Given the continuing concerns over regional banks losing their correspondent banking relationships, last week’s commentary in this space, which was headlined “Is RBC planning to exit the Caribbean?” would have attracted eyeballs throughout the region and among the Canadian banks that operate in Caribbean.
Most of the reactions to the commentary suggested that RBC Financial (Caribbean) Ltd was overcapitalised—with a regulatory capital ratio that stood at 27.30 per cent as at October 31, 2023, its most recent annual audited financials—and that the Canadian bank is seeking to redeploy capital extracted from the region to earn a higher return elsewhere.
On the timing of the decision to reduce its capital by US$200 million, it was also suggested that RBC may be trying to avoid having trapped capital in T&T, a jurisdiction with an over-valued exchange rate. (See below)
The announcement that RBC had decided to reduce its capital by US$200 million came in a notice to creditors. That notice stated, “This notice is strictly a formality required under the Companies Act. All creditors of the company will be paid.”
On RBC Financial Caribbean’s balance sheet for the financial year ended October 31, 2023, the company’s total liabilities were recorded at $51.78 billion. Of that amount, there is a line item of “other liabilities” totalling $1.44 billion that requires some attention.
According to the note to the item, RBC Financial Caribbean’s “other liabilities” include $533 million for “items in transit” and $103 million recorded as ‘other,’ with no note of explanation. Interesting.
It is also interesting that there has been no response to last week’s published commentary from any RBC spokesperson. What does that lack of response mean?
Last week’s piece, as well, triggered some thinking around which financial institution in the region has gained the most from the decision by Canadian banks to reduce their footprint in the region. It seems that Republic Bank has grown, while RBTT Financial/RBC has declined.
As at March 31, 2008, its year end, the total assets of RBTT Financial Holdings were $53.52 billion and the profits attributable to its shareholders totalled $931.13 million.
As at the end of March 2008, RBTT Financial operated in T&T, Suriname, Barbados, Antigua, St Lucia, St Vincent, St Kitts and Nevis, Grenada, the Dutch Caribbean territories, including Aruba and the Netherland Antilles, and Jamaica.
T&T contributed 61.87 per cent of T&T-headquartered company’s profit before tax.
As at September 30, 2008, the assets of Republic Bank Ltd (RBL) totalled $41.56 billion and its profits attributable to its shareholders amounted to $1.20 billion.
At its 2008 year end, RBL operated in Barbados, Grenada, Guyana, Cayman Islands, St Lucia and T&T, with this country accounting for 84.67 per cent of the company’s core net income before taxation.
RBTT Financial Holdings became RBC Financial (Caribbean) Ltd on June 16, 2008, when the Canadian bank, RBC (Royal Bank of Canada) completed the purchase of the T&T financial institution by paying US$2.2 billion to the RBTT shareholders. Sixty per cent of the consideration was in cash and 40 per cent in RBC shares.
RBL became Republic Financial Holdings Ltd (RFHL) on December 16, 2015, creating an umbrella company for all of its main banking subsidiaries.
By October 31, 2023, RBC Caribbean’s total assets grew to $66.06 billion, from $53.52 billion by March 2008, while RFHL’s total assets as at September 30, 2023, amounted to $112.92 billion, from $41.56 billion as at September 30, 2008.
This means RBC’s total assets in the Caribbean increased by 23.43 per cent between 2008 and 2023, while RFHL’s total assets grew by 171 per cent in the same 15-year period.
It is noteworthy, I think, that in 2008, RBTT Financial was larger than RBL by assets, but 15 years later, RFHL was significantly larger than the Canadian-owned bank, using the same metric.
A significant contributor to difference in assets in 2023, of course, is that between 2008 and 2023, RFHL increased the number of countries it operated in, while RBC’s footprint in the region declined substantially.
As indicated last week, RBC Financial (Caribbean) sold its operations in Suriname to Republic Bank in July 2015.
On October 31, 2019, RFHL closed its acquisition of seven Scotiabank operations in the Caribbean, by acquiring the Canadian bank’s business in Anguilla, Dominica, Grenada, St Kitts & Nevis, St Lucia, St Maarten and St Vincent & the Grenadines.
The acquisition of the banking operations in those seven countries added US$1.5 billion to the RFHL’s total asset size and US$20 million to its net profits.
When the announcement of this transaction was first made in November 2018, the deal included Guyana and Antigua/Barbuda, but RFHL had concentration issues in Guyana and opposition from the Antiguan government.
RFHL completed its acquisition of Scotiabank’s operations in the British Virgin Islands, effective May 31, 2020. At the end of October 2019, the BVI operation reported total assets of US$568.5 Million and profits of US$14.6 million.
But it also noteworthy that while RBL/RFHL assets grew by 171 per cent in the 15-year period 2008 to 2023, the bank’s growth in profits has not been as robust. By my calculation, the bank’s profit attributable to its shareholders increased by 45.83 per cent in the 15-year period, rising from $1.20 billion in 2008 to $1.75 billion in 2023.
RBTT Financial’s profit attributable to its shareholders at the end of March 2008 was $931 million, while on October 31, 2023 RBC Financial’s net income after taxation was $1.07 billion, an increase of 15.3 per cent over the 15-year period.
