Banking Needs for Leaders January 17, 2019 Presented by Chris Sicotte
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Banking Needs for Leaders January 17, 2019 Presented by Chris Sicotte Financial Services Professional with over 26 years of experience Experience in both consumer & commercial banking Board Member of AFOA Saskatchewan & Former Board Chair of AFOA Canada Also member of the following Boards & Committees: Greater Saskatoon Chamber of Commerce (1st Vice Chair) City of Saskatoon Cultural Diversity & Race Relations Committee (Chair) Saskatchewan First Nations Family & Community Institute Inc. Provincial Métis Housing Corporation AIDS Saskatoon Kitotaminawak Parent/Community Council – Oskayak High School What makes the financial institutions different? Banks Governed under the Bank Act Personal deposits insured by Canada Deposit Insurance Corporation up to $100,000 Generally speaking commercial deposits are not covered under CDIC insurance For profit corporations, little or no Indigenous representation on Boards. Trust Companies Governed under Provincial legislation Generally operate the same as Banks (i.e CDIC insurance) Some restrictions on lending practices Also for profit corporations Credit Unions in Saskatchewan Operate under the Credit Union Act Provincially regulated All deposits are 100% insured by Credit Union Deposit Guarantee (“CUDG”) Financial co-operatives, founded on Co-operative values Recent changes have allowed Credit Unions to be Federally regulated. Main change = move to CDIC insurance vs. CUDG Main Services Regardless of whether it’s a Bank, Trust Company, or Credit Union all 3 offer the same core services: Deposit services (Chequing and Savings) Lending services (Loans & Mortgages) Wealth Management (Trusts, Retirement Savings) As a leader, what should you be looking at from your Banking relationship? First things first, it’s a relationship This means it should be founded on mutual respect and understanding of the core values of both parties If these values aren’t aligned, then there will be tension between the parties Partnerships: lots of talk about this, but what does this look like? The true test of the relationship will be when the Band incurs “bad times” & how this is managed. What about Requests for Proposals? An excellent opportunity to “test the waters” It’s not uncommon for the FI’s to request information: like 3 years of financial statements, copies of account statements, etc. Usually for a fixed term (3-4 years) REMEMBER: sometimes lowest cost means some degree of loss of service. Also RFP’s can sometimes only cover one area of the relationship. Also there will be costs associated with moving banks: such as cheque orders, cash management fees, plus time costs associated with contacting vendors on pre-authorized payment or direct deposit HINT: see if the new FI will pick up some or all of these costs What about borrowing? Most FI’s have developed lending policies & procedures specific for First Nations In most cases for commercial entities the procedures are the same as for mainstream commercial, although some changes for on-reserve business However, in most cases the maximum amortization is usually 10 to 15 years maximum. Normally does not meet the estimated useful life of the asset (if for infrastructure financing) Borrowing (con’t) Keep in mind there are costs for borrowing, such as: Legal fees Professional fees Cost for appraisals Application fee: generally this is anywhere from ½ to up to 1% of the total amount of credit being borrowed In my experience the first 3 are all costs that the Borrower will bear, the application fee is sometimes financed as part of the loan Are all rates the same? Short answer: NO!! FI’s each have different criteria for how they assess the risk of a First Nation Lower risk First Nation = better rate Prime rates are not the same between FI’s Prime Rates as of January 17, 2019 (with comparison to 2018) These are the Prime Interest Rates as of the above date: Bank Prime Rate 2019 Prime Rate 2018 BMO 3.95% 3.20% CIBC 3.95% 3.20% HSBC Bank Canada 3.95% 3.20% RBC 3.95% 3.20% Scotiabank 3.95% 3.20% TD Canada Trust 3.95% 3.20% First Nations Bank of Canada 3.95% 3.20% Credit Unions Affinity Credit Union 3.95% 3.20% Innovation Credit Union 3.95% 3.20% Raymore Credit Union 4.25% 4.25% Other Peace Hills Trust 3.95% 3.75% On reserve bank? Is it important? In Saskatchewan there are 5 FI branches located on- reserve, namely: CIBC: Lac La Ronge Peace Hills Trust: Fort Qu’Appelle (Starblanket) & Saskatoon (Muskeg Lake) First Nations Bank of Canada: Flying Dust & Saskatoon (Yellow Quill) If asked RBC will set up accounts at their Peguis branch in Manitoba On Reserve Bank? Is it important? (con’t) For a First Nation Band, there is little benefit as they are already exempt from taxes under the Income Tax Act (forming a function of government) Also some issues of whether Section 89 exemptions apply to Bands (McDiarmid Lumber decision) Some Banks are now requesting Section 89 waivers as part of their security packages (especially as it relates to equipment financing). Leases & Conditional Sales Contracts are exempt from Section 89 Band owned corporations do not have Section 85 or 89 status, thus the change of businesses to Limited Partnerships Biggest benefit is to the individual Band member. Some things to consider Does your FI have dedicated Account Managers that deal with First Nations? Are they Indigenous? (First Nations or Métis) Commitment to First Nations communities? Are First Nations part of their long term business strategy or is it just “flavour of the day”? Decisions are generally not done at the Account Manager level, have to be escalated to Risk Management for approval. Economic Reconciliation The FI’s have a role in developing and implementing economic reconciliation for First Nations communities Are they committed to UNDRIP & TRC Call to Action #92? If so what actions are they taking? Policies or products to address the key issues on reserves (housing, infrastructure, etc.) Employment (the “Red Ceiling”) In Summary The relationship you have with you financial institution should be one of the most important relationships you have Banks are becoming more competitive for First Nations business RFP’s are an excellent way to see what the market is prepared to offer, but keep in mind that should you switch banks there will be costs associated with it There are new entrants coming into the market, especially on the finance side. Make sure to thoroughly read everything. The devil is often in the details. THANK YOU!! .