ECCB
ANNUAL REPORT 2014/2015
4
EASTERN CARIBBEAN CENTRAL BANK
The evolution of banks over time in all countries has
involved amalgamations, mergers and acquisitions.
This has proven to be much easier than growing
organically, especially where markets are small.
This has been the experience in the currency union
with both foreign and local banks. Barclays Bank
and CIBC have merged to form CIBC FirstCaribbean
International Bank Limited, while the Royal Bank of
Canada (RBC) acquired RBTT Bank Limited. These
entities already had branches in the currency union.
The next phase for the foreign banks, as a response
to the global crisis and the downturn in economic
activity, has been a process of rationalisation through
the closing of branches and the laying-off of staff.
The governments have responded to the structural
problems of size by upgrading the OECS Treaty of
Basseterre to provide for an economic union with a
single financial and economic space. This will provide
the environment for consolidation of both financial
and real sector entities as well as the operations of
governments by making possible the achievement
of economies of scale and scope in production,
marketing, distribution and public administration. The
national banks have the most to gain through these new
arrangements as new configurations will be necessary
to improve their competitive positions. On the flip
side they have the most to lose as their competitive
positions would be severely eroded if they remain as
stand-alone entities in separate islands within a single
financial and economic space.
The question of what kind of business and banking
model will be the most appropriate to the currency
union needs to be carefully thought through. It
is my view that the pure Anglo Saxon model will
not work for the currency union, especially with
small, undercapitalised banks in single countries
with limited markets. There is an obvious need for
consolidation and recapitalisation. This will make for
stronger, more competitive banks but will not solve
the risk averse issue and the allocation problem which
is so anti-developmental. There is an urgent need,
through appropriate policies, to change the incentive
structures for banks to reduce their risk averse nature
and to strengthen their risk management skills.
The consolidation and restructuring process for banks,
which is underway, must be followed by the deliberate
effort to create and upgrade money and capital market
institutions to complement the new banking entities.
The following elements are of critical importance:
1. The Eastern Caribbean Securities Exchange
(ECSE) should be given significant support to
attract new firms to list so that more saving and
investment opportunities would be available to
our citizens and a channel for equity financing
would be opened up.
2. The Eastern Caribbean Home Mortgage Bank
(ECHMB) must have a wider remit to support
the very critical residential housing market.
3. The Eastern Caribbean Enterprise Fund
(ECEF) should be given both financial and
There is an urgent need, through
appropriate policies, to change the
incentive structures for banks to reduce
their risk averse nature and to strengthen
their risk management skills
