Editorial

Scotiabank — withdrawal or downsizing?

Sunday, December 02, 2018

Print this page Email A Friend!


Scotiabank , formerly Bank of Nova Scotia, is one of the earliest commercial banks to operate in the Caribbean — financing the export of codfish from Nova Scotia and the import of sugar and rum to Canada.

The bank opened its first overseas branch in Kingston, Jamaica, in 1889 and is now in 25 Caribbean and Central American countries, employing over 7,000 people and serving 1.5 million customers across the region. Throughout its existence, it has been the largest commercial bank in the Caribbean.

Indeed, before the establishment of the Bank of Jamaica in 1961, it was the banker for the Government of Jamaica. Its critical importance also derived from always being able to extend credit beyond what its local assets would permit, by drawing on its head office in Toronto.

It also could access foreign exchange regardless of the parlous state of local international reserves. In addition, it was the lead coordinating bank on many occasions involving debt restructuring and bridging financing.

Several years ago, Scotiabank made a long-term, strategic, corporate decision to scale down its operations across the region. This was based on (1) its calculus of profit and risk in the small-scale operations in the Caribbean, (2) a shift to larger markets in Latin America, and (3) reduction of operating cost by shifting functions and jobs to lower-cost locations with lower labour costs, as is being done now.

An additional factor has been the de-risking prompted by the US treasury's anti-money laundering policy, which has unwittingly encouraged withdrawal of international banking services from the smallest domains.

Scotiabank has sold or is seeking to sell its banking operations in nine of the 21 Caribbean markets — Anguilla, Antigua, Dominica, Grenada, Guyana, St Kitts & Nevis, St Lucia; St Maarten, and St Vincent & the Grenadines — to Republic Financial Holdings Ltd in the Dominican Republic.

The bank is also negotiating the sale of its insurance operations in Jamaica and Trinidad & Tobago to Sagicor Financial Corp. It seems Scotiabank will now concentrate on the Dominican Republic, Jamaica, and Trinidad.

What are the implications? First, all countries are competing for investment, and capital goes where it is most profitable. Second, there is little that governments can do in a market economy to stop companies from doing what they think is best for themselves. General Motors is downsizing in the United States in spite of the efforts of the Trump Administration.

Third, multinational enterprises are withdrawing from the very small developing economies in pursuit of economies of scale and reduced labour cost. It started in sugar and bananas, then in manufacturing, but has spread to all economic activity. What is left is economic products and services which are not scalable and portable.

Fourth, this does not give governments and trade unions much leverage. Gaining justice for workers or protesting which company is buying out Scotiabank branches has to be handled skilfully or risk accelerating the withdrawal process.

Fifth, the governments of the Caricom group must consider what has caused Scotiabank to contemplate pulling out after over 100 years, and should now turn their attention to making the best alternative arrangements.

Fortunately, a Caribbean-owned financial institution is negotiating to take over Scotiabank's operations.

ADVERTISEMENT




POST A COMMENT

HOUSE RULES

1. We welcome reader comments on the top stories of the day. Some comments may be republished on the website or in the newspaper � email addresses will not be published.

2. Please understand that comments are moderated and it is not always possible to publish all that have been submitted. We will, however, try to publish comments that are representative of all received.

3. We ask that comments are civil and free of libellous or hateful material. Also please stick to the topic under discussion.

4. Please do not write in block capitals since this makes your comment hard to read.

5. Please don't use the comments to advertise. However, our advertising department can be more than accommodating if emailed: advertising@jamaicaobserver.com.

6. If readers wish to report offensive comments, suggest a correction or share a story then please email: community@jamaicaobserver.com.

7. Lastly, read our Terms and Conditions and Privacy Policy



comments powered by Disqus
ADVERTISEMENT

Poll

ADVERTISEMENT
ADVERTISEMENT

Today's Cartoon

Click image to view full size editorial cartoon
ADVERTISEMENT