Jordan sees opportunities for local banks following Scotia, Baroda exit

Bank of Baroda’s Avenue of the Republic branch

The planned departure of India’s Bank of Baroda and Canada’s Bank of Nova Scotia only months before first oil here opens opportunities for local banks to expand their operations and pull in new foreign investors, according to Minister of Finance Winston Jordan.

Jordan yesterday disputed reports that government was not aware that the Bank of Baroda would be ceasing operations here as he said it had notified government since April of its scaling-down of operations worldwide.

“We knew about Bank of Baroda since April. No. No. No. We knew since April that they were pulling out. We tried to do whatever to keep them but the local branch is not influential, relative to their head office. It is not as if you can just go and say, ‘Man, hold back.’ Once they made that decision, they will go through with it,” Jordan told Stabroek News on the sidelines of yesterday’s sitting of the National Assembly.

“In terms of what they had indicated to us, also, is that this area here is thin, so they said they are concentrating on the East—Middle East and Asia. So, they are going to be pulling out of all other areas, including New Zealand. They have already pulled out of the Bahamas you know, they are pulling out of Trinidad…and they are going to Dubai and Japan and Singapore. So, it is a trend, it is not no little Guyana. Yes, they are pulling out of Guyana but it is not only about Guyana; this is bigger than us, really,” he added.

On Thursday, the Bank of Baroda sought bids from investment bankers to carry out the sale of its Guyana-based subsidiary.

According to the Financial Express, the bank said in a bid document that “The objective of this assignment is to sell/disinvest Bank of Baroda’s entire 100% stake in its subsidiary BOBGI (Bank of Baroda Guyana Inc) through investment bankers.”

The report said that Baroda’s Guyana subsidiary’s total business stood at GYD 14,560 million (nearly US$70 million) at the end of September, 2018, down from GYD 20,576.5 million at the end of March, 2017 and GYD 21,092 million at the end of March, 2016.

The report said the sale is part of a strategy to exit relatively less remunerative international markets by Baroda, which continues to call itself ‘India’s international bank.’

The Financial Express said that the decision was partly driven by a regulatory restriction on issuance of Letters of Undertaking (LoUs), which weakened the international portfolio of the bank to `19,000 crore from `38,000 crore over the April-June quarter of FY19. The contribution of international business to the bank’s balance sheet dropped to 23% from 27%. In February, the bank had decided to move out of South Africa in the wake of allegations that it facilitated money laundering by a non-resident Indian family in the country.

As a strategic move, the report said that Baroda has announced plans to focus on four overseas territories — the US, the UK, the United Arab Emirates (UAE) and Singapore.

PS Jayakumar, managing director and chief executive officer of Baroda was quoted as saying:  “The bank is trying to look east a little bit. We have done some kind of an alliance with a leading Korean bank.” He added that “they are all new markets that we need to look at, such as Korea and Japan, where there is a large amount of business going through.”

The report said that might signal a gradual move out of the bank’s six subsidiaries in Africa, one in Trinidad and Tobago and another in New Zealand.

According to the Economic Times, India’s Finance Ministry proposed to merge the three state-run banks, Vijaya Bank, Bank of Baroda and Dena Bank, into a single bank, which would become the third biggest bank in India, with a total business of more than US$210 billion. The boards of the three banks were to meet to consider the proposal. The agenda behind the merger of the banks is reportedly to lower non-performing assets.

‘Opportunity to Grow’

The Bank of Baroda branch here has not made any statement on the matter and the development comes days after it was announced that Canada’s Bank of Nova Scotia had struck a deal to sell a string of its Caribbean branches, including Guyana’s, to Republic Bank of Trinidad.

The Minister of Finance said that with the emergence of the oil and gas sector and first oil expected by 2020, he does not anticipate the decisions of the bank to hurt the local economy but is an opportunity for local banks to grow.

“For every challenge, there is opportunity. So, there is opportunity for other banks or owners to own these banks and grow them. We are talking now about an economy that has the opportunity for five billion barrels of oil.  [They can now] step up or widen their base to get new clients, new players coming into the market…you have five billion barrels of oil,” he said.

“I mean think about that—American Airlines is here, now you are hearing that United Airlines want to come also and so on. It is not as if pulling out of Guyana is the end…,” he added. 

And following government’s expression of concern to Republic Bank about the implications of the acquisition of Scotia, Republic Bank executives have asked for a meeting.

The Ministry of Finance has noted that the agreement between Republic Bank and Scotiabank raises a number of issues for the local banking sector and for the public, which the Ministry, the Bank of Guyana and government will need to carefully consider. These issues include Republic Bank holding 51 per cent of banking assets and deposits.

“I believe [there is] an invitation by Mr Nigel Baptiste [Managing Director of Republic Bank], who wants to come and talk to us but we don’t have the time right now because of the budget debates. I will speak with him. You would not want not to speak with him. We will listen, we are reasonable people, we will listen but we have our own concerns. I am not sure how he will allay those concerns. I am not sure how that will turn out because we have our laws about concentration and so on.  I am not sure how he will get around those but we will listen,” he said.   

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