Former Head of Wealth Management and Chief Legal Officer at Deltec Bank & Trust Ltd., and erstwhile minister of financial services, Ryan Pinder said the loss of correspondent banking relationships is a significant issue in The Bahamas that is "getting worse and growing". Pinder spoke with Guardian Business yesterday on the sidelines of the budget debate, and asserted that correspondent banking relationships are very important for the survival of commercial and local independent banks in The Bahamas.
Last week, the International Monetary Fund (IMF) published its conclusion on the 2016 Article IV consultation. In that report, "Directors called for greater emphasis on risk-based financial sector supervision and regulation, given global "derisking" trends, and strong efforts to ensure compliance and close communication across stakeholders, plus renewed efforts to resolve the overhang of non-performing loans to spur credit growth."
"The entire Caribbean region has been under the threat of derisking, and what that means is that financial institutions may take a look at the region and say it's not worth doing business in this region, so we are going to pull out our services," said Pinder.
He explained that when correspondent banks start doing that, independent banks could lose their correspondent banking relationships, which would make it very difficult to execute foreign transactions in U.S. dollars.
The Graham, Thompson & Co. partner said the risk of losing correspondent banking relationships would be more of a concern for commercial entities, such as Bank of The Bahamas (BOB) and Commonwealth Bank Ltd., along with other local independent banks. He pointed out that banks such as Royal Bank of Canada (RBC) would be able to maintain their correspondent banking relationships in the event of "derisking".
"Generally, it affects mostly the independent institutions - those without international head offices - because RBC Nassau, for instance, would not lose its ability to have a corresponding banking relationship because you can clear transactions through RBC Toronto, which it does now. Now RBC Toronto isn't going to lose their relationship because they are so big.
But, Pinder said that would not be the case for local independent banks.
"...If they lose correspondent banking relationships or their ability to hold custody of their investments, they won't survive," he said.
"As much as it seems to be more relevant in other countries, it is a significant issue here in The Bahamas. It is getting worse and growing," he added.
Pinder was asked if the continued loss of correspondent banking relationships could possibly devalue the Bahamian currency.
"No, I don't think that is possible. But, it goes to the economic stability of the country, especially in the financial services side and the banking side... It is an issue that is affecting businesses in The Bahamas."
Xian Smith, Guardian Business Reporter
Click here to read more at The Nassau Guardian
