ECCB
ANNUAL REPORT 2014/2015
3
EASTERN CARIBBEAN CENTRAL BANK
Two factors must be taken into consideration in moving
forward; firstly, the fragility of the banking system
which was exposed by the crisis and secondly, the fact
that the existing bankingmodel has not been particularly
conducive to facilitating sustainable growth. We now
have a chance to stabilise and restructure the banking
system and to follow a deliberate path of financial
sector development compatible with the growth and
development objectives of our member countries.
The two types of commercial banks in our system,
foreign and national, will have to be looked at
separately and specifically to align their operations to
the needs of our member countries. In doing so, it
is vital to recognise the evolution of banking systems
in different countries which followed different paths,
and to note some general commonalities which have
been observed over time.
Two typologies have emerged. One is the Anglo
Saxon type of banking referred to earlier, which is
prevalent in the United Kingdom, the United States
and Canada and which we inherited. The other is the
system of universal banking which is prevalent in the
European continent and Japan. The former draws a
clear divide between banking and the connection with
the private sector, while the latter is characterised by
banks holding equity in and being closely connected
with the operations of private sector entities.
The fundamental problem in the ECCU region is
the lack of equity and long-term capital for existing
and startup firms which is a major impediment to
their development. Many firms in our jurisdiction
are overburdened with debt before they begin their
operations and are under constant pressure to repay
debt. This limits the operations of the private sector
to strictly commercial activities with a quick turnover.
Other activities outside of this commercial sphere are
high risk and do not meet the criteria for lending by
decidedly risk-averse institutions. We are therefore
faced with the challenge of the risk averse institutions
being in possession of most of the loanable funds.
Since these loanable funds are mainly in the form of
savings deposits, this naturally leads to the creation of
a self-perpetuating risk averse system.
Several other factors compound this situation:
y
y
Most of the national banks have weak capital
positions and are incapable of absorbing losses
from their loan portfolios.
y
y
Their risk management and credit review and
management systems are not geared to dealing
with loans to the productive sectors.
y
y
The absence of a credit bureau precludes them
from getting the type of information necessary
to make good lending decisions.
y
y
The legal and administrative impediments
to realising the collateral pledged against
delinquent loans raise the risks that banks face.
y
y
The size of the market in each country leads to
concentration of lending and increased risks.
We now have a chance to stabilise and
restructure the banking system and to
follow a deliberate path of financial
sector development compatible with the
growth and development objectives of
our member countries
