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Banking, Investment and Financial Services

While the stock market suffered a significant reversal in 2006, Trinidad and Tobago’s banking and financial services industry continued to perform strongly in its home base in 2006 and to be a leading provider of capital in the region.

In 2006, the loca l financial sector provided some US$600 million to regional governments and companies. The International Monetary Fund, in a 2006 Public Information Notice, described Trinidad and Tobago as a regional financial sector, commenting that: “The banking sector remains profitable, non-performing loans are low, and provisioning increased compared to last year (2005).”

President of the Bankers Association of T&T David Dulal-Whiteway, speaking to Who’s Who in April 2007, said: “Banking is a reflection of the economy. When the economy does well, banks generally perform well. Last year, the economy grew by double digits and this was reflected in the performance of the banking sector. Our sector is strong and well capitalised and has the ability to withstand any minor shocks to the system. This level of profitability has been carried forward to 2007.”

Looking back at the key developments in 2006 that affected the banking industry, he noted: “We saw a reversal of the downward trend in interest rates as the Central Bank tightened liquidity resulting from Government spending. This trend has continued into 2007.”

“We expect interest rates to remain fairly stable in the short-term,” he said. “We also expect inflation to reduce over the next year.”

Looking ahead to the key challenges confronting the industry in 2007, Dulal-Whiteway, who is also Managing Director of Republic Bank, said reducing fraud and improving customer service continued to be major concerns for the banks.

“We expect the new Financial Institution Act (FIA) to be made law this year. While not a challenge from an operating perspective, it does increase the powers of the Central Bank, and with greater regulation comes increased costs. The reduction of our cost of operations can only take place as we attempt to change customer behaviour by encouraging them to use less cash. We have new competition from non-banks and given the level of regulation in our sector, there is not always a level playing field.”

The new act increases the penalties for non-compliance and targets groups of companies that may have subsidiaries and associate companies that are licensees. The whole group will be subject to Central Bank supervision – not just the licensed financial institution, Dulal-Whiteway said.

While the Trinidad & Tobago Stock Exchange marked a milestone 25th anniversary in 2006, as West Indies Stockbrokers Ltd (WISE) put it: “The Year 2006 would be remembered as a difficult year for investors on the stock market.”

The Composite Index fell 9.2 per cent from its close on December 30, 2005, while the All T&T Index fell 8.86 per cent. Prestige Holdings Ltd and PLIPDECO experienced the largest declines, falling 52.46 per cent to $5.50 and 52.21 per cent to $6.93, respectively. The two largest advances were the Trinidad Publishing Company Ltd with a 46.15 per cent increase to $19, and Dehring Bunting & Golding with a 25 per cent increase to $2.50.

Group Chairman of RBTT Financial Holdings Ltd Peter July, commenting on the decline in the stock market in the company’s 2006 annual report, said: “The portfolio restrictions placed on institutional investors by the Regulators and their consequential withdrawal from the market have had a disastrously negative impact on share prices and, in turn, led to an erosion of confidence of the smaller and individual investors.”

Another contributing factor was the introduction of electronic trading in March 2005 which, said July, “further aggravated the situation and brought greater volatility as we witnessed the market capitalisation of some of the Caribbean’s flagship corporations decimated by price variations induced by trades in small volumes of their shares.”

As of mid-May 2007, an amendment to the Insurance Act was waiting to be passed in Parliament to increase the equity restriction to 70 per cent, once the pension fund has an asset-to-liability ratio of over 150 per cent. However, WISE CEO George Sheppard told Who’s Who: “We aren’t sure what the impact will be at this point. It won’t be negative but we don’t know how positive it will be.” He explained that many of the largest pension funds meeting the criteria to invest up to 70 per cent might choose not to invest in equities because it would not be appropriate in terms of proper asset allocation and the age of their beneficiaries.

Head of Operations at WISE Adrian Manmohan said that 2007 started off with great expectation as the market rallied late in the last quarter of 2006. “However, despite generally good corporate results the market continues to be hampered by the lack of institutional demand.”

He told Who’s Who in mid-May: “We believe the market has seen bottom and the outlook is positive given the buoyancy of the economy coupled with the fact that there are indications that the regulations regarding pension fund assets may be eased soon.”

There was one new listing on the Mutual Fund Market – Fortress Caribbean Property Fund (CPF) listed on January 20, 2006 at $5.04. Caribbean Communications Network (CCN) was renamed One Caribbean Media Ltd (OCM) after merging with a Barbados media group, The Nation Corporation. There was also one delisting – with BWIA coming off the board on December 22, 2006. Trading in this share was suspended in November 2005.

According to Deputy Chairman of the Trinidad and Tobago Stock Exchange Subhas Ramkhelawan, the biggest change in investment services taking place is in the management of a client’s portfolio.

It is no longer just about advising a client to buy this stock or that stock, he said. “You are now seeing a shift into wealth management,” which means defining a portfolio, advising on allocations and then executing the transactions to achieve the desired allocation, he said.

In other trends, Ramkhelawan said the Central Bank was moving to expand the secondary bond market. Over the next one to three years he also expects to see a greater variety of investment instruments such as short-term, fixed return bank deposits; money market instruments; variable return instruments; equity mutual funds; property mutual funds; hedge funds; and private equity funds, as well as an increasing demand for principal-protected products.

The local stock market decline has also impacted on the operations of the Trinidad and Tobago Central Depository Ltd. To combat the resulting decline in its revenues, the TTCDL is seeking to expand its business services.

General Manager Anthony Taitt told Who’s Who that as of June 2006, TTCDL began offering registration services. It is now the company registrar and transfer agent for seven companies, including Republic Bank, Scotiabank and Trinidad Cement Ltd. It is also looking at expanding its registration service into the repo and bond markets, he said.

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