Strength in the Numbers

TCI’s banks remain well-regulated, solid and stable.

By Kathy Borsuk

On April 9, 2010, a Friday afternoon, Turks & Caicos Islands Bank Ltd. (TCIB) was placed under provisional liquidation — basically “closed” for the time being. Thousands of small depositors, along with local and overseas business customers, no longer had access to their funds. For some, this was a minor inconvenience; for others, it meant not meeting the payroll or paying for supplies. In the worse cases, people could not buy food or gas, pay medical bills, send money to loved ones overseas and faced the potential loss of their life savings. After the shock wave subsided though, it became clear that TCI regulators are doing their job and that the country’s other banks, by virtue of their differences from TCIB, remain stable. As well, plans for deposit protection insurance have moved to the forefront of the TCI Government’s agenda in the belief that such a decision can benefit the reputation of the jurisdiction in the future.

Why close a bank?
The Turks & Caicos Islands Bank Ltd. (TCIB) was closed after the TCI Financial Services Commission (FSC), the industry watchdog, asked the Supreme Court to intervene via court order. According to the FSC, they were forced to take this action after the bank had “suffered a number of significant withdrawals which left it unable to operate normally and meet its obligations in a timely manner.” The FSC took this drastic step when it became clear that the TCIB Board could not obtain additional financial support to continue to trade. They felt the only solution was to seek a liquidation in order to safeguard the remaining assets — which included huge deposits by the country’s National Insurance Board — and to ensure fair distribution to creditors.

Anthony Kikivarakis and Mark Munnings, partners of the international firm Deloitte & Touche, were appointed as liquidators, charged by the court to quickly protect the bank’s assets and explore all avenues, including purchase by other investors, to rescue it.

FSC Chairman Sandy Lightbourne explained, “The bank’s position as a new and stand-alone operation has left it very vulnerable to the current global economic downturn. The FSC has been working closely with the bank’s current Board and management to find a solution to the difficulties, and some progress was being made. But regrettably, it seems that in recent weeks the bank suffered a growing lost of confidence on the part of some of its important depositors.”

According to statements by Ervine Quelch, chairman of the National Insurance Board (NIB), which has an estimated $22 million of public contributions to its pension fund tied up in the bank, the NIB had been concerned about the bank’s performance for some time. In the months prior to the closing, NIB assisted the bank with financial support and encouraged the bank to seek additional investments and comply with recommendations made by bank auditors, the FSC and Merchant Bank consultants to place the bank on a more sustainable path toward growth and development. These included reducing operating costs (closing the Grace Bay and North Caicos branches), strengthening management and operational practices and addressing the bank’s ever-growing non-performing loans portfolio, which continued to decline as the poor economy took its toll on local debtors.

TCIB was opened in 2006, touted as the first “nation’s” bank. (Some 10% of its shares are held by the TCI National Insurance Board, while the largest shareholder group — TCI Belongers and companies majority-owned by TCI Belongers — hold 40% of the bank’s shares. A mixed group of TCI Belongers and permanent residents own 20%, while a group of Eastern Caribbean banks own the remaining 30% of the bank’s share capital.) Many residents chose to support this “indigenous” bank, also encouraged by small queues, a commitment to customer service, Saturday opening hours, tailored loan packages and perks such as b-mobile banking. In a 2006 article published in Times of the Islands, TCIB Managing Director John Benjamin said that TCIB “strikes a balance between its dual goals of giving T&C Islanders and residents opportunities to realize their dreams of becoming significant players in the country’s economic activity and financing and providing a wide range of services to the inward investment community.” Ironically, he predicted that by June 2011, “TCI Bank projects that it will gain the largest share of banking business in the Turks & Caicos Islands.”

What about the rest?
All banks operating in the TCI must be licensed through the Financial Services Commission. There are two kinds of licences: national (for carrying on banking with locals and residents) and overseas (excludes banking business with locals and residents), although many banks hold both licenses. Currently, national (commercial) banks include: British Caribbean (formerly Belize) Bank, FirstCaribbean International Bank, International Banking Group, Royal Bank of Canada, Scotiabank Turks & Caicos and the Turks & Caicos Islands Bank (in provisional liquidation), while overseas (private) banks include Bordier International Bank & Trust and Turks & Caicos Banking Company. Hemisphere Bank is a managed overseas bank with no physical presence in the Islands, while Hallmark Bank & Trust holds a restricted license for the purposing of issuing debit cards.

With many concerned about the widespread implications of a bank closure and the health of TCI’s remaining banks, the TCI Banker’s Association (TCBA) immediately reassured the public that the remaining licensed banks in the TCI are strong, stable and well capitalized. According to TCBA President Anton Faessler, “All of TCI’s licensed commercial banks benefit from significant shareholding or complete ownership by large international institutions including the Canadian Imperial Bank of Commerce, Royal Bank of Canada, Scotiabank and Cayman National. This makes a tremendous difference in a bank’s ability to weather the storm of financial market turmoil. They also boast years of experience, a proven track record, conservative lending policies and security-backed lending.” He adds, “In the case of the private banks, which are generally not in the lending market, their capital ratios far exceed international standards. All TCI banks respect lending limits set by national legislation which do not allow one lender to borrow more than 25% of capital and ensure assigned capital to risk weighted assets is not less than 11% (3% higher than international standards).”

Kevin Higgins, managing director of the Financial Services Commission, agreed that the FSC views the country’s remaining banks as “stable, although under pressure” due to the tough economic times. Mr. Higgins notes that in May 2002, TCI’s Banking Ordinance was radically amended to reflect new standards introduced by the Basel Committee on Banking. These included provisions for the risk of weighting of assets, retention of a minimum paid-up share capital, the creation and maintenance of a reserve fund and new rules in relation to lending, all of which further strengthened the industry. He described the behind-the-scenes work done by his office to regulate all banks registered in the TCI. “Firstly, we carefully monitor quarterly, and in some cases monthly, financial statements to ensure banks are adhering to the ordinance and operating under International Best Practices. We follow up with on-site visits and audits to make sure reports reflect reality and that certain best-practice procedures are being followed.” In the current economy, he says they have intensified the frequency of on-site visits and recommended that banks set higher reserves and be more careful in making loans — steps the banks’ wise international parents have already put in place.

Mr. Higgins says the FSC is supportive of a Depositor Protection Ordinance, an idea that had been in process for some time, but is expected to be approved in the near future. Basically, this scheme would provide depositor protection for individual resident account holders up to defined limits. It would be funded by the country’s licensed banks, inevitably resulting in increased service charges.

Local banks react

Scotiabank TCI's main Providenciales branch

Scotiabank TCI's main Providenciales branch

When news of the TCIB collapse broke, other local banks quickly sought to reassure their customers. In a full-page newspaper ad, Scotiabank reiterated how the TCI branch benefits from the strength and stability of both the Canadian banking sector (recognized as “soundest in the world” by the World Economic Forum) and Scotiabank’s more than 120 years of international banking expertise in the Caribbean. As well, 175 year old Scotiabank was included on the Oliver Wyman Group’s list of the world’s top 10 most stable financial institutions during the recent economic crisis. According to Scotiabank TCI Managing Director Doug Cochrane, his branch has been awarded “Bank of the Year in the Turks & Caicos Islands” by The Banker magazine for the last three years. Good management practices seem a given, as Scotiabank Turks & Caicos made $10.36 million in profits for 2009 and has assets over $400 million. It employs over 100 employees in the TCI and recently opened state-of-the-art premises in Grace Bay and Grand Turk, along with the introduction of a Private Client Group. Scotiabank actively sponsors a variety of community activities, including supporting the Edward C. Gartland Youth Centre as part of its Bright Future Program.

Anton Faessler, president of the TCI Banker's Association

Anton Faessler, president of the TCI Banker's Association

A private bank with a remarkably similar name, the Turks & Caicos Banking Company (TCBC) also placed newspaper ads to state that “we are not in any way connected to TCI Bank.” Conversely, TCBC has been in operation for 30 years, is the leading and longest-serving private bank in the Turks & Caicos Islands and has achieved steady growth of balance sheet and earnings through prudent banking practices. The bank opened in Grand Turk in 1980 with a two-desk office in the wooden Misick building near the fish market. Since moving to more dignified premises in Grand Turk and opening a branch in Providenciales in 2002, TCBC, led by Swiss-trained President Anton Faessler, has flourished. From $500,000 in initial capital, the bank currently has approximately $122 million in managed assets.

TCBC caters to the private investor, focusing on wealth and portfolio management. Holding both local and overseas licenses, services include current and fixed deposit accounts, securities and precious metal trading, escrow services and foreign exchange in major currencies and markets. Conservative European by nature, Mr. Faessler outlines TCBC’s investment philosophy. “We believe the core principles of successful investment are preservation of capital, growth and income with the right mix of assets and investment vehicles depending on the goal and time horizon in mind.” His comments in an article in the Summer 2002 issue of Times of the Islands remain strikingly true today. “Historic data shows that long-term investments steadily rise. Like an ocean voyage, you must ride the waves up and down, but with cautious and careful steering, you will always reach your destination. Fear and loss of confidence are the biggest enemies of investors.” This summer, TCBC plans to move its Provo office from Caribbean Place to the popular Regent Village in Grace Bay, with room for continued expansion of its services.

International Banking Group building in Providenciales

International Banking Group building in Providenciales

Ivan Browne, president of the brand-new, soon-to-open International Banking Group (IBG), bemoans the timing, but re-emphasizes the differences between the failed TCIB and their own Cayman National-backed retail bank. “Our regional parent has been in business over 35 years and currently holds over a billion dollars in assets. Cayman National’s success has been based on a conservative approach to lending and following international guidelines on loan/deposit ratio.” He is also proud to state that Paul Coleman was recently brought on as the vice president of compliance. Mr. Coleman has more than 40 years experience in banking (many in the TCI), including 16 years in compliance roles. This knowledge will bolster the bank’s ability to mitigate risks, safeguarding depositors and shareholders. Beside being monitored by the local FSC, IBG is also regulated by the Cayman Islands Monetary Authority.

Are Browne and IBG’s shareholders leery about opening a new bank during these unstable times? Not at all. Mr. Browne, a veteran of the Caribbean banking business for 30 years and winner of a Lifetime Honorary Fellowship in the Caribbean Association of Banking and Financial Institutes, says, “We plan to differentiate ourselves by the level of service we offer. We cater to a niche market of business and personal customers — those who look forward to spending as little time in the bank as possible and will appreciate our advanced technology, designed to facilitate accurate, safe and reliable banking. We’ll offer extensive on-line banking services — everything from managing your account to ordering drafts for pick-up later in the day. Access to Internet banking will be free for our customers and our ATMs, including our drive-through ATMs with left and right hand drive stations, will be free to customers using the IBG Visa Debit Card. We also plan to make opening accounts and applying for loans a streamlined process, letting our customers know the requirements upfront and making it as easy as possible, while still maintaining due diligence. We’ve hired our staff based on their customer service attitudes and have and will continue to invest heavily in staff training. We’ve done a lot of research on customer banking experiences in the TCI and feel we can solve many of the problems.”

With a beautiful, brand-new 15,000 sq. ft. building at the Graceway Plaza round-about and their state-of-the-art equipment in place, Mr. Browne says IBG will open as soon as every last detail is in place. “We know we have only one chance to do it right, and we want to make the best first impression possible.”

British Caribbean Bank (BCB) has as its parent company Belize Bank Ltd., the first and oldest continuous banking operation in Belize. They branched into the Turks & Caicos Islands in 1998, holding National and Overseas Bank Licenses. Both Belize Bank and BCB value a tradition of service. With more than BZ$880 million dollars in assets, BZ$147 million in capital reserves and a track record of consistent growth, the Belize Bank is a pillar of strength, stability and integrity in the Belizean economy.

BCB offers both current accounts and term deposits in US dollars, Canadian dollars and UK pounds. BCB accounts are well suited for international customers who require immediate access to their funds by wire transfer.

BCB is a leading provider of customized lending products with flexible loan terms and highly competitive interest rates. This includes tourism-related development financing, residential mortgages and service businesses throughout the TCI. Loan specialists deal one-on-one with clients and provide a speedy response to requests.

At the end of the day, TCI banking professionals sympathize with TCIB depositors who are, at press time (late May 2010) still without access to their funds and are doing everything possible to be lenient and helpful in dealings with them. They agree, though, that TCIB is an isolated case in what is otherwise a stable, sound industry and look forward to better days ahead.

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