Banking, Investment and Financial Services

October 28th, 2022

---

Helping SMEs Succeed

There are two sides to a bank’s balance sheet, and the interest and safety of depositors always have to be borne in mind.

Veteran career banker, financial consultant and former Chamber CEO Ian De Souza has a rich perspective to share on the challenges and achievements the financial sector faced in 2021, the path forward in 2023, and the support needed by SMEs which would redound to the continued growth of the overall financial system and the larger economy.

Challenges

The major challenges in 2021 and the first half of 2022, he said, all related to the recovery of businesses, and small and medium-sized enterprises (SMEs) in particular, from the impact of the pandemic and, more recently, the Russia-Ukraine War. These challenges, he noted, included:

• Supply chain issues, including the cost of shipping, which affected the supply of goods and services
• The increase in energy and food prices, which have also affected consumer and raw material prices
• The challenges of small and medium-sized businesses in servicing debts with loan moratoria extended by banks due to economic activity not having returned to normal. 

Developments and milestones

Despite these challenges, he saw a number of positive developments taking place.  

These included:

• Increased use of digital solutions in conducting business
• Use of internet banking
• The establishment of a separate Ministry of Digital Transformation which, he said, signals Government’s intent on transforming how services are delivered to the public.

He flagged two business developments as significant milestones that would positively impact the business and hence the financial sector. They were:

• The opening of the Phoenix Park Industrial Estate, which is a significant means of support for business and trade, for example, the PriceSmart regional distribution hub which is being set up on the new estate.
• The Trinidad & Tobago Trade and Business Information Portal (TTBizLink) set up by the Ministry of Trade & Industry and launched in May 2022.  Explaining the significance, De Souza said the facility gives all of the information required by an exporter to this country or someone looking to do business locally, as well as all of the information needed by a national exporter or importer seeking to find markets for manufactured products or source goods and raw materials. 

Moving forward

How does the industry move forward to better meet the needs of the business sector in 2023 and beyond?   The veteran banker emphasised: “The fact that the banks are very conservative in their lending and investment policies is a positive. There will always be pressure on the banks to be less conservative in their lending policies, but one has to be mindful of the fact that there are two sides to a bank’s balance sheet, and the interest and safety of depositors always have to be borne in mind. Conservatism helps protect depositors and national savings.”

Concerning the needs of SMEs, he said: “There is pressure from small and medium-sized businesses for more financing support. The challenges they face in accessing loan capital is a limited amount of capital of their own for equity injection, and they also generally have limited amounts of security to offer. It is to be noted that most major financial institutions have special programmes to support SMEs, so that need is not lost on the industry. However, the challenge for banks and other financial institutions is that the failure rate for SMEs is high and to ensure that loan losses are minimised, there has to be insistence on equity injections and/or security.”

But he pointed out that apart from equity and security requirements to access funding, SMEs also need support in the following areas:-

• Affordable advisory support and representation in the interface with financial institutions when difficulties are encountered in servicing debts and reorganisation/restructuring is necessary
• Access to shared professional services when financial circumstances do not support the employment of individual professionals
• Documenting bankable proposals for expansion when new projects are being considered
• Accessing grant and funding support from multilateral agencies that have facilities specifically geared to support the SME sector
• Accessing the Junior Stock Exchange which has a window that is specifically geared to support those who have the capacity to scale up and can attract equity capital as an alternative to traditional bank financing.

Projected outlook

Looking forward to 2023, De Souza said: “The banking and financial services sector will continue to be challenged by the impact of rising prices and the cost of living on their personal loans customers,” which reduces disposable income(s) and spending ability, and affects business revenue and the ability to cover previously contracted costs and debts. However, he assured: “The sector is strong, thanks to the conservatism in lending and investment policies, so the major institutions have enough ‘wool on their backs’ to weather the storm.” 

(Ian De Souza has spent 40 years in the banking sector, holding senior executive positions. He is now the Principal Adviser in a company he established – Advice Financial Company Ltd.)

---

Boost Exports and Forex

In 2023, EXIMBANK CEO Navin Dookeran wants to see exporters exporting more… and importers becoming exporters. That is the economic vaccine the country needs, he told ‘Who’s Who’. The foreign exchange supply issue, while slightly improved from 2020, has not been resolved. For Dookeran, the solution is straightforward – increase Forex earnings. 

The supply chain disruptions currently impacting global trade have created a great opportunity for T&T as nearshoring is deployed as a strategy to address those disruptions, he said, but to take advantage of this, manufacturers need to focus on improving productivity and competitiveness by:

• investing in planned machinery upgrades;
• adoption and deployment of technology; and 
• having a reinvigorated focus on global marketing. 

It is also an opportunity for importers to consider exporting to solve the tight foreign exchange situation. “Our importers have very good, long-term supplier relationships and they buy in volumes that allow them good prices,” he noted.

Another advantage available is T&T’s well-capitalised banking sector and available liquidity to provide the capital funds for investment at a reasonable cost. The constraint is not on the liquidity side, Dookeran added. What is tricky is finding the right comfortable risk appetite that would allow the banks to invest in the SME sector. The EXIMBANK can play a role here, he said. “There is room for further risk-sharing strategies that would allow the banks to mitigate their risks while enabling increased private sector investment in SMEs, for example, via collateral backing programmes,” he said.

Financial literacy programmes are also needed to help SMEs develop their financial readiness and have proper financial statements and record-keeping, without which the banks cannot do any risk analysis and credit analysis, Dookeran said.

Looking at how the banking and financial sector will change and progress, Dookeran said that digital banking was a global megatrend and fintechs were an opportunity for T&T banks to broaden both their reach and their offerings. “Many developed markets as well as some developing markets in Africa have already moved towards having the majority of their payments done via electronic means.” However, T&T is still a very cash-based economy. The priority is to move to electronic payments in the public sector, he said. He also suggested that the banking sector could push and drive consumer behaviour towards cashless. Pointing out that banks were currently using the electronic payments infrastructure set up by the Central Bank, Dookeran also suggested increasing the availability of these electronic fund transfer services to the micro and small business sector. Digital banking is an area of opportunity, but banks have to convince people of its value, he concluded.

---

Article by: Kay Baldeosingh-Arjune