Scotiabank scoots

Dec 02, 2018 Features / Columnists, Peeping Tom

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The Minister of Finance and the Governor of the Bank of Guyana are becoming uneasy; they have both expressed concerns over the proposed sale of Scotiabank’s local operations to Republic Bank.
The Minister of Finance is reported by Oil Now as questioning why Scotiabank should be pulling out of Guyana just as the country is about to emerge as a major oil-producing nation. He seems unable to explain why, given Guyana’s projected oil wealth, the bank would wish to exit.
Scotiabank obviously does not share the same confidence as the Minister and his cohorts within the government. The “chicken feed” returns which Exxon Mobil and company are giving to Guyana was never going to be an incentive for Scotiabank to stay in what is, internationally, a miniscule market.
It is most instructive that Scotiabank has decided to maintain a presence in Trinidad and Tobago, Jamaica, and in the Dominican Republic. But not in the nine other Caribbean territories, including soon-to-be oil rich Guyana.
The Governor of the Bank of Guyana has another concern. He is worried about the market dominance, and concomitantly the implications for fair competition, now that Republic Bank is poised to acquire most of the regional assets of Scotiabank. In his estimation, if this acquisition goes through, Republic Bank would become “too big” and control just more than half of the banking sector. Opposition Leader, Bharrat Jagdeo, is parroting the same concerns about concentration in the financial sector.
The Governor had better restrain his comments. He, after all, is the chief regulator of Guyana’s financial sector under the provisions of the Financial Institutions Act, and statements such as the ones he has made can be deemed to be prejudicial to the consideration of any approvals which may be required to cement the sale of Scotiabank’s assets to Republic Bank.
It is not too clear to this columnist if Republic Bank requires the consent of the Bank of Guyana to acquire the local assets of Scotiabank. The Financial Institutions Act (FIA) requires permission from the Bank of Guyana to enter into a merger or amalgamation with another bank or to transfer the whole or substantial part of its assets in Guyana. Republic Bank is buying out Scotiabank. This is no merger or amalgamation.
The FIA was amended earlier this year. However, the amendments are more concerned with recovery, resolution, winding down and liquidation of banks than they are about acquisitions and market share.
But the Governor says that the approval of the BOG is required for the sale of the assets and we shall have to wait and see how this pans out. It is hard to see how such an approval can be denied, given that Republic Bank had no problems acquiring the assets of the Guyana National Cooperative Bank, more than fifteen years ago.
The sale of assets, and merger and acquisitions of banks, is par for the course in open-market economies. These are market transactions. The state should limit itself to protecting against certain forms of financial concentration, such as monopolies, but this should not become a pretext to frustrate normal mergers, sales and acquisitions.
It is left to be seen whether the local authorities will allow socialist thinking to frustrate what in any free market jurisdiction would be considered run-of-the mill financial transactions.
Fifty-one per cent market share is a not a threatening position in an economy such as Guyana. Guyana needs a large player in its financial sector to drive financial sector growth. The small banks in Guyana really cannot play such a role; they are too miniscule. Guyana needs a large player in the banking sector just as it needed a major hotel brand to boost its hospitality sector. Republic Bank may be just that spark that the financial sector needs at this point in time.
Scotiabank has clearly decided that the Caribbean is too small for its global growth strategy. Scotiabank has announced the sale for US$250M of its assets in nine Caribbean countries that it is exiting. This is a miniscule sum in the global financial landscape.
Scotiabank is not prepared to tie up assets in the small markets of the Caribbean. It has placed its sights on four major Latin American economies, namely Chile, Colombia, Mexico and Peru. Its limited presence in the Caribbean will henceforth be dominated by its holdings in the Dominican Republic, and to a lesser extent in Jamaica and Trinidad and Tobago. Not Guyana.
The big fallout will be its more than 7,000 employees who will struggle to find similar remunerative jobs within the Caribbean. But that should be the least of worries for the government of Guyana. After all, they placed a similar number of sugar workers on the breadline.

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