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Offshore Sector 'Reverses' Decline Via 12.6% Growth

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ international banking industry had “reversed” the recession-induced balance sheet contraction by 2011, growing assets by 12.6 per cent that year.

The International Monetary Fund’s (IMF) report on the financial sector’s stability found views on the so-called ‘offshore’ industry’s future decidedly mixed, with institutions and providers sensing as much opportunity as pessimism from recent global developments.

“Despite sustained challenges to global banking from the financial crisis, offshore banking in the Bahamas proved resilient,” the IMF said.

“A 15.1 per cent contraction in balance sheets and a 10 per cent decline in fiduciary assets in 2009 were due to lower market valuations and the sale of business lines as part of broader balance sheet deleveraging by global parents, but the trend was reversed as total assets picked up by 12.6 per cent in 2011.”

Yet the report added: “The views expressed by the industry for its prospects are mixed. While heightened regulatory uncertainty due to ongoing global initiatives may lead to outflows from international financial centres, concerns over tax hikes on wealthy investors in other jurisdictions and heightened political risk in Europe could increase the attractiveness of the Bahamas as a global hub for international financial services.”

The IMF noted that total assets held by the Bahamas’ international banks stood at $583 billion at year-end 2011, with wholesale banking accounting for 80 per cent. Some nine branches, with headquarters in Europe, Brazil and the US, “collectively account for 90 per cent of the offshore sector”.

“Offshore banks are primarily funded by intragroup cross-border funding, as well as non-resident deposits,” the report added. “The former is due to some large international banks operating a central treasury model; that is, the parent located in one jurisdiction grants its branches and subsidiaries in third jurisdictions access to the parent’s global pool of liquidity via the Bahamas.

“Such operations are located in the Bahamas for a variety of reasons, including local expertise, administrative ease, exchange control in the home jurisdiction and, in some cases, tax advantages.”

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