, improve earnings quality and reduce risk to the bank.”

It’s the latter that has Caribbean bankers on edge. De-risking has long been a problem in the region as global tax watchdogs clamp down on perceived ‘tax havens’. Ever-escalating waves of regulation have resulted in significant reputational damage and Scotiabank is not the first international provider to decide doing business in the Caribbean is just not worth it.

CONDEMNATION

Unsurprisingly, Scotiabank’s shock pull-out has been widely condemned throughout the region. Not least because many were taken unaware, first learning of the news through the financial press. Government leaders across the region have spoken out, with some claiming Scotiabank did not fulfil their legal requirement to give advance notice.

Antigua’s Prime Minister and Minister of Finance Gaston Browne was outraged, calling the move “unacceptable” and saying in a statement: “I am deeply concerned that the Bank of Nova Scotia would spring such an important decision on the people of Antigua and Barbuda, particularly its many clients who have displayed great loyalty to the bank for almost 50 years.”

In Guyana, the government expressed concern that the move would increase Republic’s market share to 51 per cent, making it ‘too big to fail’. Republic currently has operations in seven Caribbean jurisdictions, but the Scotiabank deal would double its presence region-wide.

Reaction from the private sector was also swift and unambiguous with union leaders quick to voice their anger. In Jamaica, the Bustamante Industrial Trade Union (BITU) accused Scotiabank of “job trafficking” with BITU President Senator Kavan Gayle further elaborating: “What we call job trafficking is the act of bullying, selling or transferring employees without clear justification.”

The STAR Businessweek reached out to the Caribbean Association of Banks and the St Lucia Bankers Association for their perspective but both declined to comment for this article.

NEXT STEPS

In the wake of the backlash Scotiabank defended the move, branding it a “refocus”, rather than an exit. Addressing a press conference in Trinidad and Tobago, Bagnarol said: “These transactions are still subject to regulatory approval and we will work with all the different governments and regulators to make sure there is a smooth transition. We will make sure we go through all the right channels and processes.”

He said closing the deal will take four to six months and highlighted that there would be no job losses, with Republic committed to retaining Scotiabank staff in the affected countries. After the transaction closes, Scotiabank will continue to serve 1.5 million customers in the Caribbean and service 90 per cent of the market. “We’ve made it very clear that we’re committed to the Caribbean,” said Bagnarol. “This is the right thing for Scotiabank, the right thing for Republic, the right thing for our customers and our staff in these markets.”

But is it the right thing for the Caribbean? It’s too early to determine the long-term repercussions of Scotiabank’s move but the prognosis is not good. The withdrawal of large, international banks from small Caribbean countries hinders their ability to deliver on their development agendas and also deters financial inclusion.

Addressing the CARICOM Single Market Economy meeting in Trinidad last week, Prime Minister of Trinidad and Tobago Dr Keith Rowley said: “[This] tells us that we need to make ourselves more attractive and become more resilient to ensure we have a banking sector that can withstand the conditions for international banking.”

For now, regulators are closely watching the Scotiabank deal. The Eastern Caribbean Central Bank (ECCB) is reviewing Republic’s acquisition application and conferring with domestic central banks. The ECCB said the deal would not “fundamentally change” bank ownership in the region and that consolidation of this kind should be expected, given global developments and increased competition. The CARICOM Competition Commission has also taken note of concerns from governments and customers and said it is “monitoring developments”.