The Banking and Financial Services sector of Trinidad and Tobago has consistently been one of the top performing industries in the country over the past five years. Together with Real Estate and Insurance, Finance contributes almost 15% of national GDP, and its importance is steadily increasing as the sector keeps outpacing national economic growth.
Trinidad and Tobago has one of the most developed finance industries in the Caribbean, but there is room for improvement. Local banks show great performance indicators, remain well capitalized and highly liquid. The percentage of non-performing loans has been falling year on year to as low as three percent.
The twin-island republic has 16 non-bank financial institutions, four financial holding companies and eight commercial banks: 4 internationally-owned, 2 regionally-owned and 2 locally-owned. The sector is dominated by local firms Republic (largest loan and deposits market share at 49 percent) and First Citizens Bank (second largest with 20 percent loan and deposits market share), but also has a strong presence from international institutions such as Citi and Scotiabank, with the latter leading in consumer loans and mortgages.
These eight commercial banks directly employ 7,400 Trinbagonians from a total of 123 branches. Automated telling machine (ATM) growth has been rapid with 442 ATMs in the country giving Trinidad and Tobago one ATM for every 3,000 people.
However, not all innovation in the sector is as easy to come by, with the potential of investment banking and capital market services still not heavily tapped into. The presence of Trinidadian banks abroad is still small, but some of the country’s biggest institutions have started showing a strong presence abroad with Republic being the largest single shareholder (40 percent) of HFC Bank in Ghana being a prime example.
According to the Central Bank of Trinidad and Tobago (CBTT), commercial banks’ total assets have increased year-over-year since 2012 at a combined annual growth rate (CAGR) of 3.58 percent, with a 2016 total of 139 billion TTD ($20.6 billion). Domestic deposits - demand, savings and foreign currency - also grew with a CAGR of 4.26 percent in the same time period, reaching 107 billion TTD ($15.8 billion) in 2016. And while investments along with private sector loans have been hit or miss over the past five years, year-over-year growth in both from 2015 to 2016 was impressive at 13.95 percent and 4.07 percent, respectively.
Republic, the nation’s commercial banking market leader, has been buoyed by regional ratings agency CariCRIS keeping their high credit-worthiness rating at CariAA+, while maintaining the region’s third largest assets. However, basic earnings per share and return on assets are both down year-over-year in 2016, coming in at 23 percent and 28 percent lower, respectively. Meanwhile, CIBC FirstCaribbean International Bank was able to improve their income by 46 percent last year and First Citizens saw pre-tax profit growth of 3.4 percent and had its capital base increase from $6.3 billion to $6.7 billion.
The elephant in the room for all commercial banks over the past three years though continues to be the sustained downturn in oil and gas prices. For the financial sector, this has largely manifested itself in a shortage of foreign currency, particularly US dollars, which has affected commercial banks, corporate clients and local consumers. The CBTT has tried to tried to stem the flow of overvalued TTD to US dollars by reducing the amount of licensed authorised dealers by a third, from 12 to eight, but also by drawing US dollars from foreign currency reserves to inject into the domestic market.
Since foreign currency reserves are a safeguard for the government and the country as a whole the CBTT has tried to stem these injection measures. As of June 2017, the CBTT has enough reserve to cover 13 months of imports. However, for the 6.75 exchange rate to the US dollar to be kept up this reserve import cover would fall to just three months within three to four years, even with a mild rise in oil prices over the intervening years, according to Scotiabank’s Global Economics Division (GED). In a June 2017 report, the Canadian-headquartered bank’s division forecasts local currency devaluation as the only course of action left for the country’s government to prevent the depletion of foreign currency reserve, estimating that the TTD in relation to the US dollar is overvalued by as much 20-50 percent.
Although the government’s debt is still just at 60 percent of annual gross domestic product (GDP), current efforts to dramatically increase non-energy investments while maintaining spending levels on other existing policies and programmes could increase that amount, which is already nearing the threshold for a sovereign debt crisis in light of the recessionary environment and its increasing by 50 percent from 2015 to 2017. In April 2017, ratings agency Standard and Poor’s lowered Trinidad and Tobago’s Long Term Sovereign Credit Rating from A- to BBB+ due to the sustained but stable economic recession brought on by lower commodity prices as well as US dollar shortfalls.
The government has proposed more taxes on foreign goods to forestall foreign currency shortages, such as the seven percent online purchases tax from international suppliers that was put into place in September 2016, along with a 50 percent increase in customs duties on imported luxury vehicles. This foreign currency issue has a had a lot of knock-on effects in the national economy, with one of them being worsening bank-customer relations. Currently, there is a queue system for which commercial bank gets foreign currency first based on historical market share. However, even though these CBTT to bank sales of currency are announced in advance, the sector is not getting enough to satisfy local business demands for purchase of product and equipment, especially in the manufacturing and retail sectors. Consequently, many businesses are turning to credit cards for foreign currency loans to fill the gap, putting them at greater personal risk while banks lose out on acquiring a loan customer.
While commercial banks could cut overhead in transitioning customers to online banking, clientele remain comfortable with face-to-face teller interactions. E-banking is not expected to become a core consumer group for another 5-10 years, however, domestic banks could increase their market share over international competitors with a first mover effect. This could be done by simply experimenting with app development and other online channels as the investment costs in labour are currently low along with the risks since the e-banking market is still so underdeveloped.