The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian financial services industry is not growing at a fast enough rate to absorb the more than 100 job losses announced year-to-date, the Opposition’s finance spokesman fears.

K P Turnquest, the MP for east Grand Bahama, speaking after Royal Bank of Canada (RBC) and its BISX-listed mortgage lending arm, FINCO, became the latest institution to warn of impending job cuts, questioned whether “more is to come” in terms of industry consolidation.

Mr Turnquest said the first thought that jumped into his head was: “My God, not more job losses”, when he saw FINCO’s Friday advertisement revealing its plans to close its Bahamas Financial Centre branch in May, plus consolidate its Mortgage Centre at its Carmichael Road branch.

“I don’t think there’s any significant concern with respect to Royal Bank itself, but it means job losses and I think we’re going to see more of this kind of consolidation,” the MP told Tribune Business.

“These are traditional, good, solid middle class jobs, and the sector itself is not expanding as a whole, despite what the Minister is saying, and certainly not expanding to the extent where this number of people will be absorbed in the short-term.”

CIBC FirstCaribbean has led the way on restructuring/downsizing, announcing earlier this year plans to shed 66 jobs in the Bahamas by October 2015. Of those, some 56 are being lost via the outsourcing of a specific back office unit to Jamaica.

Friday’s announcement by Royal Bank/FINCO makes it the third of the three Canadian banks to announce restructuring/downsizing initiatives, as they bid to achieve extra efficiencies and cut costs in an unfavourable economic environment characterised by low growth and high levels of non-performing loans.

Like Scotiabank (Bahamas), which is planning to outsource its processing support centre and the centralised retail collections unit to Trinidad, Royal Bank/FINCO did not give any figures for how many jobs will be lost in the restructuring.

In common with its Canadian-owned brethern, it is seeking to minimise the staff impact by placing affected employees elsewhere in its operations - a move that has met with some success. Nathaniel Beneby, Royal Bank’s managing director for the Bahamas, Cayman Islands and Turks & Caicos, said any separation packages would be worth more than the minimum stipulated under the Employment Act.

As for the ‘offshore’ sector, UBS (Bahamas) has announced the winding-up of its private banking unit, a move that will result in a maximum redundancy total of just over 30. Credit Suisse (Bahamas) has also shed 10 staff as part of a back office consolidation involving the merger of its private banking and wealth management units.

Combined, more than 100 jobs in the financial services sector are being shed, and by the time Scotiabank and Royal Bank/FINCO are finished, the total may be nearer 150.

“It’s not a good sign for the financial services sector in the short-term,” Mr Turnquest told Tribune Business. “It’s the dislocation of solid, middle class jobs.”

FINCO’s 2013 annual report, though, indicates that the BISX-listed mortgage lender has effectively been in consolidation mode for five years, at least when it comes to jobs.

Its staff numbers have dropped progressively since 2009, from 146 that year to 95 as at end-October 2013. Employee headcount has dropped progressively in all subsequent years, and for the five-year period in total, staff numbers fell by a total 51 or some 35 per cent.

This is likely to have resulted from the increasing outsourcing of functions/services to FINCO’s Royal Bank parent, which retains a majority 75 per cent equity stake. Thus the moves announced last week - to create their third shared services centre by closing the Bahamas Financial Centre Finco branch, and moving it to Royal Bank’s Bay Street branch, plus shifting the Mortgage Centre from Prince Charles Drive to Carmichael Road - is merely a continuation of this trend.

Banking industry sources speculated that FINCO’s staffing levels could be reduced by a further 10-20 persons as a result of the moved announced on Friday. They also suggested that the departure of FINCO’s managing director, Tanya McCartney, was part of the consolidation plan, as the mortgage lender’s increasing integration into Royal Bank’s operation meant there was no longer any need for a separate managing director.

“They’re kind of streamlining the branch network; to integrate the branch network with Royal Bank,” one source said of the FINCO consolidation. “They’re trying to re-jig the machine,” another banking industry source said. “They’re moving swiftly. It’s not surprising.”

FINCO’s consolidation comes after it enjoyed a much better 2013, with net income up 176.44 per cent at $30.359 million. That was in large part due to a 61.89 per cent drop in loan loss provisions, which fell from $19.598 million in the 2012 financial year to $7.468 million.

FINCO’s return on equity jumped by 1,258 basis points to 21.39 per cent, while its efficiency ratio fell by 667 basis points to 23.35 per cent. The latter represented an improvement, as the drop indicates it was costing FINCO less to generate the same $1 in revenue.

Still, FINCO and all other Bahamas-based commercial banks are gappling with high non-performing loan levels that are hitting both the top line (interest income) and bottom line (loan loss provisions).

FINCO’s non-performing loans are currently worth more than $100 million, and all three Canadian banks have had their fill of bad Caribbean and Bahamian loans, which have left them saddled with a pile of distressed properties they are unable to sell.

FINCO pointed out that 2013 loan book growth of $20 million or 2.35 per cent, to $865 million, was “sluggish” when compared to previous years. With growth low and non-performing loans high, it is thus not surprising that the banks have turned their attention to the one line item within their control - non-interest expenses.

Tribune Business has been told that labour typically accounts for 50 per cent of a Bahamian commercial bank’s overhead costs, and with this nation frequently perceived as a high-priced, inefficient economy, the Canadian-owned institutions likely need little incentive other than to look here for cost savings.

Royal Bank of Canada has also been on a cost-cutting drive in the Caribbean, having announced earlier this year that it wanted all such moves to be underway by April. It has endured a tough time in Trinidad & Tobago, plus in Jamaica, where it has sold its business to Sagicor.

Mr Turnquest, meanwhile, told Tribune Business that it was unclear whether the job cuts/outsourcing trend was being driven by the effects of globalisation, the Bahamian economy’s competitiveness or industry uncertainty over Value-Added Tax (VAT) and new and increased fees. He suggested that it could be a combination of these forces in play.

The 3 per cent of gross revenue Business Licence fee on commercial banks is supposed to generate an extra $28 million in revenue for the Government, according to the International Monetary Fund (IMF), with the increase in fees on the offshore sector producing another $5.5 million.

“Where’s the back stop?” asked Mr Turnquest. “Is this the end of it, or is there more to come? As we know, loan loss provisions, mortgages in arrears are growing, so all of that the banks have to consider.

“Where’s it all going to end? While all this is happening, the Government is fiddling around with nonsense, non-issues. It’s cause for concern, and I can only hope the Government is sitting down with these entities and getting an understanding of what is causing all these moves, so that we can develop strategies to address it and prevent loss to the economy and employment.”