After a lost decade of austerity and ballooning debt, Barbados is on the rebound. The new government’s policies are restoring confidence in the economy, and numerous projects are underway to diversify income sources and turn this small island nation into a global leader in green energy. Anthony Clerk, CEO of Republic Bank, discusses how the banking sector successfully navigated the recent crisis, and how his own institution continues to play a major role in regional development across the Caribbean

How would you describe the banking sector of Barbados?

The banking sector in Barbados is a strong sector and a resilient sector in terms of capital adequacy. All the banks have a capital adequacy ratio well above the regulatory requirements; Republic Bank’s own ratio is over 14%, when the requirement is 8%. So our banks are strong because the capital base is strong and also because they are all part of larger groups. There are five main operators, of which three are Canadian banks: Scotiabank, CIBC and Royal Bank of Canada. Then there is Republic Bank, which is part of the Republic Financial Holdings Group, and there’s also First Citizen Bank. So all the banks in Barbados have strong support from their parent companies, and as a result Barbados is well placed in terms of banking.

How did the banks manage the crisis?

We managed it well because of our strength and capacity, as well as our adequate risk management practices. We take measured risks: the Republic Bank focuses on the Caribbean, it is a market that we know well, and our risk appetites have proved us to be correct – when other international banks had to resort to governments for support, the banks in Barbados remained resilient and able to take care of ourselves without any outside support.

What has the economic recovery been like?

The economy is improving after a difficult decade. During that time, you could see the country and its economy steadily declining; you could see the lack of maintenance on roads and buildings, you could see a lack of investment. The new administration has to deal with this legacy, and it has had to take some tough decisions. One of these was to restructure debt, both the local currency debt, which impacted Republic Bank and the other local banks, and the foreign debt, which we did not hold any of.

How did this decision to restructure debt affect your bank?

We held a lot of local debt and so we took a significant hit, which effectively whipped out several years of retained earnings. But the government probably didn’t have much of an option, as most of the debt was local rather than foreign: the ratio was probably something like 70-30. In order to deal with the fiscal imbalance they inherited, they had to deal with the local debt as well, including treasury bills, which is normally the Bank’s liquidity tool. The treasury bill portion of the local debt was so large that they had to include these into their restructuring plans as well. That impacted the access to liquidity of the banks, but our banks are strong and they remain very liquid, and we were able to withstand that storm.

How do you view the measures undertaken to restore Barbados’ finances and stimulate the economy?

The corporate tax on local companies has reduced from 30% to between 1% and 5.5%, which is a significant reduction, and to balance that off the government increased the tax on foreign companies by about half a percentage point. Whether the math is working out on the plan, I do not know yet. The government is also providing incentives for tourism, and all these initiatives are restoring confidence to the economy. Economies thrive when people are confident, because that is when they spend money, build hotels, buy homes. The confidence has returned, and the business community is cautiously optimistic about the way in which the government is doing its job. There are a number of developments planned, but things take time. Hopefully 2020 will see some of these projects started, which will mean new jobs, more construction and related activities. I think that 2020 is going to be a defining year in Barbados.

What impact have all these government policies had on your bank?

The last couple of years have been difficult for the banking sector: the debt restructuring resulted in a net present value loss on Government paper.  Subsequently the corporation tax rate was reduced, you would think it would be a good thing, but it was more complicated than that. A deferred tax asset had been created at a 30% tax rate on the balance sheets of lenders with Government debt, so when the corporate tax rate was reduced, that deferred tax asset had to be written down, so it was like taking a second hit. So, when we thought that we had seen the end of the restructuring impact, we had a further impact as a result of the corporate tax rate reduction resulting in a write down of the deferred Tax asset. But I think that in 2020 we will start to see an uptick.

Your group has invested $34 million in the region. What is Republic Bank’s contribution to the Barbados economy?

Republic Bank was formerly the Barbados National Bank, which was owned 100% by the government. The latter went through some difficult times, and in 2003 Republic Bank bought a 57% shareholding in the bank, and a few years later we bought the rest of the shareholding and changed the name. When friends or family of mine come to visit and I drive them around, I am always proud to point out all the projects that we are funding: hotels, condominiums, commercial properties, residential buildings and more. Republic Bank has been a partner for Barbados in financing construction projects. We have helped individuals and businesses build and acquire properties. You name it; we have done it. And we have also financed the government.

What is your competitive advantage compared to other banks?

We are a Caribbean bank, owned and run by Caribbean people who know the region and work for its advancement. Yes, our main shareholder is in Trinidad and Tobago, but it is still a Caribbean bank. We operate banks throughout the region, and we are the largest financial institution in the Caribbean. And the region is so interlinked that if Trinidad supports one part of the region, it indirectly benefits everyone else. Our focus is on developing the Caribbean. Our risk appetite is more accommodating than banks that are not regionally owned. When other banks are trying to exit the region, we have nowhere to go, this is our home, and here we will stay. Others may think the grass is greener on the other side, but this is our grass right here.

How is the new Lufthansa direct air link to Barbados going to impact the economy and the banking sector?

Germans have been coming to the Caribbean for a long time. We need to diversify what has traditionally been a UK and Canadian market. Over the years the US market developed, and we now have a large Sandals Resort to assist with this market. To bring in other European tourists would be an asset. This is a safe and friendly environment; you can walk out at night and go to restaurants. Plus we have beautiful beaches and a great climate.

Would you be willing to work with German investors and help fund their projects in Barbados?

Absolutely. I’m not sure what areas they would be interested in, but possibly tourism and renewable energy, and those are areas that the bank is interested in as well. We have funded a lot of different commercial projects in tourism, but one important thing for us is that the developer should have experience in the industry and not be a newcomer, and they should have an international flag. Renewable energy is fairly new to us, but Barbados is pushing in that direction and the government wants to be close to 100% renewable by 2030, which is a very lofty goal, but even if we manage half of that it will still be quite an achievement. So we are certainly interested in talking to German investors.

Why should investors come to Barbados?

Barbados is a good place to do business. We are on the rebound, and it would be an excellent investment opportunity. When you come knocking on the door, make sure you knock on the Republic Bank’s door.