Roseau, Dominica (TDN)
News of the complete withdrawal of the First Caribbean International Bank from Dominica by 31 January 2023, came a s shock to most Dominicans, and has shone a clear light on the country’s dwindling fortunes.
Twenty-five years ago, Dominica boasted of a vibrant financial sector with five commercial banks, four foreign and one national, in operation. Now so many years later, the financial services sector is shrinking quickly under the weight of a failed economy, corrupt governance, with a government that has lost its way. By 1 February 2023, there will be one foreign owned bank and one national bank in all of Dominica.
In the heyday of the financial boom in Dominica, which coincided with a high level of job creation and thousands of eager depositors including from the rural community, under a United Workers Party government, foreign banks were eager to maintain their foothold on island.
During that time, the banks were Barclays Bank PLC – later First Caribbean Bank, The Royal Bank of Canada, Bank Francaise Commercial, Scotia Bank, and the National Bank of Dominica. These banks were ably supported by a vibrant Credit Union Movement, making for a robust and strong financial sector.
With countless depositors, a strong rural agriculture economy, flourishing home construction and demand for personal loans, these banks operated profitably.
However, in the past few years, all this has changed drastically, as the Dominican economy has hit rock bottom, with the closure of countless businesses, a shrinking middle class and stagnant wages. At the same time, the Credit Unions were forced to consolidate as member savings dried up and non-performing loans ballooned.
First to leave was Banque Francaise Commercial, whose operations were purchased by the National Bank of Dominica. This was followed by Scotia Bank, which was scooped up by Republic Bank and finally Royal Bank of Canada, also taken over by the National Bank of Dominica.
The Eastern Caribbean Central Bank, which oversees and regulates the banking sector refused to grant permission to the National Bank of Dominica to take over the operations of the First Caribbean International Bank. The financial authorities considered that acquisition too big a risk to the banking public.
The rejection has now forced First Caribbean International Bank to simply close its doors and quietly exit. This has left depositors with just five months to take their deposits elsewhere while the bank attempts to sell its mortgages to other financial institutions.
It is clear that a number of the bank’s depositors will have no choice but to put their savings with the national bank of Dominica thus further increasing its overall share and posing a greater threat to the stability of the banking system.
The concern now is over the shrinking size of the financial sector and how it will impact the banking public. To begin with, the National Bank of Dominica, with majority government ownership, becomes the dominant bank with its total share amounting to 60-65 percent of total depositors.
There is a lot of nervousness around this, since the Skerrit Regime is well known to secure massive overdrafts, which not only reduces the availability of resources to the private sector and individuals, but also runs the risk of directly threatening the very stability of the bank and by extension the financial system.
For example just last year the government far exceeded its legal overdraft limit of EC $56 million, by securing overdrafts totally EC $134 million. In 2020, it converted EC 125 million into loans. This unfettered access by a reckless government to scarce bank resources must give pause to the average depositor whose choice of bank is now greatly reduced to just two.
Another cause of concern has to do with the increasing exposure to money laundering and other financial crimes, which has created some uneasiness in the past. In fact, unconfirmed reports are that the threat of action against banks operating in Dominica by United States regulators may have been behind the pull out of First Caribbean International Bank, Royal Bank and Scotia Bank. This is in addition to the pressure of a shrinking economy, falling real incomes and low savings.
So with foreign banks completely deserting Dominica, one cannot help but worry whether entities like Money Gram and Western Union will follow suit. Of even greater concern is how long pour own National Bank can hold on.
