By NEIL HARTNELL
Tribune Business Editor
The Central Bank is warning that the Bahamian financial services industry faces “heightened challenges” with sector employment levels falling for the fifth consecutive year in 2019.
Unveiling its latest annual survey of the industry’s economic contribution, the regulator said attrition as a result of international tax and anti-financial crime initiatives continues to chip away at its size, competitiveness and relative importance to the Bahamian economy.
“The 2019 survey of The Bahamas’ financial services sector revealed that, in expenditure terms and tax revenues, the sector’s economic contribution was slightly expanded,” the Central Bank said. “Yet heightened challenges remained, with further trend-reduction in employment and in the number of supervised financial institutions (SFIs), particularly in international operations.
“Reflective of the ongoing automation of operations and consolidation of businesses, total employment within banks and trust companies declined by 48 (1.2 percent) to approximately 4,001 in 2019. This followed a 1.9 percent decrease a year earlier, and an average reduction of 3.1 percent over the past five years.
“A breakdown by nationality showed that both Bahamian and non-Bahamian employees reduced by 46 (1.2 percent) and two (0.8 percent), respectively, to 3,754 and 247 persons. As a result, the share of Bahamian employees in the banking sector softened by 10 basis points to 93.8 percent over 2018,” it continued.
“An analysis by activity revealed that an estimated 65.5 percent of Bahamians were employed in the local banking sector; 15.7 percent in international banking, 11.9 percent in trust administration and 6.9 percent in other wealth management related activities.”
Acknowledging the financial services industry’s continued struggles for growth, the Central Bank added: “Although marginal growth was evident in segments of the financial sector’s contribution to the Bahamian economy in 2019, it was still overshadowed by the average trend of consolidation stemming from uncertainties in the international space, and the persistent need for efficiency-driven adjustments in operating costs.
“The international product offering has continued to experience negative fall-out from the implementation of international tax co-operation and transparency initiatives, suppression of financial crimes risks, and the political sanctioning regimes that empower these reforms.
“In this respect, losses have concentrated in the European market, with the likelihood that this segment will fuel further re-domiciling of clients and financial institutions to their home countries. That said, business opportunities in new markets such as Latin America have attracted the establishment of new operations, and growth within such client bases for some longer-standing licensees.”
The Central Bank added that the sector’s immediate and medium-term well-being rested on The Bahamas keeping pace with global regulatory demands, with ongoing supervisory reforms critical to maintaining “credibility and stability” in the domestic market.
“Uncertainty persisted around adjustments to the jurisdiction’s embrace of global tax transparency and co-operation obligations; the convergence of commitments to counter financial crimes abuses; and the adverse interplay of punitive multi-lateral and bilateral sanctioning regimes,” the Central Bank said. “These continue to influence the re-domiciling of operations and clients to Europe, outweighing emerging growth in markets such as Latin America.”
Growth opportunities also need to be sought out on the international side, the Central Bank said, while warning that the increasing search for cost savings and efficiencies will demand increased use of technology and restrain job creation.
“The financial sector’s medium-term prospects also hinge on sustained exploitation of new growth prospects in the international space, and policy initiatives to strengthen the competitiveness of the operating environment for both domestic and international institutions,” the regulator continued.
“Even with business growth, the search for cost efficiencies, including through the increasing digital delivery of financial services, will constrain average employment growth in the medium-term - especially within domestic financial services.”
As for the financial services industry’s size by assets, the Central Bank said: “The estimated balance sheet size of financial sector operations was expanded in 2019. Domestic and international banks assets registered a marginal rebound to $186.6bn, although remaining below estimates at the middle part of the decade.
“In terms of fiduciary assets, in 2019, a growth of 8.7 percent was recorded for an end-balance of $254.9bn. Similarly, a partial rebound in international assets under management was noted for the securities industry, while the onshore insurance and credit union positions also improved, with the former exceptionally boosted from undisbursed re-insurance claims settlements.”