By Mellica McPherson-Ganda
The bank de-risking phenomena which is also known as the Caribbean corresponding bank debacle poses a major threat to the BVI financial services sector which contributes 60 percent of government revenue. This de-risking threat involves the exiting of financial institutions that provide corresponding banking services that are necessary for international business.
Many countries in the region have been battling the issue both individually and as a block, and although the BVI’ economy is heavily dependent on financial services the Territory has only now publicly lent its voice to this matter which has been in the winds for more than a year.
The situation was finally addressed by Premier and Minister for Finance Dr the Hon. D. Orlando Smith during the 23 June House of Assembly sitting. Hon. Smith noted that the issue is a serious one: “A major issue right now is the matter of correspondent banks…and this is something that is a challenge not just for the BVI but a challenge for the entire Caribbean and the Latin American region, the fact that the correspondent banks are exiting to some extent the region.”
The de-risking situation threatens the BVI banking sector which promotes the Territory’s ability to offer modern international banking services. In stressing the significance of the matter, Hon. Smith pointed out: “It means that jurisdictions like the BVI will not be able to do business as smoothly as they did in the past. Just today, (23 June) I saw a correspondent from CARICOM…trying to make some headway in this area, in this way.”
“This is a matter being discussed at the highest levels in the Caribbean region, and a matter that representation has been made to the banks, the banks headquarters, the corresponding banks, the agencies in America, to our colleagues in the United Kingdom. We just have to continue to persevere until we can find a solution that can assist,” he added.
BVI Was Always Concerned
The British Virgin Islands has been quiet while other Caribbean countries publicly battled the international bank de-risking trend. However, Junior Minister for Trade and Investment, Hon. Marlon Penn said that the silence should not be misconstrued as indifference.
“It’s a concern for us, it has always been a concern for our Premier from the financial services business point of view. We’ve been looking at the issue for some time now, but I think we have never come public with it. I know it is on our radar and a lot of Caribbean countries are threatened by it just like the BVI,” Hon. Penn told The Island Sun newspaper in an interview.
“The Premier is very, very concerned and he is working hard to ensure that we get a handle of the issue so that we can preserve our financial institutions, preserve our position in terms of trade in the global market that is critical for us as an offshore jurisdiction.”
The Junior Minister said that the Territory is now joining forces with other Caribbean nations to avert the threat: “We actually are having discussions with our Caribbean counterparts to see how we can band together to address the issue of de-risking, because it has the potential to really threaten our economy. So it is something that we are really concerned about and aware of. We are doing our best to try to address with the banks and the international jurisdictions as well,” Hon. Penn announced.
In most de-risking situations little warning or preparation time is provided by international entities before they exit. This often sudden announcement has been known to leave banks in other countries in an unfavourable position. Therefore, The Island Sun asked Hon. Penn if any of the local companies have reported de-risking/corresponding banking issues. The Junior Minister stated that he was not aware of any such reports. “I am not aware of any at this point but I am sure that it is a discussion that is being had in the financial sector,” he said.
BVI Hopes for the Best: Prepares for the Worst
The Junior Minister disclosed that the BVI is taking a proactive effort to mitigate the adverse effects of the looming banking issue. “I know the Premier has been talking to many agencies on the issue of banking. We have just had a new bank — the bank of Hong Kong that we are looking to start here —that is a digital bank to assist with issues of our financial services industry and so forth.”
“We are mindful of the concerns… We have always been discussing it. I think our foreign affairs person, Mr. Benito Wheatley has always been working with all our partners …to help to address these issues from his position, in terms of our person headquartered in the UK.”
During the 36th Session of United Nations Economic Commission for Latin America and the Caribbean (UNECLAC) that was held in Mexico City, Mexico on 24 May 2016 Hon. Penn said that he addressed the issues during his presentation.
Hon. Penn told the gathering that Associate Members are also affected by issues such as de-risking by international banks that threatens correspondent banking in the Caribbean. Those words, Hon. Penn said did not fall on deaf ears as he was approached with support: “After my intervention we got good comments from our Caribbean counterparts who supported the initiative. We got comments from some of the international bodies who were very concerned about it. We actually had a meeting with the finance department from Mexico,” Hon. Penn disclosed.
“We have had a lot of good response from the international community as well; ECLAC as you know is made up of Latin American Countries and the Caribbean countries and we are trying as a block to combat a lot of the issues that we are faced with as a Territory and as a region. The issues are not specific to the BVI – they are specific to the wider Caribbean, even some of the Latin American countries are being affected by this issue so we are all working together to ensure that we are not left out of the global market,” Hon. Penn added.