Home' Trinidad and Tobago Guardian : May 24th 2015 Contents SBG2 NEWS
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt MAY 24 • 2015
Banks in T&T are adjusting
to new challenges this year,
including lower oil prices,
slower economic growth,
tightening interest rates and
political uncertainty in the
run up to elections. But
overall performance so far this year is largely
positive, with the eight main banks remaining
well capitalised and profitable.
T&T s overall financial system represents
about 16 per cent of GDP, making it the second
most important sector after oil and gas, which
accounts for about 38 per cent of GDP.
Recent bank earnings reports present a
mixed but overall healthy picture. In the three
months to end-January Scotiabank---one of
the three Canadian majors operating in T&T---
said it achieved $135m (US$20.9m) in net after-
tax profit, a little less than last year s levels.
Managing director Anya Schnoor said at
the time of the results in March, "I think we
decided in the first quarter to be a little bit
conservative with our loan loss provisioning",
but she nevertheless called it an "excellent
quarter," highlighting loan and interest income
State-owned Republic Bank Group, the
largest indigenous bank, said its pre-tax profit
rose by 2.1 per cent to $572.7m (US$88.8m)
in the six months to end-March. Chairman
Ronald Harford said that the improvement
came despite subdued economic conditions
but stressed growth in the loan portfolio and
a reduction in loan impairment expenses.
Oil & gas downturn may
limit loan growth
Stockbroker Bourse Securities noted that
low oil and gas prices may cloud the outlook
for T&T s banks. "Should oil and gas prices
remain low for a sustained period of time, the
likelihood of a slowdown in domestic economic
activity would increase, which could dampen
demand for consumer and business loans," it
said in a recent report.
According to the World Bank, the country s
GDP grew by 2.1 per cent last year and is fore-
cast to expand by 2.3 per cent in 2015, while
the UN Economic Commission for Latin
America and the Caribbean is estimating a
one-per cent growth rate for 2015.
One challenge ahead is how to manage a
cycle of tightening interest rates.
At the end of March, the Central Bank of
T&T (CBTT) raised its "repo" rate by 25-basis
points to 3.75 per cent, the fourth consecutive
25-point increase since September last year.
The CBTT said three factors lay behind the
latest decision: the US Federal Reserve s "for-
ward guidance" on its own hardening interest
rate stance; concern over rising domestic infla-
tion in T&T; and signs that the country s non-
oil sector could withstand monetary tightening
relatively well, given that its short-term outlook
was for "continued steady performance",
although at a slower rate than last year.
In theory, if nothing else changes, higher
interest rates will simply boost the commercial
banks revenues from loan interest payments.
In practice, however, there are significant risks
to consider either way.
If the CBTT tightens monetary policy too
much, activity and borrowing levels will fall,
impacting the growth of the loan portfolio. If
its stance is too lax, T&T could see a significant
outflow of funds as investors move their money
back into US securities.
The CBTT has reacted critically to a deci-
sion at the end of April by ratings agency
Moody s Investors Services to downgrade
the country s government bond and issuer
rating to Baa2 from Baa1, and to change the
outlook to "negative" from "stable".
Moody s said the downgrade reflected per-
sistent fiscal deficits, the negative impact
of low oil prices on growth and what it
described as a "weak macroeconomic policy
The CBTT said the decision was "unjus-
tified", stressing that the country remains an
investment grade destination.
"The sound credit worthiness of T&T s
natural gas-based economy is firmly supported
by the country s strong net external asset
position (including assets in the Heritage and
Stabilisation Fund), low external vulnerability
and stable political system," the CBTT said
in a statement.
In the short term, Moody s decision to
downgrade the government s credit rating as
a bond issuer will have very limited impact
on the banks, which are seen as generally
solid and well-capitalised institutions. How-
ever, the combination of imminent elections
and low oil prices has introduced a degree of
caution among investors, with many waiting
to see how the transition to the next govern-
ment plays out.
Already known for their collective caution,
it is likely that the banks will be looking to
minimise risk in their lending policies for the
remainder of the year.
Marco Binenti is Oxford Business Group's
editorial manager for T&T. Oxford Business
Group is a global publishing, research and
consultancy firm, which publishes economic
intelligence on the markets of the Americas,
Asia, Middle East and Africa.
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T&T banks facing transition year
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