BANKING AND FINANCE IN SMALL
STATES-Malta Commonwealth
3rdCountry Training Programme
Geography
Area:
619 sq. km. (238 sq. mi.)
City:
Capital--Castries (pop. est. 67,000);
Terrain:
Mountainous
Climate: Tropical.
HISTORY
St. Lucia's first known inhabitants were the Arawaks, believed to have come from northern South
America in 200-400 A.D.
Numerous archaeological sites on the island have produced specimens of the Arawaks' welldeveloped pottery. The Caribs gradually replaced Arawaks during the period from 800-1000 A.D.
Europeans first landed on the island in either 1492 or 1502 during Spain's early exploration of the
Caribbean. The Dutch, English, and French all tried to establish trading outposts on St. Lucia in the
17th century but faced opposition from the Caribs.
Perhaps best known for our twin mountain peaks – The Pitons ( World Heritage Site) , Saint Lucia,
was contested between England and France throughout the 17th and early 18th centuries (changing
possession 14 times); it was finally ceded to the UK in 1814, with the abolition of slavery in 1834.
Self-government was granted in 1967, Independence on February 22, 1979,
Our population as at 2008 was approximately 170,000. Our main sources of income are Tourism
which replaced Agriculture ( Banana export) .
We have a rich culture of dance and community, a throwback to the plantation days, which manifests
itself in the Creole Festival every October, and the yearly flower festivals held in October (La
Marguerite Festival) and August (La Rose Festival). Recently we have become renowned for the
Saint Lucia Jazz Festival held yearly in May and our Carnival Festival in July.
GETTING TO KNOW US BETTER
Nationality: Noun and adjective--St. Lucian(s)
Population : 170,000. The population of just over 170,000 is evenly divided between urban
and rural areas, although the capital, Castries, contains more than one-third of the population
Noble Prize – 2 noble Laureates – Economics & Literature
Annual growth rate (2006): 0.74%.4
Gross Debt to GDP – 79.11% Local Currency- Eastern Caribbean Dollars- Pegged to the US$ 2.7169
Ethnic groups:
African descent 90%, mixed 6%, East Indian 3%, European 1%.
Religions:
Roman Catholic, Seventh Day Adventist, various Protestant denominations. Ninety percent of
the population is Roman Catholic, a further reflection of early French influence on the island
Languages: English (official); a French patois is common throughout the country.
Education (2004): Adult literacy--94.8%.
Health (2006):
Infant mortality rate--12/1,000. Life expectancy--men 73 years; women 76 years.
HEADS OF STATE
Governor General –
Her Excellency Dame Dr. Pearlette Louisy
Leader of the
Opposition –
Dr. Kenny D. Anthony
NATIONAL SYMBOLS
COAT OF ARMS
NATIONAL FLAG
NATIONAL DRESS – WOB DWIYET
CASUAL
NATIONAL BIRDAMAZONA VERSICOLOR
FORMAL
ST. LUCIA’S BANKING SECTOR
St. Lucia’s Bank were not directly exposed to the financial crisis , however the global economic
crisis contributed to a significant contraction of economic activity - resulted in a significant
slowdown in private sector credit demand .
Reflecting the weakening economic environment, banking sector indicators have
deteriorated and liquidity tightened during the last two quarters of 2009.
Domestic Banks - 2 indigenous - Bank of Saint Lucia Ltd and 1st National Bank Ltd. & 4 international
banks include RBTT Bank Caribbean, Bank of Nova Scotia, Royal Bank of Canada, First Caribbean
International Bank ;1 development Bank: 16 credit unions; 26 insurance companies; 4 offshore banks;
international mutual funds; international insurance companies;
Modern Banking System – ATMS; mobile banking; on-line banking.
Domestic ( onshore) & Offshore
Domestic Banks regulated/supervised by the East Caribbean Central Bank (ECCB).
Offshore regulated /supervised within the Ministry Of Finance (FSSU)
Move towards the Single Regulatory Unit.
RISK TO THE BANKING SYSTEM
Collapse of CLICO & BICO
Antigua National Bank – Allan Stanford
Tightening liquidity
TIEA – offshore sector
Continued pressures from the OECD for the
transparency of the islands tax framework.
Fragmented Regulatory Framework.
Tourism sector concentration.
The fragility of indigenous banks within the ECCU.
GLOBAL FINANCIAL CRISES –
IMPACT ON THE FINANCIAL
SYSTEM
St. Lucia’s Bank were not directly exposed to the financial crisis , however the
global economic crisis contributed to a significant contraction of economic
activity - resulted in a significant slowdown in private sector credit demand .
The impact of the global crisis on ECCU economies was mainly transmitted
through the tourism and construction sectors
Loan concentration within the tourism sector
The continued freeze in international credit markets adversely affected the
flow of foreign direct investment (FDI),
Non-performing loans (NPLs) for the whole system rose from 6.7 to 8.3
percent of total loans during 2009.
While NPLs of both indigenous and foreign banks increased by about 1.5
percentage points, NPLs of indigenous banks reached 10.2 percent.
Offering of moratorium on principal payment – deferral of interest.
Deferral of loan provisioning - underestimating NPLs.
Investment income impacted negatively- depressed international interest
rates.
Concentration of regional sovereign paper.
GLOBAL FINANCIAL CRISES –
IMPACT ON THE FINANCIAL
SYSTEM-Cont’d
GDP contracted by 5.2 percent in 2009, compared with
positive growth of 0.7 percent in 2008.
The contraction in economic activity was mainly
associated with declines in the tourism industry, and the
construction and agriculture sectors.
Spillover effects on the other sectors of the economy, such
as wholesale and retail trade, transport, and banking and
insurance.
The softening in economic activity, resulted in a higher
rate of unemployment of 20.5 percent at the end of 2009,
reflecting job losses in construction, tourism and other
sectors.
REGIONAL INTEGRATION –
FINANCIAL SCETOR
The Eastern Caribbean States of Anguilla, Antigua and Barbuda,
Dominica, Grenada, Montserrat, St Kitts-Nevis, St Lucia, and St
Vincent and the Grenadines constitutes a monetary union, termed
the Eastern Caribbean Currency Union (ECCU). These eight
countries share a common central bank and a common currency.
Despite the existence of a currency union with a common currency
and a common central bank, as well as the rudimentary issuance of
shares by public firms and T-bills and bonds by ECCB Member
Governments, the financial system was fragmented, with eight
separate markets. This, along with a high degree of fractionalisation
in these markets, was identified as a constraint to the development
of the region.
Money and capital markets form a significant part of the financial
sector; their underdevelopment limits risk–pooling and risk sharing
opportunities for households and firms. Within the ECCB region the
underdevelopment of money and capital markets has made the
economies more vulnerable to financial crises.
REGIONAL INTEGRATION –
FINANCIAL SECTOR Cont’d
INTERBANK MARKET
In the Mid 1980s, the ECCB established an interbank market, in an effort to assist the
commercial banks to manage their liquidity, and to facilitate the lending and borrowing
of available reserve balances between commercial banks, in a timely and cost effective
manner. The ECCB performed the role of broker and guaranteed the funds; interest
rates were fixed.
In October 2001, the ECCB introduced changes to the arrangements governing the
Interbank Market. Under the new arrangement, a Bulletin Board Service, facilitated by
the Central Bank, replaces the ECCB’s brokerage service. This service can be used by the
commercial banks on a daily basis to advertise funds available for lending and to source
funds for borrowing. Commercial banks negotiate on a bilateral basis for the use of
excess funds in the banking system and set the terms and conditions of each loan
without the intervention of the ECCB. In the conduct of Interbank transactions,
commercial banks can either enter into informal unsecured agreements, or can choose
to enter into secured arrangements, whether by offering collateral or by repurchase
agreements.
The changes to the Interbank Market arrangements are expected to result in market
determination of the fund rates and contribute to the removal of the rigidity of interest
rates in the Currency Union. This is in keeping with efforts by the Central Bank to
develop and deepen the money and capital markets of the ECCU.
REGIONAL INTEGRATION –
FINANCIAL SECTOR Cont’d
THE EASTERN CARIBBEAN HOME MORTGAGE BANK
The Eastern Caribbean Home Mortgage Bank was established by the Eastern Caribbean Home Mortgage
Agreement Act 1994, assented to on 27 May, 1994 by the governments of the ECCU . The Bank was
established with the primary objective of promoting the development of the secondary mortgage market
within the eight participating countries of the Organisation of Eastern Caribbean States (OECS).
EASTERN CARIBBEAN SECURITIES MARKET
In October 2001, the ECSM was launched with the opening of the Eastern Caribbean Securities Exchange
Ltd (ECSE) and its affiliated institutions along with the requisite laws and legal framework. The ECSE is
designed to provide an alternative mechanism for public institutions to raise capital within the regional
financial system. It allows for the transfer of private sector savings to productive investments. This will
essentially increase productive activity in the real sector, facilitate private sector development and create
avenues for increased employment. Currently five corporate securities are listed on the ECSE with a total
market capitalisation of $322m as at 15 August 2003. After less than two years in existence, the ECSE has
recorded in excess of $6.0m in trading activities in relation to corporate securities. Market activity is
expected to become more buoyant as additional companies are listed over the next few months.
THE REGIONAL GOVERNMENT SECURITIES MARKET
The Regional Governments Securities Market (RGSM) is a regional market for the trading of debt
instruments of the member states of the ECCU. The market was established in November 2002 and
operates on a fully electronic platform. The instruments on the RGSM take the form of Treasury-bills, notes
and bonds and have varying maturities. These securities are backed by the full faith of the governments of
the issuing member states.
STEPS TOWARDS REFORM
Strengthening the supervision of the domestic non-bank
and offshore sectors-high priority.
Strategy of a regional resolution of BAICO and CLICO –
Liabilities ( Eastern Caribbean) of XCD1.05 billion
The resolution should adhere to three principles:
(i) avoid systemic contamination, (ii) minimize
the fiscal costs to the extent possible, given
the region’s high debt levels and related
vulnerabilities, and (iii) ensure equitable
treatment of claimants, including giving priority
to claims up to a low threshold.
STEPS TOWARDS REFORM
CONT’D
Full-scale contingency plan to mitigate spillovers from
potential financial events in the region.
The authorities and the ECCB should also continue to
monitor closely banking system indicators,
particularly for indigenous banks, given the risk of
spillovers from such banks in other ECCU countries.
Amalgamation of the Indigenous Commercial BanksECCB Eight Point Programme
Thank you