Mission Objectives To promote networking among Caribbean indigenous • To foster a spirit of goodwill and camaraderie among the commercial and related financial institutions with a view to indigenous Banks and Financial Institutions of the region providing a range of services to members to facilitate their with a view to solving their common problems through efficiency, effectiveness and profitability and to influence policy understanding and co-operation. formulation in the Caribbean, particularly that which impacts on • To assist in and influence the development and improve- the practice and conduct of banking and and ment of the codes of conduct and standards of the the development of the region. Banking and Financial Services Industry in the Caribbean/CARICOM Region. • To provide a forum for the exchange of ideas and informa- Values tion on various aspects of operations in order to broaden the scope and knowledge of its officers. • The CAIB is an Association of trusted and proac- tive partners working together to achieve • To assist its members wherever possible in the areas of common goals and objectives. training, management, systems and processes, inspection or any other related areas of operations. • There is an environment of trust and openness • To collect and disseminate statistical, technical, economic among members. and other information relating to banking and all its • The CAIB values cooperation among its members aspects. as this is critical to the unity and organisation. • To print and publish any magazines, newsletters, periodi- • Members are committed to sharing experiences cals, books or leaflets that the Association may consider that benefit and develop other members and desirable for the promotion of its objects. strengthen the organisation. • To foster an increasing awareness of the presence of its members at Governmental level and to seek assistance in • Relationships both internal as well as external are promoting its objectives. driven by a high level of integrity. • To do whatever is deemed necessary within the limits of its • Relationships among members are characterised members’ powers to develop and strengthen indigenous by an understanding of sensitivity to the needs Banks and Financial Institutions of the Caribbean and concerns of others. Region/CARICOM Region. • Relationships among members are characterised • To amalgamate with any , institutions, by respect for the views and feelings of each other. or associations having objects altogether or in part similar All members are treated fairly and equitably. to those of this Association. The Magazine of the Caribbean Associationaccount of Indigenous 2005 Banks Inc.

contents

4 Chairman’s Message

5 CEO’s Message

6 Regional Round-up

9 Oil Prices, Growth & Debt in the Caribbean: Is there Light at the End of the Tunnel?

13 Caribbean Banking: Looking Good but Caution Warranted

19 An Equity Market Conundrum

22 Knowledge: Your ’s Most Important Asset & How to Manage It

24 CBM: Component Business Modeling

27 Visa Stimulates Economic Development

29 How can Regional Banks Buy a Place in the Minds & Hearts of Customers?

CAIB Caribbean Account 2005 is a publication of The Caribbean Association of Indigenous Banks Inc.

Editor-in-Chief Art & Design Pre-press & Print Mr. Hanzel Manners Leigh Morton Star Publishing Co. Ltd., St. Lucia Editorial & Advertising Mrs. Patricia Hamilton Marketing & Distribution Production CAIB Inc. Editor Morton Publishing Kim Morton [email protected] Copyright © CAIB Inc. 2005 contents

33 Transforming Payment Processing & Tapping Undiscovered Profit

41 Deploying Business Process Management in Banks

45 ABI Financial Group: Leveraging the Opportunities & Mitigating the Risks of the CSME

48 Transforming the CAIB using the Balanced Scorecard

53 Effective Credit Risk Management

59 Implementing Basel II in the Compliance Continuum

63 Cutting off the Money & Uncovering Terrorist Financing

67 Risk Modeling under Basel II: Getting to grips with the Detail

71 Standing Together against Big-Time Fraud

75 Boost Customer Profitability with Predictive Analytics

79 CAIB Members Round-Up

101 The Process Imperative

107 The Changing Face of Corporate Caribbean

The Caribbean Association of Indigenous Banks Inc. (CAIB)

Address Contact Officers of the Secretariat Chakiro Court Telephone: (758) 452 2877 Mrs. Patricia Hamilton, Chief Executive Officer Vide Bouteille Facsimile: (758) 452 2878 Mrs. Adela Frederick, Manager: Research, Development & Training P. O. Box CP 5404 E-mail Address: [email protected] Mrs. Mary Louis & Ms. Cheryl Delice Castries, St. Lucia Website: www.CAIBInc.org Administration

The information contained herein has been obtained from sources believed to be reliable. CAIB disclaims all warranties as to the accuracy, complete- ness, or adequacy of such information. CAIB shall have no liability for errors, omissions or inadequacies in the information contained herein or for inter- pretations thereof. The reader assumes sole responsibility for the selection of these materials and to achieve its intended results. The opinions expressed herein are subject to change without prior notice. Chairman’s Message

very year the Caribbean Association of Indigenous Expanding Membership: Allow me to take this opportunity Banks Inc. (CAIB) brings you a magazine packed with to welcome six new Members to the CAIB fold. They are: Ecutting-edge, practical information about the financial Caribbean Union Bank Ltd., Cayman Island Development services sector. This year’s Caribbean Account 2005 is no Bank, Jamaica National Building (JNBS), Signia exception. In this outstanding publication, you’ll find up-to-date Financial Group Incorporated, The Belize Bank Limited, and information on the regional environment and on just about The Mutual Inc. It is heartening to see more regional every issue affecting the sector. indigenous banks heed the clarion cry of the Association! We are confident that you will benefit from your participation in the Leveraging our Strength as an Industry: Caribbean CAIB. Not only will you benefit from our strong networking Account has long highlighted the need for industry players to function ,and widen your span of peer associations, you will also strengthen their global positions by acting together – this “com- derive the benefits of shared information about the financial ing together” is the raison d’etre of the CAIB! We must take uni- sector from the Region’s most reliable source. Welcome to the fied positions in order to withstand, and benefit from, global CAIB! shocks resulting from continuing industry . Conference Theme: “Transformation: The Way Forward”, is The region’s players must also prepare - together - for the fact the theme of this year’s Annual CAIB Conference. Through that compliance requirements will become ever more strin- this theme we encourage you to think outside the box and gent and international in character (particularly under the change the way you do business. Challenge yourselves to take Basel II Accord). For this reason we include a new section in our up the role of leaders in the industry! Throughout this maga- magazine: “Risk Management”, with incisive discussions on zine you will find articles that enable you to think in new ways aspects of risk, and suggestions for regionally-appropriate risk about technology, processes, behaviours, and management modeling. Close to home, nothing better exemplifies the chal- techniques. Using these tools, you can align your organisation lenges attendant on “coming together” than the need to pre- to trends and developments in our very dynamic sector. pare for the Caribbean Single Market and Economy (CSME). Transformation surrounds us and we play a critical role in man- The implementation of the CSME is guaranteed to change the aging the outcome of change. face of regional banking and financial services. Ask yourself: “Is Sydney Maynard: The CAIB would not be where it is today my organisation ready for the CSME; Can we take full advan- were it not for the sterling contribution of Mr. Sydney Maynard, tage of the opportunities it will offer?” who sadly passed away on September 29, 2005. Mr. Maynard Adding Value for Members: Knowledge and information was the first Chief Executive Officer of the CAIB Secretariat. are vital if we are to understand and meet the demands of a He was a driving force in the professionalisation of the new and complex financial landscape. This, Readers, is what Association, and was also responsible for revamping the Caribbean Account 2005 offers. We are very proud to say that Caribbean Account Magazine. A man of integrity, Mr. Maynard two of the CAIB’s offerings to Members, this Magazine and our had a vision for the CAIB and for Caribbean Account, and he Annual Conference, have become the industry platform for worked tirelessly to make that vision a reality. On behalf of the information sharing. This is just one way that the CAIB fulfills its Executive, The Secretariat and the Members of the CAIB, I mandate of providing added-value for Members. extend sincere sympathy to the Maynard family on his passing. He will be deeply missed by his countless friends and peers in Economies of scale and scope have always been a challenge the industry and across the region. for regional financial institutions, and this is another area where the CAIB has created tremendous value for its membership. A Word of Thanks: Thanks to the Executive Committee, As you read Andrea Gaillard St. Rose’s very interesting article Members, Associates, and everyone who has supported the on “The Changing Face of Corporate Caribbean” you should CAIB this year. We look forward to your continued support as note that she pays particular attention to the issues facing we seek to serve you better in the new year. Thanks also to the directors and shareholders in the Caribbean. It is against just staff of the CAIB Secretariat for their professionalism and con- sistency in meeting the CAIB’s objectives. Special thanks to all such background, that the CAIB has initiated the formation of those who have contributed to Caribbean Account: The a Regional Association of Audit Committee Members, Secretariat, our advertisers, contributing writers, publishers and which will facilitate networking, training and information shar- printers, for their unwavering commitment and willingness to ing – all absolutely necessary in this evolving and critical arena. share their insights. To all our Readers: Enjoy it! The Association should be launched in the first quarter of 2006, and will be the first of its kind in the Caribbean. We urge Mr. Hanzel Manners, Chairman, members to support it and to become involved! Caribbean Association of Indigenous Banks Inc.

4 CEO’s Message

his has been an exciting year for the Caribbean financially sustainable. This transformation, needless to say, will Association of Indigenous Banks Inc. (CAIB), and consume much of our effort over the next year, and we encour- Tonce again, we are delighted to bring you our age our Members to ask questions, give advice and get flagship publication: Caribbean Account 2005. Let me involved as we re-create ourselves to serve you better. begin by thanking all of those who have made this maga- Information Sharing: It has been a year of achievement for zine possible, our contributing writers, advertisers, part- the CAIB. We have stayed true to our commitment to create ners, Members, the dedicated team of the Secretariat, our networking opportunities for our Members, and to promote production team, Morton Publishing, and our printers, Star information sharing amongst them, all with the greater objec- Publishing. Their joint effort has allowed the CAIB to bring tive of strengthening the regional financial services industry. you this collection of valuable and reliable financial ser- Our cutting-edge web portal, designed, developed and man- vices intelligence, one that meets the highest internation- aged by V2R Financial Services has provided us with a window al standards, done right here in the Caribbean. to showcase our Members across the region and to the wider The CAIB’s Strategic Direction: I urge you to read world; attracting over 1,800 visitors over the last 12 months Marguerite Orane’s article: “Transforming the CAIB using the The monthly newsletter continues to provide timely and cur- Balanced Scorecard”, which documents what I consider to be rent data on a wide range of matters affecting the sector, touch- the CAIB’s most significant achievement for 2005. It all began ing on topics from Credit Ratings to Risk Management, and in January 2005, when we embarked on a strategic planning everything in between, while at the same time keeping exercise to chart “the way forward for the next five years”, using Members up-to-date on each-others achievements and mile- the “Balanced Scorecard” performance management stones. Meanwhile, our Annual Conference, in Grand approach. Marguerite and her team were instrumental in help- Cayman, with an Agenda filled with thought leadership and ing us create our final strategic plan and we thank them! interactive sessions, is shaping up to be one of the best yet! Repositioning the CAIB: Our goal was to “re-create” the Alliance and Relationship Building: The CAIB recognises Secretariat and the Association as a whole, to better position the need for business alliances if we are to achieve our objec- the CAIB to fulfill its role as a premier platform for networking tive of building strong relationships with our stakeholders. This and a superior advocate for the industry. Topmost of our con- helps us achieve our aim of being a superior advocate, and pro- cerns was the need to provide responsive, efficient, and effec- viding the most extensive and efficient networking opportuni- tive services to you, our valued members – to be as nimble and ties to our members. The tremendous response from our quick as our Members. The guiding question in this exercise Sponsors at this year’s conference validates that we have built a was: “What MUST we do to delight our members and strong foundation. We are also pleased to advise that, this year, make sure that they receive full value for their participa- we entered into business exchange agreements with two new tion in the CAIB?” Our research indicated that our Members partners, Source Media, publishers of Banking Technology want us to do more to help them cope with the challenges of News and Business Monitor International Limited, both with globalisation. To achieve this, we must in turn broaden the extensive readership across the globe that will help to promote range of services we provide to our membership, particularly in the CAIB and its role in the region. In addition, we are in the the areas of policy, legislature, advocacy, and representation of process of concluding a Strategic Association Partner Members. This will inform our efforts as we go forward. Programme arrangement with the Association of Certified The CAIB’s Strategy Map: Our Strategy Map, which Anti-Money Laundering Specialists and we trust that the pre- appears in Marguerite’s article, outlines our four key strategic sentation at the Annual General Meeting will confirm the themes that will provide the guiding principles as we seek to value of this relationship. fulfill our purpose and deliver the best Customer Service (i.e. Conclusion: In closing, allow me to congratulate our Service to Members): Members for their own successes over the last year - these • Responsive, Effective and Efficient Service Delivery were many, often at the highest international level. We cele- • Superior Advocate brate with you! Your commitment to Caribbean economic development and the progress of CAIB are greatly appreciat- • Premier Networking Platform ed. We earnestly urge you to keep the faith as we move togeth- • Best Information Source er into an exciting future. These goals require that we transform ourselves to become an innovative, well-led, well-resourced organisation, guided by our Mrs. Patricia Hamilton, Chief Executive Officer, core values. At the same time, we must be well governed and Caribbean Association of Indigenous Banks Inc.

5 Economic Environment Regional Round-up Hayden G.S. Blades The author presents an overview of global and regional economies, noting the impact of high oil prices and adverse weather conditions on prospects for sustainable growth.

he Global Environment: There are an increasing 50 basis points representing the third such increase in 5 months. number of risks to the sustainable expansion of the Tglobal economy although growth remains largely intact Belize: 2004’s Real GDP increase of 4.6% was largely attribut- able to growth in the tourism, agriculture and fisheries sectors. in Q3 2005. Geopolitical risks associated with the increasing Nominal GDP grew from BZD1,961.60MM (2003) to demand and growing uncertainty in the supply of fuel commodi- BZD2,071.20MM (2004) and Consumer Prices rose from 2.3% in ties in an environment of declining refinery capacity heads the 2003 to 3.0% in 2004. In spite of the External Current Account list of immediate concerns. Furthermore, OPEC’s commitment Deficit decline from 22% of GDP in 2003 to 18% in 2004 this to expand crude oil output using existing production capacity deficit remains untenable. Similarly, the fiscal deficit grew from has not brought the anticipated relief to the oil market largely 8.3% in Fiscal 2003/04 to 8.75% in Fiscal 2004/05 far above the due to demand growth outstripping agreed supply adjustments. targeted 2.75%. Combined, the External Current Account Deficit These factors and others have resulted in crude oil market and the Fiscal Deficit negatively impacted overall External prices exceeding US$60 per barrel in recent weeks. In addition, Public Debt. As a result of its debt-servicing challenges, Belize’s the potential for supply disruptions due to seasonally adverse access to international capital markets, exacerbated by its down- weather conditions in the Gulf of Mexico and a lack of refinery grading by rating agencies, has narrowed. capacity are expected to negatively affect market prices. Cayman Islands: Ivan reversed the gains of January-August The US economy, while continuing along a 4% growth trend dri- 2004. Tourism, construction and financial services drove GDP ven by consumer spending and continued business investments, growth of 1.7% in 2002 and 2% in 2003, and vibrant economic is bedevilled by a growing trade deficit and the negative fallout activity in the first eight months of 2004, and the economy from severe weather. General confidence in the economy’s seemed poised to achieve 3%-4% growth in 2004. Ivan’s damage resilience in part has prompted the to continue has been estimated at CI 2.9BN or 183% of GDP. Fortunately, as its gradual removal of accommodating monetary policy through a result of good contingency planning, the financial services sec- eleven successive increases in the Fed Funds rate, now at 3.75%. tor rebounded quickly with a net increase of banks and trust Across the Atlantic, the lack of confidence in the new EU consti- licences from 474 in 2003 to 490 by Dec. 2005. Consumer tution demonstrated by the French and the Dutch, together prices increased 4.4%; unemployment held steady at 4.3%. The with lacklustre economic growth and weakening fiscal condi- fiscal surplus grew approximately 15% in 2004 even though cap- tions in larger economies have resulted in a weakening of the ital expenditure and net lending rose by approximately 16%. Euro relative to other major currencies. Correction to the Euro Guyana: Real GDP growth of 1.6% was realised in 2004, follow- may assist EU export growth in the short term but without fun- ing 2003’s -0.6% economic contraction due to a decline in sugar damental economic reforms and with increased competition and gold production, The impact of higher oil prices on the from Chinese imports, EU growth will remain weak for the import bill was mitigated by improvements in export receipts, remainder of 2005. culminating in a Current Account Deficit of 12.2% of GDP in 2004 up slightly from 11.3% in 2003. While average Consumer REGIONAL ECONOMIES Prices remain relatively low, the impact of higher energy and Barbados: The Barbados economy expanded by 3.7% in 2004 food prices translated into inflation of 6% in 2004 up from 5% in led by continued growth in the tourism sector. Lower GDP 2003. Since 2002 the free floating Guyana Dollar has steadily growth of 2.3% was achieved for Q1 2005, fuelled by the non- depreciated against the US Dollar from USD1:GUY177.60 (1999) traded sectors such as the wholesale and retail sector and the to USD1: GUY198.50 (2004). transportation, storage and communication sectors. The growth of these sectors combined with higher disposable incomes and Haiti: Ranked by the IMF in 2005 as Latin America’s poorest credit growth in the banking sector resulted in an 11.7% increase nation, GDP per capita is estimated at USD516 compared with in the consumer goods importation and a 15.4% increase in cap- an average GDP of USD3,162 for others in the group. Inflation ital goods importation. This contributed to weak growth in net hovers at 22%, with chronic deficits in merchandise trade (reli- international reserves during Q1 2005. In response to this and able data is difficult to obtain). The fiscal position is charac- rising US interest rates, the Central Bank increased the mini- terised by low levels of revenue from a fragile domestic base (a mum rate payable on deposits from 2.25% to 2.75% in April, to low-yield tax structure) and inconsistent flows from external 3.75% in June, and effective September, to 4.25%, an increase of sources resulting in insufficient resources for expenditure on

6 Vital Statistics development strategies. International aid has enabled the govern- ment to maintain revenues between 7%-9% of GDP since 1995 while expenditure falls between 9%-16% of GDP. Anguilla GDP: $140 million Jamaica: Jamaica passed its USD5.6 Billion balanced budget for the GDP Real Growth: 12% 2005/06 fiscal year, following minimal real GDP growth in 2004. GDP Per Capita (PPP): $8,999.60 The budget imposes new taxes on consumers and tourism activity Inflation: 5% and focuses on social reforms. The tax reform package raises the Unemployment: 7.8% (2002) threshold, which reduces overall tax revenue but is miti- Exports: $5.78 million gated by increasing consumption taxes. About 60% of Government’s Imports: $90.78 million revenue base will be absorbed by debt payments in fiscal 2005/06. Jamaica’s Debt is approximately 140% of GDP. Achieving a balanced Antigua & Barbuda budget in this fiscal year may be difficult given the debt burden and GDP: $821.38 million potential downside risks associated with tax structure reform, but the GDP Real Growth: 5.1% strategy of fiscal prudence is mostly appropriate if Government’s fun- GDP Per Capita (PPP): $8,691.04 damental objective is to lower public debt to sustainable levels. Inflation: 1.3% Success will depend heavily on the success of the tax reforms. Unemployment: 7.8% Organisation of Eastern Caribbean States: In Q1 2005, the Exports: $20.11 million OECS economic environment was defined by real GDP growth of Imports: $272.2 million 3.6% and continued high liquidity in the banking sector. Growth was catalysed by increased tourism and construction activity; agricultural Barbados and manufacturing sector output declined. The primary growth GDP: $2,757.45 million components of regional tourism activity were the 7% growth in stay- GDP Real Growth: 3.7% over arrivals and cruise ship activity of 40%. Concerns include grow- GDP Per Capita (PPP): $7,350 (2005) ing public debt levels, the price of oil imports, and the need for tax Inflation: 3.3% (Oct. 2004) reform given the weakening fiscal positions of Member countries. Unemployment: 9.9% Key strategic imperatives for OECS governments for 2005 into Exports: $306.23 million 2006 include increasing linkages between and among the tourism, Imports: $1,233.18 million agriculture and light manufacturing sectors, further developing the tourism product, and restructuring the agriculture sector - all the Belize while improving fiscal balances through a combination of debt GDP: $1,043.2 million restructuring and fiscal discipline. GDP Real Growth: 4.2% (2004) GDP Per Capita (PPP): $3,784 Suriname: GDP growth for 2004 was estimated at 4.5% and is Inflation: 3.1% expected to remain at this level in 2005 based on the expected Unemployment: 11.6% increase in mining sector output and the associated spill over effects. Exports: $316 million (2003) Government’s macroeconomic policies are credited with the Imports: $521.6 million (2003) decline in the rate of inflation from 23% in 2003 to 9.2% in 2004. Favourable conditions and policies are expected to persist in 2005. Public sector reform will be a key priority to achieve greater fiscal Cayman Islands flexibility and broaden the base of economic activity. These objec- GDP: $1.3 billion (2004) tives should be more achievable now that national elections are over. GDP Real Growth: 1.7% (2003) GDP Per Capita (PPP): $43,775 (2003) Trinidad and Tobago: T&T’s economy is poised to continue its 6- Inflation: 4.4% 7% rate of growth in the Q3 2005. Main contributors to growth are Unemployment: 4.4% the energy and construction sectors. Concerns are rising inflationary Exports: $4.3 million (2003) expectations; expected increase of local interest rates in the context Imports: $658.9 million (2003) of rising US interest rates; manufacturing and agricultural sector per- formance; sustainability of increased Government spending, and the Dominica impact of heightened criminal activity. Central Bank’s response to GDP: $286.49 million the rising inflationary trend and increasing US interest rates was to GDP Real Growth: 2% move the repo rate to 5.5% on July 22nd. The Bank will likely contin- GDP Per Capita (PPP): $3,650 ue increases, primarily in response to changes in US Inflation: 2.5% interest rates but on a lagged basis. Unemployment: 12.5% (2000) Exports: $41.52 million Hayden G.S. Blades is the Senior Economist, RBTT Economic Unit; Imports: $119.51 million e-mail: [email protected]; web: www.RBTT.com

7 Grenada St. Kitts & Nevis GDP: $440.33 million GDP: $406.94 million GDP Real Growth: -3% GDP Real Growth: 5.1% GDP Per Capita (PPP): $3,377.09 GDP Per Capita (PPP): $7,200.37 Inflation: 2.3% Inflation: 2.3% Unemployment: 12% (2003) Unemployment: 2.3% (2002) Exports: $30.5 million Exports: $54.85 million Imports: $246.83 million Imports: $167.23 million

Guyana Saint Lucia GDP: $782.76 million GDP: $690.29 million GDP Real Growth: 1.6% GDP Real Growth: 3.6% GDP Per Capita (PPP): $986.22 (2003) GDP Per Capita (PPP): $3,839.55 Inflation: 5.5% Inflation: 1.5% Unemployment: 4.5% Unemployment: 22.2% Exports: $589 million Exports: $81.6 million Imports: $674 million Imports: $386 million

Haiti St. Vincent & the Grenadines GDP: $3.5 billion GDP: $411.04 million GDP Real Growth (est): -3.8% GDP Real Growth: 5.4% GDP Per Capita (PPP): $390 GDP Per Capita (PPP): $3,188.05 Inflation: 27% Inflation: 3% Unemployment: 70% Unemployment: 25% (2003) Exports: $205 million Exports: $33.8 million Imports: $1,456 million Imports: $201.41 million

Jamaica Suriname GDP: $8 billion GDP: $1,109 million GDP Real Growth: 2% GDP Real Growth: 4.2% GDP Per Capita (PPP): $3,158.06 GDP Per Capita (PPP): $2,500 Inflation: 13.7% Inflation: 11.8% (2003) Unemployment: 13.1% (2003) Unemployment: 17% Exports: $1,586.1 million Exports: $697 million (2003) Imports: $3,525.9 million Imports: $863 million (2003)

Montserrat Trinidad & Tobago GDP: $41.41 million GDP: $12.5 billion GDP Real Growth: 4.5% GDP Real Growth: 6.2% GDP Per Capita (PPP): $7,898.88 GDP Per Capita (PPP): $8,580 Inflation: 3% Inflation: 3.7% Unemployment: 13% (2001) Unemployment: 8.4% Exports: $4.25 million Exports: $6,402.9 million Imports: $25.59 million Imports: $4,894.2 million

Source: Caribbean Development Bank- Annual Economic Review 2004; ECCB Annual Economic Review 2004; www.worldbank.com; www.cimoney.com; www.centralbank.org.tt. Caribbean Account thanks the RBTT Economic Unit for its kind assistance.

8 Economic Environment Oil Prices, Growth & Debt in the Caribbean: Is There Light at the End of the Tunnel? Jwala Rambarran

In this economic review, the author surveys global and regional economic prospects, with particu- lar reference to surging oil prices. The author also takes a close look at the issue of public debt, noting that seven Caribbean countries now rank among the top ten most indebted emerging mar- ket countries in the world. An analysis of the Dominican Republic’s recent experience, the author argues, is instructive for Caribbean countries moving into the “valley of debt”.

fter surging at a rapid pace of 6% in late 2003 and gas (LNG), petrochemicals and crude oil. Real GDP is project- early 2004, global growth is moderating to a ed at around 6-7%. High oil prices are clearly boosting overall fis- Amore sustainable rate of 3-4% in 2005, mainly dri- cal and external positions but mask underlying vulnerabilities. ven by the United States and China. This slowdown partly The central government expects to record an overall surplus of reflects the impact of rising crude oil prices, which have about 2% of GDP by end-September 2005, while international more than doubled in the past year in response to strong reserves are likely to top the US$4 billion mark by year’s end. global demand, a series of supply disruptions and specula- Public external debt is very manageable, but the rapid expan- tive positioning. World crude oil prices are currently hovering sion in domestic debt to nearly 37% of GDP is a source of con- around US$70 per barrel and the futures market suggests that cern. Establishment of the Heritage and Stabilisation Fund prices are not likely to decline any time soon. While the global (HSF) remains key to prudently managing windfall energy rev- recovery has helped to boost activity in Caribbean countries, enues and critical to helping avoid a recurrence of the mistakes record high oil prices are eroding their already strained fiscal from the 1970s oil boom. The most immediate risk to the out- positions. The region’s average budget deficit stood at nearly look is the spiraling criminal activity including kidnapping, 6% of GDP in 2004, up from around 2.5% of GDP in 1997. which is hampering business confidence in the non-energy sector. On July 21 2005, Standard & Poor’s upgraded Trinidad As subsidies on petroleum products con- Oil & the Region: and Tobago’s foreign currency credit ratings to A-, and changed sume an increasingly greater share of scarce public revenues, its outlook to stable. many Caribbean governments have been forced to announce politically costly price hikes for unleaded gas, kerosene, diesel In Jamaica, macroeconomic stability is returning and the out- and LPG. In Jamaica, gasoline prices have risen by about 40% look is one of cautious optimism. Inflation is running below the since July 2004. In St. Lucia, the government is projected to revised annual inflation target of 10.5%, allowing the Bank of forego about 5% of overall tax revenues from the sale of unlead- Jamaica to reduce its policy interest rates to historical lows. ed products in order to support suppliers and has kept the Aggressive fiscal adjustment has been reflected in very high pri- price of LPG unchanged to protect low-income households, mary budget surpluses, averaging over 11% of GDP in recent losing around 10% of consumption tax revenues in the process. years. The FY 2006 Budget envisages a balanced budget Even in energy-rich Trinidad & Tobago, petroleum fuel products aimed at further bringing down the extraordinarily high public are heavily subsidised, accounting for an estimated 5% of bud- debt, which is at 140% of GDP. On 10 December 2004, geted revenues in fiscal 2005. If oil prices continue to trend Standard & Poor’s affirmed its ‘B’ long-term foreign sovereign higher, this will pose a serious drag on fiscal and growth credit ratings on Jamaica, and revised its outlook to stable. prospects for oil-importing Caribbean countries. In addition, Preparation for Cricket World Cup 2007 is boosting activity in rising global interest rates are likely to ramp up external debt Barbados, but is also leading to a surge in imports and putting interest payments, further widening budgetary gaps. pressure on external reserves. The Central Bank of Barbados Outlook: Of all the countries in the region, the prospects for has jacked up interest rates in an attempt to dampen import Trinidad and Tobago remain the most favorable. In 2005, spending and curb credit growth. Although fiscal performance Trinidad is set to record its twelfth consecutive year of econom- is not improving fast enough to stabilise the public debt, there ic growth, again led by higher production of liquefied natural is little chance of an imminent debt crisis. The external position

9 remains strong at about 7 months import cover, most of the debt is which is helping to boost tourism and industry. Finally, a held by residents and is in local currency, and gross financing require- debt exchange has the potential to achieve very high investor partici- ments seem manageable. In early August 2005, Standard & Poor’s pation, but only if investors agree on the imperative of debt relief and downgraded Barbados to BBB with a stable outlook if the exchange is part of an economic reform program. Extensive consultation helps to build consensus and allows investors to have an Despite the damaging impact of Hurricane Ivan on Grenada, eco- input in the design of the exchange. Preserving principal and coupon nomic growth remained strong in the rest of the Eastern Caribbean rates greatly helps to sweeten the deal. in 2004 driven by construction and a strong rebound in tourism. The near-term outlook is for a moderate performance. Ultimately, the Dominican Republic’s experience showed that imple- menting a reform package while simultaneously reaching agreement Bothersome Public Debt: Public debt remains at very high and with creditors is less costly than waiting for the market to force the uncomfortable levels in many Caribbean economies, averaging close same set of actions. Hopefully, other Caribbean countries moving to 100% of GDP at end-2004 compared with 55% of GDP at end- into the valley of debt will quickly come to this realisation. 1997. Seven Caribbean countries now rank among the top 10 most indebted emerging market countries in the world (see Graph). Many governments are now attempting to seriously address this vulnerabil- Caribbean Ranking Among Top 30 Most ity through a combination of fiscal consolidation, growth, asset sales, Indebted Emerging Markets and more active debt management. Antigua & Barbuda has intro- Public Sector Debt- To- GDP (%, end-2004) duced a Personal Income Tax, St. Kitts announced the closure of the loss-making sugar industry, and Dominica is undertaking fiscal adjust- Lebanon ment in the context of an IMF-supported program. Grenada plans to restructure its external commercial debt. Belize has proposed a pro- Guyana gram of austerity measures to lay the groundwork for commercial St. Kitts & Nevis debt restructuring next year against the backdrop of a string of ratings Jamaica downgrades and virtual cutoff from the international capital markets. Argentina Antigua & Barbuda Lessons from the Dominican Republic: As they contemplate their debt strategies, Caribbean countries would do well to learn from Grenada the experience of the Dominican Republic, which completed a suc- Dominica cessful restructuring of US$1.1 billion in Eurobond debt in May 2005, Philippines some two years after it had plunged into a serious financial crisis. Four Belize immediate lessons come to mind. First, it is difficult to design an inter- Uruguay national rescue package to simultaneously deal with wavering market Barbados confidence and weak fundamentals. Even though Caribbean govern- Malaysia ments have been reluctant to enter into IMF-supported programs, the “seal of good house-keeping”, explicit in such arrangements, plays St. Lucia an important signaling role to the markets about the strength and SVG determination of the country’s reform efforts. It is critical, however, for Egypt the IMF to focus on its core competence, addressing financing gaps Turkey and debt sustainability issues, while the authorities and their advisers Indonesia focus on the actual design of the debt operation. Colombia Second, asking private investors to take a loss or actually imposing Suriname such a loss helps to improve public debt dynamics, but is difficult to Thailand include in any reform package. When default risk and devaluation risk T&T are already high, private creditors may be forced to accept such a Ecuador large loss to restore fiscal balance that they head for the exits anyway. Mexico While haircuts may be best undertaken in a crisis atmosphere, this was not done in the case of the Dominican Republic, perhaps as a Haiti sign of good faith negotiations. S. Africa Bahamas Equilibrium: Third, the reform package must show that it is indeed 0 20 40 60 80 100 120 140 160 180 200 moving the economy to a “good” equilibrium. Policy inconsistency Source: International Monetary Fund (IMF) only adds to the costs. In the case of the Dominican Republic, the package brought about a temporary suspension of government’s Jwala Rambarran is the Chief Economist, Caribbean Money access to market borrowing, which has forced much-need reform in Market Brokers (CMMB); Tel.: (868) 623-7815; e-mail: the fiscal and power sectors. It also brought about a real depreciation, [email protected]; web: mycmmb.com

10

Industry Overview Caribbean Banking: Looking Good, But Caution Warranted

Natasha Marquez and Prasad Koparkar

CariCRIS, the Caribbean’s first regional credit rating agency, offers a trend analysis (entirely based on public information) of some of the major Caribbean banks in three major economies – Trinidad & Tobago, Jamaica and Barbados. The authors note that “while the analysis is based only on a select sample of large banks… given the relatively large size of the banks analysed, their multi-country presence, and their dominant share of business in the respective economies, [the sample is] rea- sonably representative.” CariCRIS applied the CRAMEL framework which covers Capital, Resources, Asset quality, Management, Earnings & Liquidity for the purpose of this analysis.

anking sector assets in the key Caribbean economies dence, falling interest rates and sustained growth in retail lend- Bregistered a healthy compounded annual growth rate ing. However conclusions about overall industry growth need (CAGR) of 8% in the last two years, largely driven by to be tempered by the contribution of aggressive acquisitions expanding books (based on aggregate data for eight of the (see table 1) to the asset expansion. Moreover, relative to some larger banks in three key Caribbean countries – Barbados, other emerging economies, the absence of a vibrant, well-func- Jamaica and Trinidad & Tobago (T&T), with total assets aggre- tioning bond market in the Caribbean has also helped banks gating US$27 billion as at end 2004, including respective bank- to capitalise on the absence of effective alternatives to bank ing subsidiaries in other countries as well). However, the growth lending. numbers are impacted by First Caribbean International Bank Changing landscape – regionally owned banks on the Limited (FCIB), which registered negative growth in the last ascent: Growth rates, however, have varied widely across two years on the back of its integration in 2002 when opera- banks (see charts 1 & 2). Regionally owned banks are increasing- tions of Barclay’s Bank (acquirer) and CIBC (acquiree) were ly eating into the market share of banks with significant owner- merged and the merged entity was renamed FCIB). Excluding ship by large global banks in the last few years. Aggressive local FCIB, the growth would have been 13% for this period. banks like RBTT, Republic Bank Limited (RBL) and NCB regis- These figures are broadly in line with banking industry asset tered above industry average growth boosted by network growth elsewhere in the world. The growth has come on the expansion in new territories. On the other hand, banks such as back of improving economic outlook, growing business confi- Scotiabank Trinidad & Tobago Limited (SBTT), perceived as

Table 1: Key M&A deals in regional banking sector

Acquiring Bank Acquired Bank Year Asset Size of Acquisition

FCIB Barclays Bank and CIBC were 2002 US$8.85Billion (Barbados) integrated under FCIB

Republic Bank Ltd. Banco Mercantil S.A. 2004 US$324Million (Trinidad) Barbados National Bank 65% 2003 US$750Million Guyana National Cooperative Bank 2003 US$80.9Million

RBTT Financial Caribbean 2004 US$191Million Holdings Limited Limited (Barbados) (Trinidad) Ernst & young Trust Corporation 2003 N/A

Butterfield Bank Barbados Mutual Bank 2003 N/A (Bermuda)

13 conservative lenders, registered only moderate growth. FCIB, the bank with the largest asset base in the region, reflected negative BNB 2002 2003 growth possibly due to the challenges faced in post-merger integra- BNSJ 2004 tion. FCB Going forward, we expect regionally owned banks will continue to NCB gain market share. While larger balance sheets can provide RBL economies of scale, reduce vulnerability to shocks and improve risk profile, banks’ management need to balance the growth objective RBTT with ability to manage the growth successfully. International experi- SBTT ence shows that inorganic growth is often accompanied by potential -10 0 10 20 30 40 50 60 70 80 90 asset quality problems and issues related to harmonisation of organi- sational cultures and control systems. Chart 1: Loan Growth (%) Diversified asset mix reduces risk: Banks in the region have a 2002 healthy mix of retail and corporate assets, a key positive from a risk 40 perspective (see chart 3). However, contrary to general perception 2003 35 about rapid growth in retail assets, the proportion of retail assets (as % 2004 30 of total ) has actually declined marginally. In our view this is more 25 due to accelerated growth observed in commercial and corporate 20 loan book rather than reduced focus on retail segment. Moreover, 15 with retail assets still accounting for 35-55% of assets for most banks, 10 the proportion of retail assets compares favourably with banking sys- 5 tems in Latin American countries like Mexico (16%), Brazil (24%), Chile 0 (10%) and even India (around 30%). -5 SBTT RBTT RBL NCB FCB BNSJ BNB In CariCRIS’ opinion on the backdrop of the liquidity overhang, falling Chart 2: Asset Growth (%) interest rates and rising asset prices (especially real estate) it may be actually prudent to be cautious in retail lending. We are therefore not overly worried about the small decline witnessed by a few banks in BNB composition of retail assets in total loan portfolio. BNSJ Moreover, with the aggressive network expansion in new territories FCB accompanied by M&A activity, the asset side risk is much better diver- FCIB sified now than a few years back. However, benefits of diversification NCB are tempered by the fact that many Caribbean economies continue 2003 to have a fair degree of correlation. RBL 2004 RBTT Improving asset quality: The reported asset quality has improved SBTT with average gross non-performing loans (NPLs) (as percentage of gross loans) declining to 4.5% from over 6% in the last 3 years. 0 10 20 30 40 50 60 Moreover, net NPLs also declined consistently as banks have contin- Chart 3: Ratio of Retail Loans to Total Loans ued making prudent provisioning (see chart 4). However, this analysis is entirely based on loan book and does not include investment port- 7% folio due to inadequate disclosures. Moreover, the asset quality needs Gross NPL/Gross Loans Net NPL/Net Loans to be viewed in light of the fairly strong loan growth witnessed by the 6% banks in the region, as high loan growth periods can typically mask 5% potential asset quality problem temporarily. Nonetheless, asset quali- ty of regional banks compares favorably with the other emerging 4% economies (see chart 5). 3% Not surprisingly, however, at individual bank level the net NPLs vary 2% widely (see chart 6). Barbados banks in particular have high net NPL. 1% On the other hand, a few banks like First Citizens Bank (FCB) and National Commercial Bank Jamaica Limited (NCB) have more than 0% 100% provision cover for NPLs. 2004 2003 2002 2001 With the stable to positive economic outlook we do not expect any Chart 4: Aggregate Regional NPLs

14 significant deterioration in the overall asset quality for banks in the 18 2004 region, barring any natural disaster like a large hurricane. 16 2003 Reported healthy capital adequacy: The reported total capital 14 2002 adequacy of the key banks compares very favorably with emerging 12 market banking systems (see charts 7). While asset growth has been 10 robust, high profitability coupled with moderate payouts 8 (average of about 30%) has ensured that banks are able to maintain 6 comfortable overall regulatory capital position (see chart 8). However, 4 in CariCRIS’ opinion the current level of disclosure with respect to 2 capital adequacy falls below best practices and hampers a more 0 meaningful analysis from a risk perspective. Caribbean Emerging Emerging Latin Region Asia Europe America Resources – challenges ahead: The resource profiles of the banks Chart 5: Gross NPLs (%) vary significantly (see chart 9). Multinational banks like SBTT and FCIB depend almost entirely on deposits for funding, banks like RBTT Bank Holdings Limited (RBTT) and FCB have accessed non-deposit bor- BNS rowings. BNB With the declining interest rate scenario in most Caribbean economies, average interest cost for banks has declined from over 4% FCIB to below 3.5% in the last 2 years. However, the deposit mix is showing some signs of retail investors moving to other investment avenues in SBTT the quest of maintaining yield. As a result, the proportion of retail 2003 deposits (as a percentage of total deposits) has declined consistently RBL 2004 in the last three years (see chart 10). The competition faced by banks 2005 RBTT in the traditional deposit market is also evident in more rapid growth witnessed in alternative investment avenues like mutual funds. For -11234560 example, in T&T, mutual funds assets have grown at a CAGR of 38% in Chart 6: Bank Net NPLs (%) the last 3 years compared to 8% CAGR witnessed by banking deposits. Total assets managed by mutual funds are expected to cross NCB the total banking sector deposits in the short term (see chart 11 & 12). FCIB We believe that retail deposits provide a source of more stable and cheaper funding for banks. Therefore higher proportion of retail SBTT deposits is seen as a key positive. Going forward, containing deposit RBL cost while attracting retail deposits to fund the robust asset growth will be a key challenge for the banks. Latin America 2002 2003 Profitability – Strong but pressures ahead: Measured by any Emerging Europe 2004 standard parameter - net interest margin (NIM), interest spread, return Emerging Asia on asset (RoA) or return on equity (RoE) - Caribbean banks show a far 0304010 20 superior performance compared to peers in other parts of the world. Chart 7: Capital Adequacy Ratios The above average profitability in the past was driven by limited com- petition, lack of well-developed bond markets, which impede effec- tive disintermediation, and high proportion of fee income, largely 12 from investment banking divisions. 10 Notably, while profit growth has been robust, 3-year CAGR of about 8 20%, core earnings growth (profits excluding other/trading income and non-recurring items) has been more modest at 13%. 6 4 At an individual bank level, banks with strong investment banking arms, such as RBTT reflect high fee income and corresponding better 2 RoE. Fee income is normally perceived favorably in risk analysis due to 0 lower capital requirement. However, if a significant part of it is derived 2004 2003 2002 2001 from investment banking operations, an inherently more volatile busi- Chart 8: Aggregate Regional Net Worth to Total ness, as opposed to fee income generated from retail operations, the Assets

15 benefits are tempered. Moreover we believe that investment-banking BNB business in the region is becoming intensely competitive and the rel- atively fat deal fees earned by the banks are unlikely to be sustained. BNSJ 2002 2003 Development of capital markets will also squeeze bank spreads going FCB 2004 forward. We therefore believe that banks will find it challenging to FCIB maintain historical profitability levels.

RBTT Liquidity declines –ALM an area of concern on the back of hardening interest rates: Robust loan book growth has led to a SBTT decline in overall liquidity position in the banking sector. Total cash 020 40 60 80 100 balance (as percentage of total assets) has declined steadily from Chart 9: Deposits to Total Interest Bearing about 22% to 17% in the last three years. More importantly, with reduc- Liabilities ing liquidity the asset-liability-management (ALM) would be a key risk issue, especially on the back of increasing interest rate scenario. The 70 one-year ALM gap, a key measure for liquidity and market risk, indi- cates wide variations across banks. Absence of securitisation markets 60 also hinders banks’ flexibility on ALM issues. 50 The Road ahead: Analysis of trends in performance of large 40 Caribbean banks in the last two years presents a rosy picture. In 30 CariCRIS’ opinion, growth and geographical expansion places these 20 banks on a much better footing in terms of risk diversification. 10 However, there are signs of emerging challenges. Apart from increas- ing competition for fee business, pressure on spreads and consequent 0 2004 2003 2002 2001 margin squeeze, banks face three key challenges in our view – man- aging human resources, upgrading technology to cope up with Chart 10: Aggregate Regional Retail Deposits to aggressive growth in business and lastly, readying for the evolving reg- Total Deposits ulatory frameworks including Basel II. Only banks that prepare them- selves and cope with these challenges will emerge successful and cre- Total MF size (TT$ mn - LHS) ate value for all key stakeholders. 30000 Bank Deposits (TT$ mn - LHS) 100% MF as % of Bk Dep (RHS) From a longer-term perspective, it cannot be overlooked that some 25000 80% banks and even entire banking systems in parts of the Caribbean 20000 have faced severe stress in the not too distant past. Avoidance of 60% recurrences of such failures cannot be predicated on the basis of 15000 40% short-term performance; it would depend on fundamental strength- 10000 ening of risk management systems and processes. Moreover, the 5000 20% inherent vulnerabilities and their potential for magnified impact in such small, open economies prone to natural disasters can quickly 00%change the picture. In that context CariCRIS believes that Caribbean 2004 2003 2002 2001 2000 1999 1998 1997 banking systems need to conform to higher capital and performance Chart 11: T&T MF Industry standards as compared to other emerging market systems.

50% MF Bank Dep. Disclaimer: CariCRIS has taken due care and caution in compilation of 40% data for this article. Information has been obtained by CariCRIS from sources which it considers reliable. However, CariCRIS does not guarantee 30% the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the 20% use of such information. CariCRIS is also not responsible for any errors in transmission and especially states that it has no financial liability whatso- 10% ever to the subscribers/users/transmitters/distributors of this article.

0% 3 years 7 years Natasha Marquez is a Rating Analyst, CariCRIS and Prasad Koparkar is a Technical Consultant, CariCRIS; Chart 12: CAGR of MFs vs Bank Deps in T&T e-mail:[email protected]

16

Capital Markets An Equity Market Conundrum

Jason W. Morris

The author examines the bearish performance of the Jamaica (JSE), noting that the “positive feedback loop” which was generated by financial media frenzy and which helped to drive an “apparent speculative bubble”, may also have played a role in the initial unwinding of the mar- ket. He warns Jamaican investors against paying too much attention to the negatives and too little to the positives of the . Investors have been rewarded for the risk taken in investing in Caribbean equities, he says, and “what goes down won’t stay down”.

he regional equities market has provided a boon for half the story. The demise of Dyoll Group Ltd in the aftermath investors with the risk appetite for stocks over the past of Hurricane Ivan, and its subsequent suspension from trading Tseveral years. The median annual return of the major was also instrumental in eroding market confidence earlier Caribbean indices – the Barbadian (BSE), Trinidadian (TTSE) during the year, as many investors were left holding an empty and Jamaican (JSE) stock exchanges - over the past three years nest. Investor confidence and perception are key ingredients to was 24%, 27% and 39% in domestic dollar terms respectively. a well functioning financial market, and the speedy resolution However, after surging to record levels and outperforming to the Dyoll issue will be key to maintaining the integrity of the emerging market equities in 2004, the Caribbean indices and Jamaican stock market. There is an ongoing investigation into the JSE in particular, have lagged the performance of emerging the issue by Jamaica’s Financial Services Commission and one markets in 2005 (below). The Jamaican equities market has arrest has already been made. suffered the worst decline of the three Caribbean markets. A “Wall of Worries” or Fleeting Disillusion? History has repeatedly taught us that the time to buy stocks is when every- Equity Market Returns in US$(%) one is bearish, scared and concerned. Right now, it seems as if Jamaican investors are paying too much attention to the nega- BTSE TTSE JSE MSCI-EMGLF tives and too little to the positives of the stock market. Inflation peaked at a nine year high of 18.2% in July, following the passage YTD Aug ‘05 6.17 0.08 -8.63 11.81 of three hurricanes in 8 months. This is clearly bearish for stocks, Last 12 Months 17.35 10.81 6.26 37.86 as investors worry about a squeeze on corporate profits from a 2004 35.30 55.50 65.60 22.45 wage-inflation spiral and higher utility costs for companies. Weaker than anticipated GDP growth (-0.1% in Q205), walking The JSE: As “Bear as it Gets”: The JSE has slumped from a tight fiscal rope with a balanced budget target for this fiscal a 12-month return high of 125% in April 2004 to 6.9% in August year, and political uncertainty from the current leadership race 2005 and is down 8% year to date - its worst performance since within the ruling People’s National Party for a new President March 2001. The JSE’s monthly returns were negative in six (- and Prime Minister, may have also impacted on investor confi- 3.2% average) of the first eight months of 2005 and the index is dence. The median four quarter EPS is flat at J$1.32 versus J$1.30 down 8.6% in US$ terms year to date in August. Sixty percent of in December last year, while price multiples have retreated to JSE stocks are within 15% (circuit breaker limit) of their 365 day lows and one third of the market is 40% below their 365 day Figure 1: JSE - From Rising Star to Fallen Angel highs. The JSE has underperformed Jamaica’s bond and money markets so far in 2005 and has failed to provide a hedge against inflation for only the second time in five years (Fig. 1). All at a time when Jamaican domestic yields have fallen to 18 year lows. To re-coin a phrase, this is “as bear as it gets”. Integrity of Capital Markets: There is no question that Jamaican stocks were overbought and this is a contributor to why the advance in prices has stalled in 2005. The same “pos- itive feedback loop” generated by financial media frenzy (plethora of financial news programmes) which helped to drive the now apparent speculative bubble, may have also played a role in the initial unwinding the market. However, that is only

19 11 times earnings versus 15 times earnings at the peak. The list of potential negatives could be extended easily. However, none of these risks and hurdles seems insurmountable. Jamaica’s economy is in far better shape now than it was in 2003 when its debt ratio surged close to 150% of GDP, its fiscal deficit exploded over 7%, the currency depre- ciated by over 20%, interest rates were hiked to 35%, over 3.5% of GDP in taxes were imposed, reserves dwindled to a low of US$1.1 billion, Jamaica’s sovereign ratings had a negative outlook and inflation surged to 16.7% (March ’04). The equities market hardly sighed during this apparent “financial storm”. Today, the debt ratio is below 136%, a balanced budget is targeted, the currency has depreciated by only 1.02% the past 12 months (2.4% past 18 months), interest rates are at 18 year lows (13.15%), 1.5% of GDP in taxes were imposed in this year’s budget, reserves are twice the lows of 2003, the sovereign ratings at stable, and inflation is 16.7% (August). Further, massive expansion in both the tourism, construction and min- ing industries should result in at least US$78 million in additional demand from the manufacturing sector, US$48 million in agricultural produce over the next several years and U$1.4 billion in FDI next fiscal year. This leads me to believe that much of the current price depres- sion has more to do with investor psychology, confidence and political headwinds than with fundamentals, which means stocks may repre- sent great value at current levels.

Figure 2: The Risks are Worth the Returns

The Returns are Worth the Risk: I am not saying there is no risk in buying stocks, which are inherently risky investments. However, investors have been rewarded for the risk taken in investing in Caribbean equities. Figure 2 shows the risk return relationship for investing in the three major Caribbean stock markets over a three and five year period. While it is apparent that the JSE gives the highest return, what is not apparent is that the JSE gives the best return per unit of risk taken (least risky) over the past five years (lowest coefficient of variation). Another factor that investors seem to be overlooking is the potential portfolio reallocation of pension funds from the once high interest bearing fixed income asset class to other asset classes including equities. Further, the JSE has historically provided an inflation adjusted monthly return of 1.7% which equates to roughly 20% on an annual basis. Returns are currently below this level, which may be an indication that stocks are cheap at current levels, especially when combined with the risk reward relationship. There is an old adage “what goes up must come down is true”, to which I add, “what goes down won’t stay down”. Jason W. Morris is the Investment Research & Sovereign Risk Analyst, JMMB Ltd.; e-mail: [email protected]; web: www.jmmb.com

Technology Solutions Knowledge: Your Bank’s Most Important Asset & how to Manage It

Daphne Ewing-Chow

Knowledge Management refers to the act of harnessing an organisation’s knowledge and collective expertise and distributing it to the right people at the right time. The goal: improved efficiency and customer service, and empowerment of human resources. The author discusses Intranets as a useful tool.

n a competitive financial market, banks must place signifi- based web site that is accessible only by employees, directors cant importance on the retention, use and development of or others within the organisation. An intranet's pages are simi- Iassets that are critical to sustained growth. These include lar to a web site in many ways, but the firewall surrounding an intangibles, such as human capital (accumulated knowledge intranet fends off unauthorised access and can secure items on and expertise of workers), customer relationships, information a document-by-document level, giving users the ability to view, (including statistical data, competitive intelligence, best prac- edit, add or delete, depending on the level of permissions that tices, regulatory information, etc.), strategies and ideas and soft- they have been granted. The use of an intranet is especially ware and databases, to name a few. Each of these vital effective in the case of entities that have experienced mergers resources should not only be safeguarded, but must be opti- and/ or acquisitions or are regionally dispersed, thus allowing mally leveraged in order to survive in an increasingly competi- for a unified virtual community and increased cohesiveness tive and rapidly changing environment. across geographic, functional, departmental or institutional divisions. Knowledge Management Defined: You might have already noticed that each of the assets described above are knowl- edge-driven or knowledge-based. Banking itself is an informa- ntranet: Permissions-based tion-intensive business and the ability to make information and knowledge available at the right time, in the right place, and Iwebsite - allows creation of a without delay is a key requirement. It thus follows that it is of unified virtual community and utmost importance for any performance-driven bank that is “ interested in getting the utmost value from its intangible assets increased cohesiveness. to embrace a comprehensive Knowledge Management strate- gy. Knowledge Management in Action: Some examples of Knowledge Management refers to the act of harnessing the regional institutions that have embraced Knowledge knowledge and collective expertise within your organisation Management are as follows: ” (hidden in staff experiences, desk draws, hard drives, staff and customer opinions and on corporate networks) and distribut- • Butterfield Bank Barbados uses the Knowledge Zone to ing it to the right people at the right time in order to cut down route customer issues or complaints to the appropriate on paper, automate processes, increase efficiency, improve cus- personnel and maintain a real time electronic log for ref- tomer service and to empower human resources. This is also erence purposes and to improve customer service. essential if the corporation is to preserve intellectual capital • Cayman National Bank in the Cayman Islands uses the when staff members leave, to leverage tools that allow for Knowledge Web to track cross selling efforts within its quicker and easier decision-making, and to orient new staff to branches and to provide staff with points-based incen- the corporate culture and provide them with necessary infor- tives to cross sell products and services. mation with less human intervention. • Global Bank of Commerce in Antigua delivers all of its Intranet Solutions: One way of successfully achieving these forms and policies and procedures to its customers via its objectives is through a well-planned intranet or permissions- Knowledge Web.

22 • First Caribbean International Bank uses Inside First to advise its staff provided. An intranet must also be intuitive, aesthetically pleasing and fre- throughout the region of developments and to provide quently updated in order to generate repeat usage. It must contain “sticky” them with up-to-date rates and fees. tools, such as short cuts to frequently used applications and must be inte- grated into bank processes and activities. As such, process reengineering Other institutions use intranets for E-Procurement, Booking Board Rooms, exercises should ideally be planned post- Knowledge Management initia- Online Think Tanks, Teleconferencing, Project Document Repositories, tives and implementations. Online Training, Market Places (to sell items), Workflow Tools (to streamline and automate the lending process and other processes), Group Scheduling Prior to engaging in Knowledge Management initiatives, a small administra- and Events Calendars, Online Phonebooks and Contact Databases, IT Help tion committee should be identified and a Knowledge Management strate- Desks and Issue Trackers, Announcements and Bulletin Boards, Online Job gic plan and needs assessment should be produced. This should be fol- Banks and Electronic Forms. The possibilities are literally limitless. lowed by a “knowledge audit” or information gathering exercise. Upon com- pletion of these activities, the appropriate technology should be implement- ed and launched. These activities are most effectively rolled out if managed ost intranets aren’t deliberately by a third party, so as to avoid bureaucracy and subjectivity and ensure the Mplanned, they start out as divisional greatest return on investment by placing a Knowledge Management expert at the forefront of the project. efforts that are then leveraged across the “ Ultimately, an effectively implemented Knowledge Management initiative whole organisation... will reach every staff member through a single intranet-based delivery chan- nel, marrying the easy availability and orderly management of an internet site with the security and specialisation of an internally-designed proprietary The Ideal Intranet: Well-planned intranets make perfect platforms for tool that promises to streamline operations, reduce expenses, raise morale your Knowledge Management initiatives.” But most intranets aren’t deliber- and improve service and sales. ately planned, as they start out as divisional efforts that are then leveraged across the whole organisation. Many of these intranets hold valuable infor- mation but are unstructured and excessively decentralised. This can be Daphne Ewing-Chow is Vice President of Strategic Financial problematic, as employees will only use an intranet as a collaborative plat- Services at V2R FS Inc.; e-mail: [email protected]; form if there is confidence in the validity of the knowledge and resources web: www.v2rfs.com Process Management CBM: Component Business Modeling Sunny Banerjea Component Business Modeling can transform the account opening process, often a bank’s first interaction with a customer, leading to greater efficiency and a better understanding of customers. nhancements to the account opening (AO) process, heuristic modeling to promote the right mix of products to often the "first face" to customers, can help banks bet- new and existing customers who want tailored products. With a Eter understand customers and treat them consistent- strong AO component, banks can easily strike up external ly throughout all channels. Using Component Business alliances according to changing business needs. By partnering Modeling (CBM) to transform AO activities and improve effi- with providers who share infrastructure and application respon- ciency levels, helps banks differentiate themselves, attract sibilities, they can convert a majority of fixed cost to variable potential customers and deepen existing customer relation- cost, quickly scaling up and down based on market cycles. This ships. Throughout the industry, major inefficiencies constrain allows them to take greater risks with little correlation to fixed profitability. Siloed product organisations, legacy systems and costs and capital outlays, which can help them capture market- applications, repetitive processes, duplication of data and dis- share and differentiate themselves . parate service levels across channels are common. Aside from merger and acquisition activity, these inefficiencies stem from: Streamlining AO: Several steps can provide the momentum to get banks moving toward streamlined AO: • Customer information that is not shared enterprise-wide • Assess AO by identifying current challenges, including • Multiple databases maintained for the same information the degree to which the enterprise is siloed, and pinpoint • Inefficient processes remain in use the areas of complexity and redundancy in today’s AO • Different strategies used to attract the same customer, workflow and data flow. One important task is the initial resulting in higher acquisition costs benchmarking of the capabilities necessary to attain • Multiple credit reports purchased for the same cus- market-leading standards and to understand the cost, tomer, instead of reusing existing information performance and customer satisfaction implications. • Poor collaboration across business units results in low • Design an AO component with a common workflow cross-selling ratios and an inability to close on active and data flow for both customer-facing and backend leads from other units within the organisation. processes. For the end-to-end AO process, banks should identify common, constant data elements collected CBM Transformation: All banks face pressure to reduce from customers across channels and products. Next, AO costs. CBM is an analytical framework for examining AO banks should design and implement an enterprise-wide activity both as a process to be streamlined and as a collection AO data model featuring uniform workflow, common of related and potentially concurrent activities to be coordinat- data collection, a single customer view and common ed. CBM components can be used to transform processes in data flow for constant data elements. siloed business units into workflow models rationalised hori- zontally across products and channels. Grouping related busi- • Identify leading workflow practices that can be shared in ness activities together, despite organisational, geographic or the AO process, independent of product type. process boundaries, allows for analysis of data from multiple • Develop a plan to roll out a pilot and leverage collected perspectives and insights for better decision-making. Creating data to demonstrate quick benefits. Rollouts using data communally available data can increase customer satisfaction accessible from the common data flow can boost cross- - instead of having customers fill out multiple forms for multiple and up-selling and help identify incremental data needs products, information can be gleaned from one source. by product line. AO improvement through CBM enhances shareholder value, Cost Reductions: Improving AO processes can also reduce costs. An average-sized bank of 10 million accounts, with an through revenue growth, improved margins, optimised capital industry average of 15% annual turnover, could achieve an aver- and managed risk to lower costs that translate into higher oper- age 14%overall cost reduction for new AO in the areas of peo- ating margins and meeting the instant gratification demands of ple, processes and technology. Improving AO processes also customers. enables increased cross-selling and up-selling opportunities, Sunny Banerjea is the Global Banking Leader, and brings in more revenue per account. For example, when IBM Institute for Business Value; e-mail: banks connect AO to marketing, they can use neural and [email protected]

24

Electronic Payments Visa stimulates Economic Development Jesus Alvarez

In 2004, Visa processed more than $225 billion dollars in transactions across the region. The author argues that the transition from cash to electronic payments promotes economic develop- ment, and examines five relevant areas: The Government Sector, the Unbanked Population, International Remittances, Small and Mid-Size Companies and International Tourism.

hroughout Latin America and the Caribbean, ments a year. Implementing electronic payment programmes Visa provides secure and accessible payments, for procurement results in major savings in operating costs and Toffering greater convenience to consumers and greater financial transparency. Likewise, by using this payment higher revenues to merchants. Its electronic payment system for pensions and payroll, the distribution of government solutions contribute to the region’s economic growth, and funds is streamlined in a more secure and less costly manner. enable greater government efficiency through better con- trol of tax collection and public expenses, and by facilitat- 2. Unbanked Population: Distribution of payrolls, pensions ing increasingly transparent monetary transactions. and public assistance benefits, among others, through the elec- tronic payment system helps retain funds within the banking In Colombia, electronic payments have been key in col- system, reduces the informal economy and provides more citi- lecting VAT taxes. Brazil’s government uses the electronic zens with access to basic financial services. Consumers receive payment system to consolidate public expenses, and the benefits of security and convenience, while citizens gain a Mexico’s government seeks to expand the use of electron- greater knowledge of banking services. ic payments by increasing the number of terminals and acceptance points. In the last few decades, electronic pay- 3. International Remittances: Worker and person-to-person ments have experienced significant growth - and Visa’s remittances are estimated at $93-$150 billion worldwide. share of the volume of retail purchases in Latin America Remittances from the US to Latin America and the Caribbean and the Caribbean has increased 58% in the last five years. are valued at $45 billion. Switching transfers to the Visa elec- tronic system makes the money-transfer process more effi- In 2004, the Visa network processed more than $225 bil- cient, reduces operating costs and creates business opportuni- lion in transactions across the region. Visa makes major ties for financial institutions. Bringing remittance customers investments in its network to provide greater security, into the formal system gives them access to other financial ser- access and convenience to all. The transition from cash to vices. electronic payments results in important benefits promot- ing economic development. Electronic payment systems: 4. Small and Mid-Size Companies: In many countries, • Reduce cash and check handling costs small and mid-size companies represent 95% of the total com- panies and generate more than half the number of jobs in the • Boost consumer spending and GDP private sector. But only about 37 of every 100,000 companies • Increase Government efficiency and the volume of receive bank investment capital. Payment card solutions bank deposits enable issuer banks and commercial lenders to grant credit • Drive financial intermediation and liquidity and lines for working capital and for the funding of new projects lending in the banking sector more efficiently and with less risk. • Improve transparency in 5. International Tourism: The travel and entertainment • Enable greater control over cash flows. industry is a key economic growth segment in several coun- Visa supports the modernisation and growth of Latin tries. International tourism is expected to reach approximately American economies by facilitating the adoption of elec- $1.4 billion in the next decade. Consequently, the participation tronic payments in five areas according to a report pub- of electronic payments in this sector will be a key facilitator for lished in association with Commonwealth Business governments to promote the development of the tourism Council: industry.

1. Government Sector: Government purchases of goods Jesus Alvarez, Visa Latin America and Caribbean Region; and services worldwide represent $10 billion dollars in pay- e-mail: [email protected]

27

Branding How can Regional Banks Buy a Place in the Minds & Hearts of Customers?

Anna-Maria Garcia-Brooks

A strong brand contributes to the bottom line, and will become more important with the introduc- tion of the Caribbean Single Market and Economy (CSME). Here the author discusses branding imperatives for banks operating in diverse territories, such as Republic Bank, which is successfully creating a brand that is viable on a regional scale, relevant at the local level, and distinguished from competitors.

orporate branding has taken on greater significance more acute because of the intangibility of the facilities being internationally in the last three decades or so. More provided coupled with the similarity among banks – a loan, is a Cand more companies are placing special emphasis on loan, is a loan, isn’t it? In the case of banks that operate in refining and nurturing their brands as they seek to capture a diverse territories, such as Republic Bank and its operations in greater share of the customer’s mind and influence his pur- the Caribbean, the major challenge lies in the bank’s ability to chasing patterns. Banks, including those in the Caribbean are balance regional brand integrity with local cultural authenticity no exception. In fact banks internationally expend significant while still differentiating itself from other regional service time, energy and financial resources on building their brands providers. Our brand, like those of other regional banks, must and ensuring that their brand’s values and attributes are well be viable on a regional scale, but remain relevant at the local known to stakeholders, not only for brand recall and image, but level and be distinguished from the others. This is not always as because they recognise that a strong brand contributes to the easy as it might at first appear. bottom line in terms of revenue generation and brand equity generally. The branding challenges in diverse territories with different cul- tures, preferences, languages and modes of behaviour can What is a brand? In essence a brand represents the sum of become quite complex, with the level of complexity multiply- the customer’s experiences with the bank’s products/services ing across subsidiaries and divisions of the bank, product lines, or the bank itself, in other words, how the customer thinks and markets and even advertising agencies. Controlling brand feels about what the bank does and how it does it. In reality the identity in such an environment can be exigent at best. brand is transmitted in every interaction that we have with our customers over the lifetime of the relationship. It is therefore Careful attention must therefore be paid to a thorough under- built from the customer’s entire experience with the bank, not standing and appreciation of the divergent cultures of the just through the things that we say in our media advertising, Caribbean. The predicaments that many expanding banks and hence contributes significantly to building customer trust face are, “Do we customise or standardise our brand?”; “How and loyalty. do we balance the standardisation and customisation of our product brands to maintain their relevance to the needs of the Author Thomas Gad in his book, “Four-D Branding”, advocates specific market?”; “How do we achieve this sensitive balance that the brand operates at four different levels in the mind of without eroding the customer base?”; “Are standardisation and the customer, and he identified the functional, the social, the customisation on either end of a spectrum or can they co-exist, spiritual and the mental as those key levels. Every level, he sug- meeting somewhere in the middle?”; “Can we in the gests, is derived from the customer’s experiences at the brand Caribbean simply import the models of the major global touch points and those experiences combine to form the cus- brands operating throughout the world?”; “Does one size fit all tomer’s overall perception of the brand. in branding?” The regional challenge: That might indeed be so, and Not a Zero Sum Game: The reality is that customisation or might even suggest why the challenges facing brands today are standardisation is not a zero sum game. There is in fact a con- so numerous, because the issue is anything but one dimen- tinuum along which we can position our brand strategy, and we sional. In financial services in particular, the challenges are even in the Caribbean can decide the extent to which our bank’s

29 product brands would be standardised or customised across markets. A rule of thumb that Republic Bank has found useful is the approach of standard- anks that operate in ising at the level of the corporate brand and to some extent at the product B category level, and customising at the level of product features. The corpo- multiple Caribbean rate brand remains sacrosanct, and should never be subjected to customi- markets recognise that a sation to the extent that its integrity and uniformity are compromised. “ one-size-fits-all approach Banks that operate in multiple Caribbean markets recognise that a one- size-fits-all approach would be counter productive in our situation, as indeed would be counter-productive... it is in other hemispheres. These banks therefore wisely seek to understand the specific needs and preferences of their customers in each market, and customise their product offerings to meet those needs – a basic principle in prerequisites to brand success. If for instance we produce wonderful, award- marketing. Republic Bank’s Suite of Savings might look and sound the same winning commercials, extolling the benefits of our products and” services in Trinidad and Tobago as it does in Barbados, but a closer inspection would and our effective use of technology to make our customers happy, but our reveal that its DNA differs from one country to the next – customised to suit customers fail to experience that promised euphoria when they do busi- the needs and preferences of the respective market. The key of course is to ness with us, we would have created a dangerous disconnect that could and satisfy local needs, nay exceed local expectations, while simultaneously eventually would erode brand equity. The bank’s service delivery must live leveraging our regional brand identity. up to its brand promises. The CSME & Branding: The imminent introduction of the Caribbean Five Points to Consider: In wrapping up I’d like to suggest five points that Single Market and Economy (CSME) which will enable a freer movement Caribbean banks should consider critical to brand equity and to the suste- of goods, services and people, is a primary driving force for strong regional nance of their corporate brands. First have a clear vision for the brand – what brands and will invariably make the creation and positioning of strong does the brand stand for? And ensure that the vision is communicated, indigenous Caribbean brands even more of an imperative. Additionally as understood and internalised at all levels in the organisation. This includes globalisation progresses, the landscape of the Caribbean banking industry enrolling employees in the brand vision and helping or empowering them is likely to change drastically, with international banks and financial institu- to live the brand values. The brand lives (or dies) through your employees, tions cherry picking our best customers and financing lucrative projects and if they do not understand the values or promise of the brand, how can even more vigorously than they are now. It is therefore critical that our brand they really live them? Second bank CEOs must champion their brand. image and reputation are unquestionable. Support must come from the highest level and be seen to be coming from the highest level. This holds true in all industries. Employees become even So just how do we build these powerful, regional brands anyway? If all of our more empowered when they see their CEO taking an active role in shap- communication, product and service offers, actions and non-actions con- ing the brand and supporting and even initiating activities designed to nur- tribute to the strength of our brand, then the customer’s experience at every ture and buttress it. touch point, from our website to our branch, from the tone of our letters to the tone of our conversations, from the consistency of our messages to our Third, ensure that your structure and systems facilitate the maintenance of non verbals, contributes to our brand image and brand perception. standards that would ensure consistent brand identity and compliance among all stakeholders, particularly internal stakeholders. Fourth, make sure Alignment of brand promise with consistent delivery on that promise, are that your employees understand their role and specifically what they need to do to translate your brand’s promise into action. How do they breathe life into the brand’s promise? How do their actions or inaction impact customer Five Points of Branding satisfaction and ultimately their delivery on the brand’s promise? Fifth, choose the right employees. There must be alignment between your bank’s brand values and the values of the employees of the bank, particular- ly those employees with direct customer interface. Be very discerning in 1. A clear vision for the brand recruiting new staff and in moving staff into new positions. Always keep the brand values foremost in your mind and think, “does this individual actively live our brand values? Can he/she live our brand values? What is the likely 2. CEOs champion their brand impact of putting him/her in the front line?” In today’s environment where the choices available to customers are mind- 3. Structure & systems facilitate standards boggling, customers are likely to choose the brand that they recognise and trust to consistently deliver on their brand promise. In other words, the one Employees understand with the ability to gain an exclusive, positive and prominent meaning in their 4. their role minds. Anna-Maria Garcia-Brooks is the Manager, Group Corporate The right employees Communications, Republic Bank Limited; 5. e-mail [email protected]

30

Operations Transforming Payment Processing & Tapping Undiscovered Profit

Michel Bon, Joffrey Hellement & Clark Russel

The authors argue that banks should consolidate, integrate, and renovate their payment operations into an enterprise-wide Payment Processing department, supported by an End-2-End Payment Workflow Management system that supports all payment types. The result, they say, will be the transformation of the payment processing department from a cost centre into an efficient profit rev- enue generating centre.

lectronic payment processing is on the rise and will to contributing to the overall profit of the Bank. The ultimate continue to grow for the years to come. Competition challenge is to transform your payment operations into a prof- Ebetween banks is intensifying and payment process- itable one. ing has become more and more a commodity service faced with increased volumes, increased customer demands (pay Low margins and high risks: Complex business rules for around the clock), regulatory pressures and competitive pric- each type of payment requires you to build-in controls and risk ing. mitigation (activities) procedures in your payment operation. These business rules are typically insisted by your bank to miti- Unfortunately payment processing has historically grown to gate internal operational risk and have probably been there for become a manually sup- as long as you can remember. ported back-office opera- But business rules can also be tion for many banks. A enforced by third parties, (i.e. process that, due to it’s he cost for processing Central banks, Correspondent many internal and external Tpayments is about 40% of banks etc.) the so called exter- processing rules, has nal business rules. become extremely com- a bank’s total cost of “ Most of these recent ones plex. The business of pay- ment processing has there- operation and contributes to have actually redefined bank- fore become a low margin, 35% of its total profits... ing and your payment process- high operational risk ser- ing operation drastically. Just vice for banks to offer. think about international com- pliance regulations and the A costly exercise: A recent study by Boston Consulting required screening of persons & corporations against the vari- Group concludes that the cost for processing payments is ous databases and” blacklists (i.e. OFAC, Worldcheck), one thing about 40% of a bank’ total cost of operation, and merely con- is sure; it is these rules have forced the payment processing tributes to 35% of its total profits. Nevertheless, we all know that operation to grow in complexity and cost. banks are required to provide this service in order to competi- tively survive and to co-exist in the sector. The payment pro- Increased operational and financial risk related to payment pro- cessing department/operation is therefore a costly necessity cessing requires you to continuously re-engineer and improve for banks to retain their customers. your present mitigation measures in the payment workflow processes. The lack of adequate supporting systems that accu- Typically payment processing departments are managed as rately process payments based on automated business rules, cost centres instead of a profit centres. While your payment validations and control points, will unnecessarily expose your processing operation is most likely costing you more money bank to significant operational risk that can easily jeopardise than you realise, at the same time your payment volumes are the bank’s reputation. increasing exponentially and the constant dilemma exists to reduce fees due to stiff competition. Payment processing Taking on the transformation challenge: Your payment departments have historically been neglected when it comes processing department is an area where profit improvement

33 strategies and efficiency improvements are very much applicable as ment processing is the first step towards actual transformation. long as you know where and how to begin. Preparing yourself for such an endeavor, means to firstly understand the following starting points: Information is the only way forward: The difference between having a Payment Processing Department as a Profit Centre ... • Payment processing is an important but commodity service instead of a Cost Centre lies rooted in the answers to the following your bank is offering. questions: • Payment processing activities, required for internal, domestic • Is your Bank aware of the hidden costs related to processing and international payments, can be considered practically iden- payments? tical. • Is your Bank aware of the various cost components of each pay- • For each payment type there are different sets of business rules ment type and how it affects profitability? that are applicable. • Do you have insight in the payment processing workflow for • For the majority of payments that you are processing, the fees the processing of each payment type? charged barely cover, or do not cover the actual cost of process- ing! Profitability model per payment type: It is a common fact that banks spent a great deal of money to overhaul their internal process- Transformation Drivers: Now you might be thinking: “Yes I recog- es and trying to link their existing (disparate) systems with the objec- nise the situation. But how can I do something about it?”. tive to eliminate the manual interventions in payment processing. Understanding these starting points leads us to identify the following However, the efficiency improvement is never measured against the transformation drivers for your payment processing actual profit improvement. department/operation: The reason for this lies in the fact that although the systems will be • Payment Profitability Improvement technically interconnected, the quality of the payment instructions is often insufficient to process the payment, straight through resulting in • Payment Processing Efficiency Improvement high payment repair costs and penalty fees. • Payment Processing Risk Reduction. Cost and revenue allocation per payment type will provide the These three transformation drivers form the elements that will fuel required insight into the profitability of each payment, and your pay- the business case necessary to take on the transformation challenge! ment processing workflow will give you insight into the efficiency and risk mitigation factor within your payment processing business. The Strategy: The transformation strategy to follow is: Optimising your Payment Processing Value Chain: Step back 1. Build your payments processing profitability model per and start to analyse your present payment processing value chain payment type; This is done by allocating actual costs (includ- end-2-end. From the customer’s payment delivery channel, existing ing internal error correction fees, correspondent bank repair payment processing operation all the way to the receiving party’ pay- fees, unforeseen penalties) to the processing activities, and ment channel. compare with revenues. This model is the first step towards having transparency in the actual profitability of your operation, The payment value chain can be defined as a set of segments with and will form the basis to be used for further strategic decision specific automated functions that enhance the value of your pay- making; ment processing operation by reducing costs, increasing efficiency and mitigating the risks associated with payment processing. So what 2. Review and optimise your payment processing value chain; are these enhanced values and what is required to enable these value With the profitability model in hand, decisions can be made to enhancers within your payment processing environment? To answer optimise the payment processing value chain. These optimisa- these questions we will look at the cost drivers and value enhancers tion steps will not only come forth out of activity based costing of a typical Internet Banking initiated wire payment. of the payment operation, but also on the hidden costs such as repair and penalty fees. Cost Driver Value Enhancer 3. Consolidate and integrate your existing payment opera- tion and processing units. Duplicity means higher risk and Re-entry of payments Straight Through Processing processing inefficiencies. So, within your present payment High payment repair Full front-end data capturing operation, be it on the domestic payment processing side, the international processing side, you are probably performing the Correspondent bank selection Intelligent bank routing same type of activities to process the payment. By consolidat- Non-STP penalty fees STP validations & enrichments ing the operations and processing units, inefficiencies and risks will be drastically reduced. Risk of non-compliant payments Real-time compliance screening Manual FX authorisation Intelligent business rules By now you realise that building the profitability model of your pay-

35

So, if your bank is offering internet banking as a service, are you: • Capturing all required payment data at the front-end? BANK • Validating and enriching payments to be SWIFT STP ready?

Internal Payments l a g s n t n • Screening payments in real-time for compliance? Processing i o n s i t e s a e m

s n

t c y • Processing internet payments straight through? en r a o ym e r a t

P P

c n ti P es sing I • Able to focus on payment exception processing? Dom ces Pro Understanding your payment processing value chain will help you pri- oritise transformation activities based on their value impact, and will be the first step in transforming your payment operation into a more Payment Processing Silos profitable one! Products & Services Eliminating organisational silos: Banks tend to instate or have t n g various payment processing departments for each type of payment e e n s i m c g s d s k n e y r n that is processed. For example, the processing of international SWIFT e i e r n a i g a t s g t a u i n a n n a i C r s

Payments, as well as large value payments through Real-Time Gross n B u a g F t u

a t i a

o o r c e e d e t c L r M o Settlement (RTGS) systems, has grown to be the responsibility of the e e a d

T c r t S v a M i A e r C Treasury department (as they maintain the international correspon- r T s P s dent relationships and operate the SWIFT terminal). Domestic or A local payments are processed by the check processing department. Internal payments are processed within the administrative depart- ment and so on. The set up of different payment processing units within different Payment Processing Department departments may have been a logical decision at that time, but hav- ing similar payment activities performed in three different silo-ed Risk locations is costly, inefficient and risky. Treasury Compliance Management Currently, various countries within our region are in the process of set- ting up an Automated Clearing House (ACH) for the processing of checks and domestic low value payments. For most banks the deci- sion on where to house this operation logically is a difficult one. Most Processing Entry Verification Authorization will decide to set up a separate department to process the payments & Interfacing going through the ACH system which is a logical step within the tra- ditional way of thinking. At this point, banks should rather be thinking to centralise and consol- idate payment processing operations rather than scattering the activ- ities. Nostro Accounting The next step towards more profitable payments and efficient pro- cessing is to integrate and consolidate your payment processing Integrated payment processing process. department. The full integration and consolidation of your bank’s pay- g n i ment operations into one centralised payment operation can only be s s

e Revenue accomplished by moving away from the bank’s historical silo-oriented c o r Transaction

P Generating structure towards a centralised payment operation that serves the w Based

o Center l entire group. f k Profit r o W

Payment processing as an integrated service: Although during t Cutting costs, n recent years banks have managed to accomplish significant efficien- e Building revenues m y a

cy improvements within operational units, they have never provided P

f

o Standard sustained competitive advantage nor have they addressed the func- y t i

l Expense

tionality duplication and inefficiencies across the silo oriented units. a u Center Account balance validation for example, might consist of the same Q process steps and functionality across multiple channels and units. The transformation of your payment processing department

37 acquisitions or mergers, the centralised processing approach will also facili- ransform the payment tate the migration, integration and standardisation of the payment opera- tions. Tprocessing department Create Value-Added Payment Services: The ultimate vision will be into an efficient profit achieved whenever the payment service is incorporated into the chain of “ value within the bank’s business process. Or in other words: when pay- revenue generating centre ments add business value to other bank products as well and become part with efficient payment of a much larger commercial process. processing workflow... If you look beyond the silos and obtain a view towards one of a single enter- prise there might be other strategic benefits to integrate, centralise and even relocate your bank’s payment processing operations. Why is it that large IT corporations move (part of) their development or support opera- We strongly believe that banks today need to consolidate, integrate as well tions to other locations? as renovate their payment operations into an enterprise-wide” Payment Processing department supported by an End-2-End Payment Workflow The reason is the lower cost of labor that results in higher profits. So, it is Management system that supports all payment types! obvious that the larger (global or regional) banking corporations will take it a step further and view their payment processing operation in a similar way. Lower Systems Development and Maintenance Costs: A centralised Centralise, integrate and consider relocating their payment operation. payment processing operation will provide benefits not only in the way pay- ments are being processed, but it also results in lower costs in both mainte- Profitable payments and efficient processing: By following this trans- nance and development for supporting systems, compared to the formation strategy your bank will be able to transform your current pay- approach of interconnecting existing systems that requires a large IT staff ment processing department (cost centre) into an efficient profit revenue armed with glue guns to hold the stitched payment framework together. generating centre, with an efficient payment processing workflow and high risk mitigation factor. Obtain Strategic Position for Acquisitions and Mergers: It is no secret that banks that have completed acquisitions to increase geographic reach are left with an extremely cost-inefficient, redundant and silo-oriented Michel Bon, Joffrey Hellement, and Clark Russel are payment processing operation. Banking Consultants from IBIS Management Associates Inc.; For banks that are well positioned and want to expand their market through E-mail: [email protected]; web: www.ibis-management.com

Technology Deploying Business Process Management in Banks

Sanat Rao

Banks differentiate themselves by the quality of their processes, argues the author. Business Process Management (BPM), an enterprise approach that cuts across silos and lines of business in standar- dising processes, can result in both operational efficiency and a more consistent and enjoyable cus- tomer experience. He identifies important issues a bank must address before adopting BPM: Where it can be used in a bank; Where BPM will fit within the bank’s underlying IT architecture, and; How to justify the BPM investment.

have been to many banks in different parts of the world: big times, while many just fail to live up to their initial potential. It is banks, small banks, regional and local banks, global banks, only a handful, which really live up to their expectations and Iretail banks and wholesale banks. Sometimes as a cus- end up making a definitive impact on the banking technology tomer, many a time as a technology partner, and for a good world. part of my working life, as an employee, as well. In the last few years, Business Process Management (BPM) has And what differentiates the good ones from the others? been increasingly discussed in these circles. After all, these are difficult times for banks. On the one hand, banks are hard- Cutting-edge technology definitely has a role to play, but that by pressed to improve operational efficiency. On the other hand, itself is not enough. Sure, plush branches make an immediate though, growth through increased revenues is also hard to impact, particularly where the customer service representatives come by. Recognising the dire need to address the issue of are smiling and helpful, but again, that by itself is not enough. I operational efficiency, banks have tried to reengineer process- am sure there are many other reasons. But when you look es or to automate various business functions. But these behind the glitzy exterior, if there is one common thread that attempts have, at best, remained half-hearted, thereby leading runs through these banks, it is the quality of their processes. to less than optimal results. It is with the advent of various BPM tools that banks are now beginning to realise that there is an The importance of processes: Banking is a process busi- opportunity to consider a pan-organisational approach. ness. Whether it is opening an account for a new customer in the branch, or ensuring a smooth hand-over of operations BPM Considerations: Before banks plunge into adopting between the front and back-office, whether it is a service part- BPM, they would do well to recognise that they have some real ner to whom some operation has been outsourced or indeed issues on hand. While there will be many issues to consider, we even where one is required to chase up a delinquent customer, focus on three issues we believe every bank will need to factor in a good bank all of these are supported by efficient processes. in: (1) Where can BPM be used in a bank? This includes the kinds of transactions that should come within the ambit of Traditionally, banks have relied heavily on documented proce- BPM. (2) Where will BPM fit within the underlying IT architec- dures and training to bring about uniformity in process. ture in a bank? For example is it just another tool that should be However, as business has become more dynamic, decision- plugged on? How can it be leveraged along with the rest of the making more crucial, and compliance mandatory, banks are components of the IT infrastructure? (3) How can the bank jus- realising the need to look for solutions that can help them tify this investment? address these needs without compromising on the quality of processes. Issue 1: Where can BPM be used in a bank? Theoretically, the answer is everywhere. As we have already BPM – An Emerging Idea: Ever so often, in the world of said earlier, banking is full of processes, and therefore BPM banking and technology, it is not uncommon to find that an could be applied everywhere. That said, however, it is recom- emerging idea catches the fancy of all concerned—the bankers mended that when a bank is planning a BPM deployment, themselves, technologists, consultants and even those who are they must first take stock of where they stand, process-wise. researching the respective areas. Some of these eventually fall Broadly speaking, most banks would be expected to initially by the wayside, some others are prescribed to be ahead of their focus on the high-volume, low-value transactions, which inun-

41 date back offices, such as clearing operations and payment process- one hand, BPM facilitates the bank taking a holistic view to streamline ing. While focusing on such transactions will definitely improve pro- their processes from front to back and across departments, partners ductivity immensely on the one hand, and will lower costs on the and channels, on the other hand, SOA and web services facilitate other, banks will not be really using the full value of BPM, if they were allowing standard processes or ‘services’ to be used and re-used while to restrict themselves only to such transactions. also allowing the dynamic movement of data from internal and exter- nal sources. Banks would do well to consider carefully certain critical transactions in the front office too. Transactions such as account opening and Some examples where BPM, SOA and web services would comple- administration, loan account opening etc. not only account for fairly ment each other by streamlining processes and opening up services substantial volumes, but in many banks they tend to be sometimes for other partners or channels are: dissimilar in execution as well. Moreover, BPM could possibly help • Transactions like account opening and loan origination which banks in another important area—freeing up time for Customer are today being outsourced Service Officers (CSOs). With customer retention gaining increasing focus in all banks, they are actually realising the great utility in their • Credit approval facilities where amongst the several steps CSOs being able to spare more time in serving their customers. This involved, some require interaction and collaboration with third can happen only if the routine transactions are automatically taken parties for some crucial information care of. • Strengthening risk management practices by bridging the gap The true test for early adopters of BPM will come when they try and that may lie in nonintegrated credit, market and operational extend its deployment beyond just the routine back-office transac- risk tions. This can happen in two ways. One, where banks extend its The important point for the banks to note here in deciding where to deployment to outside the confines of the bank itself, to systems deploy BPM is whether it is product or services delivery. If the organi- deployed by their outsourcing partners or vendors. Two, where they sation’s strategy is to look beyond the silos within, then BPM can get deployed with the more complex set of transactions such as cred- strongly assist in streamlining the processes while SOA and web ser- it and operational risk, or on other aspects of compliance. vices will facilitate the interoperability for such a deployment. Optimisation can happen only when banks keep bringing in more and more transaction types within the ambit of BPM, such that it does Issue 3: How can the bank justify an investment in BPM? not get seen as a one-off bad experiment. Banks have not had a good experience in the past with new technol- ogy solutions, which promised much but delivered little. At a time Issue 2: Where will BPM fit within the underlying IT archi- when fresh investment is difficult to come by, banks need to fully tecture in the bank? Another very important issue confronting the understand what benefits it will bring them if they go ahead and bank is deciding where should BPM reside within the IT architecture deploy BPM. It is important for the bank to understand what parame- of the bank? Moreover, purely from a strategic perspective, how it is to ters should be used to evaluate and justify the investment. Banks be leveraged along with other components. Banks have today should broadly consider the justification of the investment on three realised that both the departments within the bank as well as the major criteria: accompanying systems operate in silos and that is hurting the bank immensely. Even the accompanying processes are designed to cater (a) The cost factor: Banks need to consider whether long-term to this situation, thereby leading to sub-optimal processes. benefits would actually justify the initial outlay. Banks would need to evaluate the cost element keeping in mind that BPM can help banks Recent trends in architecture and technology deployment have achieve the following: demonstrated that banks are recognising the utility of going in for enterprise applications. These applications cut across geographically • Automate routine transactions, and facilitate handling of dispersed or across segments and lines of business within greater volumes the same enterprise. • Reduce long-term application maintenance, thereby reducing Increasingly, banks are driving home the need to conform to a power- substantially the overall outlay on BPM ful breed of Service-Oriented Architecture (SOA) which is based on • Facilitate greater straight through processing by managing web services standards and enterprise applications. However, while exceptions and centralising business logic this is a step in the right direction, the banks need to understand that flexibility and integration capabilities of these can only be optimised if (b) The business factor: It would be a very exceptional case where they align with the overall business purposes. This is exactly where cost alone will be able to justify the investment. Eventually, the bank BPM comes into play from an architecture deployment perspective. needs to make money out of that. Banks would need to consider the following while evaluating this investment: BPM allows the bank to take a pan-organisational view on business, and SOA and web services fully support that deployment. Actually, • Can it facilitate much greater time-to market through greater BPM, SOA and web services truly complement each other— while on agility in new product development?

42 • Will the quality of service in the branches improve if greater automa- processes. tion leads to more time for customer service representatives to spend with their customers? Conclusion: As banks work hard in ensuring that they do all they can to retain customers, they realise that there are many means to an end. In mak- • Can the reengineering of processes allow the bank to aggressively go ing customer experience enjoyable and more importantly consistent, banks after additional business knowing fully well that service quality will not have necessarily had to look at an enterprise approach, rather than just a get compromised? departmental or line of business approach, to improve operational efficien- cy. (c) The regulatory factor: It is common knowledge today that in most countries, the cost of non-compliance is very high. Even in the eyes of the BPM supports precisely that end objective, through its ability to cut across management, the quest for additional business does not justify the risk aris- silos and lines of business in standardising processes. If banks fully realise ing out of non-compliance. Some of the factors that banks need to consid- that BPM is not just a business solution to solve many of the problems that er are: a bank faces, nor is it the technology department’s answer to addressing silos in a bank, but that it transcends both business and technology, then • Will it improve the “time to compliance”? This implies that once the they would be well served. new regulations are understood, will the bank be able to do whatever is required quickly and accurately? A bank whose enterprise architecture comprises not just BPM but web ser- • Can the rules engine within BPM facilitate the extraction of data in vices and SOA as well, will find that not only is the operational efficiency such a manner that it allows the bank to submit information that is within systems enhanced substantially, but in the bargain it also has the necessary, quickly and accurately? potential to make the customer experience truly enjoyable. That alone is good enough reason to pursue BPM, don’t you think? An important underlying and crucial question that grapples banks is whether they are willing to and capable of looking at BPM as a continuous activity, rather than a one-off deployment issue. Banks must be willing to Sanat Rao is the Associate Vice President and Global Head, commit resources and develop a strategy to continually optimise their Product Strategy & Management, Finacle

43

Case Study: ABI and the CSME ABI Financial Group: Leveraging the Opportunities & Mitigating the Risks of the CSME

Ambassador Joan H. Underwood Antigua-based ABI Financial Group is a fourteen year old indigenous financial conglomerate with holdings in domestic and international banking, , real estate, tourism and information communication technology (ICT). In this case study, the author describes the Group’s “hybrid strat- egy”, and proactive approach to the opportunities which will arise out of the Caribbean Single Market and Economy (CSME). ABI’s attention to the “peripheral” issues raised by the CSME, are in fact, “extremely visionary” he CARICOM Single Market and Economy (CSME) The fundamental underpinnings for the successes realised to will be good for all people of the Caribbean. The key date has been ABI’s investment in its human resources. ABI has Tobjective of the CSME is to give the Caribbean a capitalised on the access to and expanded labour pool by seek- stronger voice in the global economy and to create prosperity, ing to recruit the best talent from throughout the region to staff jobs and opportunities for the Caribbean people. The CSME its various entities. From the men and women on the front line will also help businesses grow and be more competitive by pro- who interact on a daily basis with ABI’s local, regional and inter- viding easy access to new markets; expanding access to labour, national clientele to the Directors and Executives responsible expertise and technology from across the region; and allowing for charting and executing the organisation’s strategy, all have a the free movement of products, capital and investment sense that they are part of a small organisation that is destined between CARICOM countries. for great things. The principals of the Group are convinced that it is the dedication and unwavering effort of its human capital If the indigenous businesses in CARICOM are to take advan- that will ultimately lead to the realisation of its vision of becom- tage of the fore-mentioned opportunities presented by the ing the pre-eminent financial conglomerate with regional and establishment of the CSME, then they must be proactive. In international reach. real terms, this means that it simply cannot be business as usual. The traditional inward focus of private sector enterprises Capitalising on Opportunities for Growth: ABI realised must be transformed into an orientation that continuously that it would be imperative to achieve economies of scale and monitors the external environment with the view to, not only scope in order to succeed in the CSME. ABI further concluded anticipating and responding to opportunities and threats, but that this could best be accomplished through a combination also shaping the political, economic, social and technological of natural growth and expansion along with strategic alliances climate within which they operate. and joint ventures with national, regional and international interests. The decision to embark upon a series of joint ven- Three years ago the ABI Financial Group began to monitor tures and other strategic alliances with counterpart institutions developments related to the establishment of the CSME and in the Eastern Caribbean is a strategy geared towards the real- the broader Free Trade Area of the Americas (FTAA). To the isation of one of the primary objectives of the CSME – i.e. casual observer, the apparent preoccupation with such achieving a stronger voice in the global economy. By harness- “peripheral” issues appeared questionable in the traditionally ing the combined resources of the indigenous banks in the conservative financial services sector. However, the more Eastern Caribbean, ABI stands to open up an entire new realm astute realised that this innovative financial conglomerate was of possibilities through syndicated lending and collaborating being extremely visionary in seeking to strategically position on entry into new markets. The combined voices of the indige- itself to capitalise on the opportunities associated with the nous banks can also help to shape policy decisions at the CSME and FTAA while gearing up to deal with the inevitable national, regional and even international levels through coordi- challenges from larger regional and international competitors. nated lobbying activities.

45 ABI’s hybrid strategy has resulted in the establishment of subsidiaries The CSME and associated Free Movement of and joint venture affiliates in Antigua & Barbuda and the wider Capital holds the following… Caribbean as well as Florida, Brazil and Peru. ABI’s success in its extra-regional endeavours belied the oft-repeated Member In this To facilitate complaint that Antigua & Barbuda had nothing to export. The suc- States are context the free cessful establishment of ASD Brokerage (a wholly owned subsidiary required to capital movement of ABI Bank Ltd.) in Coral Gables and the imminent launch of a com- remove payments of capital, mercial bank in the Turks & Caicos Islands provide tangible evidence restrictions include: Member that Antiguan enterprises can meet and exceed the legal and regula- on: States must: tory requirements for doing business in the fiercely competitive inter- national financial services sector. The movement Equity and Abolish Leading up to the establishment of the CSME, ABI had focused pri- of capital portfolio exchange marily on an expansion strategy. However, as January 1st 2006 – the payments investments controls target date for the establishment of the CSME – looms on the hori- zon, the Group will place increased emphasis on the consolidation All current aspect of its strategy. This new phase will see a further pooling of payments resources with local and regional partners in order to compete more including Short-term bank Facilitate free effectively with larger enterprises seeking to capitalise on access to 14 payment for and credit convertibility of million CARICOM consumers. goods and transactions currencies services The Right to Provide Services: The Revised Treaty of Chaguaramus guarantees CARICOM enterprises the right to pro- Payment of Establish an vide services in any participating Member territory. Such services can interest on loans integrated be provided under any one of the following modes: capital market (a) From the territory of one Member state into the territory of another Member state. and Coordinate or other income harmonise (b) In the territory of one Member state to the service consumer on investments monetary and of another Member state. (after taxes) fiscal policies

(c) By a service supplier of one Member state through commer- Repatriation of cial presence in the territory of another Member stat. proceeds from (d) By a service supplier of one Member state through the pres- the sale of ence of natural persons of a Member state in the territory of assets another Member state. presence in the jurisdiction). The Treaty also specifically stipulates that Member states are required These developments are likely to change the way that commercial to remove the restrictions on banking, insurance and other financial banks operate within the region. If the banks are to equip themselves services. to operate in this new environment, not only must they proactively These requirements will inevitably increase the level of competition seek out information but they should also seek to influence the poli- within the industry since a physical presence will no longer be required cy agenda at both the national and regional levels. to access the domestic market of the participating member territories, Conclusion: For our final word on how indigenous banks can pre- thereby lowering the barriers to entry. While this can clearly be per- pare for the imminent establishment of the CSME, ABI turns to a ceived as a threat/risk to the indigenous banks of the region, it should quotation from Mitroff, in “Business Not as Usual”: “For all practical also be noted that it provides an opportunity for the said banks to gain purposes, all business today is global. Those individual businesses, access to new markets without incurring the costs associated with firms, industries, and whole societies that clearly understand the new establishing a physical presence. This can be realised by exploiting rules of doing business in a world economy will prosper; those that do available developments in information communication technology. not will perish.” At ABI, we are not satisfied with simply understanding Free Movement of Capital: Yet another principle enshrined in the the new rules – we are determined to help create them! revised Treaty of Chaguaramas is the free movement of capital. This Ambassador Joan H. Underwood is the National CSME has far reaching implications for the banking industry on both a Spokesperson for Antigua and Barbuda. She is also the Manager, national and regional level (see table, keeping in mind that consumer Human Resources & Strategic Development, ABI Financial lending has traditionally been the preserve of banks with a physical Group. Find ABI on the web at: abifinancial.com

46

CAIB Transforming the CAIB using the Balanced Scorecard Marguerite Orane

The Caribbean Association of Indigenous Banks Inc. (CAIB) has served its members long and well. But, like all organisations in today’s dynamic and evolving financial services environment, the CAIB knows it must evolve with the times. It must be as nimble and quick as its members in predicting and managing change, in order to provide value and remain relevant. In January 2005, the CAIB began the process, using the Balanced Scorecard methodology, of developing an actionable Strategic Plan that would guide the organisation.

harting CAIB’s Future: In January 2005, the ment results in organisational learning, which allows for fine- Strategic Planning Committee of the CAIB start- tuning of the strategy as it is being implemented. This allows Ced a journey of charting the future of the CAIB for a great deal of flexibility and responsiveness, which is a key using the Balanced Scorecard (BSC). The CAIB chose the difference between this methodology and the more tradition- Balanced Scorecard methodology, as it sought to develop al approaches to developing and managing strategy. an actionable Strategic Plan that would guide the organi- sation in better serving its’ members in increasingly chal- Four Key Perspectives: The Balanced Scorecard develops lenging times. The Committee realised that the CAIB strategy around 4 key perspectives – Financial, Customer, must be as nimble and quick as its members in predicting Internal Process and Learning and Growth. and managing change, in order to provide value and The Financial Perspective asks the question “To achieve our remain relevant. vision, how must we look to our shareholders?” In the case of not-for-profits such as public sector entities and organisations What is the Balanced Scorecard? “This exercise has been like the CAIB, the issue becomes one of Fiduciary responsibili- a learning exercise for me. I believe there is more to the ty and the question becomes “To achieve our mandate, how Balanced Scorecard and that we all should explore it.” must we look to our funders and donors?” Developed in 1992 by Drs. Robert S. Kaplan and David P. For the Customer Perspective, the question is “In order to Norton, the Balanced Scorecard has grown from simply being achieve our vision, how must we look to our customers?” The a performance measurement tool to a comprehensive man- Internal Process Perspective asks “In order to satisfy our cus- agement system for developing, communicating and manag- tomers, at what key internal processes must we excel?” ing strategy. The Learning and The Balanced Score- Growth Perspective ad- card is now used by over The Strategic Planning Process for CAIB dresses organisational 65% of Fortune 1000 readiness in the areas of companies, but has also skills, information, tools found resonance and is and culture, and answers increasingly being used Executive Consultations Alignment the question “In order to in a diversity of organisa- Stakeholder Survey Secondary Research Buy-In excel at our key internal tions such as schools, Committment processes, how must our universities, opera com- organisation organise panies, public sector itself, learn and grow”? agencies and cities. Strategic 2-Day Strategic Issues Strategic Action Over time, the Balanced Plan The basic premise of Report Retreat Scorecard has become the Balanced Scorecard an important tool in is, that for strategy to be Core Planning communicating strategy, managed, it must be Team Workshop primarily through the measured. Measure- use of the Strategy Map

48 which provides a visual representation of the strategy. The Strategy The statement above is not an over-exaggeration when considering Map shows the cause and effect relationships between the Strategic the multitude of issues facing the very survival of indigenous financial Objectives along each of the four Perspectives. institutions in the Caribbean. These include increased international, regional and national regulatory requirements, the immediacy of the The Balanced Scorecard Process at CAIB: “I would like to take CARICOM Single Market and Economy (CSME) and the perilous the opportunity to thank you [CAIB] for organising the 38th EXCO position of many small island states, all of which paint a future for the meeting and Strategic Planning exercise. The weekend was well sector, which suggests increasing mergers and acquisitions, and, per- organised and Growth Facilitators definitely had our full attention for haps even the death knell for indigenous banks. the 2 days. It was informative and educational and when completed will be a valuable tool for CAIB and the 2015 citation that we will Feedback from members and sponsors highlight CAIB’s ability to suc- receive.” These were the words of one of the participants in the cessfully plan and execute the Annual Conference as a key strength. CAIB’s Strategic Planning Retreat on May 27, 28 2005. However, it is generally felt that the CAIB should be doing more to assist its members to cope with the challenges of globalisation Growth Facilitators, a Jamaican-based firm and a leading proponent through broadening the range of services it provides its membership. of the Balanced Scorecard in the Caribbean, was selected to facilitate This should include matters related to policy, legislature and advoca- the development of the CAIB Balanced Scorecard. The facilitators cy for, and representation of, its members. designed a highly interactive and participative process (see diagram on page 48), which featured: Transformation – The Desired Future for the CAIB: “The CAIB must create a vision that is consistent with the evolution of a • Engagement through a survey of members and sponsors, and regional market and economy.” After much deliberation, and with interviews with members of the Executive input from members, sponsors and executive members, the follow- • A 2-day “advance” (commonly known as a retreat) May 28 and ing Vision and Mission Statements were crafted: 29, 2005 in St. Lucia with members of the Executive and VISION: Caribbean Association of Indigenous Banks Inc. will be the Secretariat to develop the Vision, Mission, Core Values, Strategy focal point for networking among financial institutions in the region, a Map and Balanced Scorecard. respected voice and effective advocate for indigenous financial insti- tutions, the organisation of choice for member support and services. • A 2-day “finetuning” session with members of the Strategic Planning Committee, the Secretariat and the Chairman to MISSION: In order to achieve this Vision, the Mission of the review and validate the Scorecard and develop the Caribbean Association of Indigenous Banks Inc. is to facilitate the Implementation Plan growth and development of indigenous financial institutions through the provision of advocacy, support services and a platform for net- • Documentation of the Balanced Scorecard working, and, by being efficient, well-resourced and financially sustain- The question which guided all discussions throughout the process able. was: “What MUST we do to delight our members and make The CAIB Balanced Scorecard: “This Strategic Planning exercise sure that they receive full value for their participation in the was very successful because it presented a clear picture of how strat- CAIB?” egy will be linked to action.” Transformation–The Current Reality of the CAIB: “The finali- Over the next 5 years the CAIB will deliver on 4 Strategic Themes, as sation and implementation of a regional financial services agreement identified in its Strategy Map: together with the continued blurring of the lines between banking and insurance across the region may negate the need for the CAIB”. 1. Responsive, efficient and effective service delivery Table I Objective Measure BASE 2005/062010/11 Strategic Initiatives

CUSTOMER Annual To be To be set in 90% 1. Design customer survey, #1: customer determined January conduct at annual satisfaction by Survey at 2006 conference, analyse and set Responsive to score re: AGM baseline the needs of responsiveness our customers 2. Establish a Regional to needs of Association of Audit customers Committee Members

49 2. Superior advocate 15th of the month following the end of quarter. In June of each year, the annual Strategy Advance (Retreat) will review performance and set 3. Premier networking platform new targets for the upcoming financial year. The Annual BSC Report 4. Best information source will be presented to the membership at the annual conference. Underlying these are two cross-cutting themes: The CAIB BSC–What’s Next? “We, the CAIB Executive Committee, MUST find the will to follow this interesting exercise to 1. Innovative, well-led, well-resourced organisation guided by the completion!” The success of the CAIB through the achievement of CAIB Core Values – Integrity, Commitment, Confidentiality, the objectives set in the Balanced Scorecard exercise will depend on Cooperation and Accountability buy-in of the membership. 2. Well-governed and financially sustainable Members will have to support the CAIB not only financially, but more For each of the Strategic Objectives depicted on the Strategy Map, importantly, by promoting and supporting the organisation in their performance measures, targets and initiatives were developed. An respective home territories and by participating in activities undertak- example is presented in Table I. en by the CAIB. An active and involved membership will make all the difference in the success of an organisation dedicated to serving their As is typical with most Balanced Scorecards, some measures, such as needs, adding value and supporting their success and sustainability. this one, are new, and therefore no baseline or comparative data exists. Over the next few months, the Secretariat will be gathering this data in The new CAIB will also require a new type of leadership – one that is order to set realistic targets and identify and fine-tune the appropriate willing to keep all stakeholders focused on the Vision, which will set the initiatives. For each of the Strategic Initiatives, responsibility, time- example by living the CAIB Core Values of Integrity, Commitment, frames and budget were identified. The full financial implications of Confidentiality, Cooperation and Accountability. the plan over the 3 years are not yet known. Costs will be identified and incorporated on a year-by year basis in the annual budget.

The Secretariat will report to the Executive Committee on achieve- Marguerite Orane is one of the Founding Partners ment of targets and implementation of initiatives each quarter by the of Growth Facilitators; e-mail: [email protected]

50

special section Risk Management

Effective Credit Risk Management

his is an excerpt from the white paper “Best for businesses, giving rise to effective credit risk management. Practices in Strategic Credit Risk Management” pro- These guidelines include a set of general principles that apply Tduced by SAS and Lepus, a UK-based investment to all credit risk situations, as well as specific principles applica- banking management consultancy. The information pre- ble to some countries and types of counterparties and/or trans- sented in this paper has been compiled from interviews actions. with eight senior risk managers at leading global banks and • Exposures: In 25 percent of the interviewed banks, the ability from Lepus’ extensive industry experience. to measure, monitor and forecast potential credit risk expo- Effective credit risk management is a critical component of a bank’s sures across the entire firm on both counterparty level and port- overall risk management strategy and is essential to the long-term folio level is vital. success of any banking organisation. Overall, the components of • Robust analytics: A key component of an effective credit effective credit risk management comprise active board and senior risk management strategy, as suggested by 13 percent of the management oversight; sufficient policies, procedures and limits; banks, is having robust risk analytics. Efficient and accurate cred- adequate risk measurement, monitoring and management informa- it analytics enable risk managers in banks to make better and tion systems; and comprehensive internal controls. Lepus, a U.K.- more informed decisions. The availability of better information, based investment banking management consultancy, sought the combined with timeliness in its delivery, leads to more effective opinions of industry participants on the key components of effective balancing of risk and reward, and the possibility of higher long- credit risk management. The responses of the eight banks inter- term profitability. viewed are summarised in the graph below. • Other: The other ingredients of effective credit risk manage- • Robust technology and business processes: Robust ment were thought to include credit risk transparency, defined technology was mentioned as a critical component of effective credit decision process, sophisticated risk measurement credit risk management by 38 percent of the interviewees. It is methodologies, stress testing, timeliness and accuracy of risk thought to help banks identify, measure, manage and validate calculations as well as efficient credit risk reporting. counterparty risk, although it is of little value without effective credit risk policies and business processes in place. Role of technology in credit risk management: As men- tioned, technology is widely acknowledged to be a key component of • Policies: In 25 percent of the banks, having a comprehensive effective credit risk management. Lepus thus sought industry opinions and strategic vision for credit policy is vital as it sets guidelines on how important IT is for achieving best practice in credit risk man- agement. Thirty-eight percent of the interviewees stated that technol- Key Components of Effective Credit Risk Management ogy plays a significant role in enabling active portfolio management and assessment. This is followed by data transparency (25 percent) Robust Technology 38% and facilitation of global credit risk function (25 percent). Subsequently, Business Processes 25% technology facilitates elimination of manual processes and allows

Policies 25% information to be managed in an efficient and effective way.

Exposures 25% Furthermore, one bank stated that while technology can help banks

Robust Analytics 13% facilitate innovative credit risk management procedures, it is simply a source: tool and is useless if misused. Another opinion expressed by one of 0% 5% 10% 15% 20% 25% 30% 35% 40% Lepus the interviewees is that technology plays a bigger role in the trading

53

Role of Technology in Credit Risk Management efficient tools for exposures are the key best practice in credit risk management. A Tier One American bank is considering having more Active Portfolio Management 38% efficient tools for “what if” analysis and tools to provide transparency Facilitates Global Credit 25% to the business. This is particularly important for counterparty expo- Risk Function Data Transparency 25% sure at a firm-wide level. Another U.S. institution is focusing on stress Eliminates Manual testing, concentration risk, macro-hedges and capital risk market Process 13% Manage Information management. Moreover, the firm has consolidated market risk and Efficiently & Effectively 13% credit risk. Just a tool 13% source: 0% 5% 10% 15% 20% 25% 30% 35% 40% Lepus In 25 percent of the interviewed banks, achieving best practice involves having an active portfolio management in the lending book book than in the lending book as it enables key questions to be along with real-time credit risk management. A leading investment answered, such as the cost of credit risk. bank identifies best practice as having good quality data, for example, identifying processes that induce data errors. Drivers of effective credit risk management: Basel II was highlighted as one of the main drivers in shaping the banks’ approach Timeliness is another contributing factor. Real-time pre-deal check- to credit risk management. It imposes disciplinary capital charges for ing, effective credit limits management and country risk manage- procedural errors, limit violations and other operational risks. It also ment are key to good credit risk practice at another bank. However, creates new pressures to ensure that effective credit risk manage- this is largely dependent on the market the bank is targeting. ment controls are in place. A leading investment bank, for example, commented that regulations drive its credit risk management proce- Effective credit risk management as a value-enhancing dures. activity: If deployed correctly and effectively, credit risk manage- ment can be a value-enhancing activity that goes beyond regulatory The bank is forced to provide more detailed disclosures in its annual compliance and can provide a competitive advantage to institutions reports. These may include information on its strategies, nature of that execute it appropriately. Some of the examples demonstrating credit risk in its activities and how credit risk arises in those activities, the statement above include consolidating credit lines for customers as well as information on how it manages credit risk. in order to achieve greater business activity, efficient use of capital risk adjusted return through Basel II implementation and International Basel II will affect a number of key elements in another European Swap Derivatives Association’s (ISDA) Credit Support Annex (CSA) bank, including a more rigorous assessment of the bank’s credit risk allowing banks to deal with lower rated entities. appetite, more technical approach toward its counterparties and bet- ter portfolio risk management. Another bank mentioned that the Consolidating credit lines: Consolidating credit lines allows one impact of Basel II is largely dependent on the environment it is regu- of the responding banks to manage capital adequacy more efficient- lated under, as it is different for each region. ly. For instance, all of the bank’s global customers, such as Ford Motor Company, have consolidated global credit lines across multiple coun- In one U.S. bank, regulatory pressures raise the status of the risk group, tries, including the UK, Germany and Singapore. By deploying global while in another, these pressures can distract from strategic business credit lines, total credit is reduced thus allowing for more business projects. While regulatory compliance is indeed a significant driver, activity. most banks’ credit risk management aspirations span beyond this. Key players also seek to gain competitive advantage through effective Efficient use of economic and regulatory capital: Having credit risk management. consistent, comprehensive risk architecture will make it easier for banks to calculate and manage capital. Banks mainly in the U.S. and The objective of best practices in credit risk management is to pro- Europe use economic capital for the following reasons: vide comprehensive guidance to better address credit risk manage- ment. The findings from Lepus' survey illustrate that credit risk man- • To ensure that the bank has a safe level of capital to guard agement practices differ among banks, as they are dependent upon against risks and to meet regulatory requirements. the nature and complexity of an individual bank’s credit activities. • To price loans to earn attractive risk-adjusted profits. Sound practices should generally address the following areas: • To apply economic capital’s trio of core decision-making crite- 1. Establishing an appropriate credit risk environment. ria (risk, capital requirements and returns) in strategic business 2. Operating under a sound credit-granting process. planning and to measure return on equity (ROE) by line of busi- ness, product or customer to ensure that capital is effectively 3. Maintaining an appropriate credit administration, measure- allocated among different activities in a bank to maximise ment and monitoring process. shareholders’ value. 4. Ensuring adequate controls over credit risk. Once the economic capital is computed across the bank, the bank’s The feedback from banks demonstrates that centralisation, standard- actual equity capital is allocated to individual business units on the isation, consolidation, timeliness, active portfolio management and basis of risks so that shareholders’ wealth can be maximised. There are

55 two ways to ensure that the amount of capital is appropriate to the risks it obligations. Further derivative structures may involve the indexing or reinsur- faces. The first is to ensure that the risks are not excessive, given the capital. ing of illiquid middle market and the creation of short positions in credit risk. The second is to ensure that capital is adequate, given the risk. This will greatly increase the power and flexibility of portfolio strategies. Hedging decisions are largely made by banks’ separate portfolio manage- If the economic capital exceeds the regulatory capital, there is no problem. ment groups and senior management teams. If the regulatory capital exceeds economic capital, the excess can be treat- ed as a cost (regulatory overhead), leading to an increase in the hurdle rate Some of the interviewed banks use credit derivatives for active portfolio of the bank. This cost can be allocated on a basis to all elements of management to offset exposures such as inventory and loans, to examine economic capital so that every unit of the bank is equally sharing the bur- the industry’s portfolio and concentration portfolio across the institutions, den of regulatory requirements. and to mitigate exposures. The benefits gained from using this activity typi- cally lead to reduced regulatory capital and freed up credit lines, allowing CSA: ISDA‘s CSAs are used extensively in several of the interviewed banks firms to effectively manage credit exposures. (with most of their counterparties) since it adds significant value to the firms. These banks have signed CSAs with a large majority of their counterparties Technology: Along with credit derivatives, technology can also contribute in order to call for daily cash collateral cover of all outstanding positions. The to reshaping banks’ credit profile by allowing banks to know the type of major benefits gained from daily collateralisation are the reduction in risk exposures and price transactions they are dealing with. These elements are amounts and capital usage, and the significant shortening of the potential required to hedge exposures. future exposure risk window. Many of the banks monitor the number of overdue master agreements and overdue trade confirmations, as they could Today, the focus for many banks is to adopt an enterprise credit risk manage- affect the banks’ ability to net collateral against the gross exposure. Late pay- ment approach to achieve an integrated view of risk. Best practice in credit ments or disputed calls are other potential indicators of operational prob- risk management should demonstrate centralisation, standardisation, time- lems, which could impact the effectiveness of credit management. liness, active portfolio management and efficient tools for managing expo- sures. This is encouraged by the pressure from regulatory requirements Use of derivatives to reshape credit profile: Credit portfolio man- such as Basel II. By constantly enhancing existing tools and methods, banks agement is a value-enhancing activity; some of the interviewed banks use are able to work toward achieving best practice. Furthermore, consistent, credit derivatives to reshape their credit profiles. The use of credit derivatives accurate and reliable data is required to achieve best practice in credit risk in one Tier One bank has significantly reduced its financial markets’ credit management. risk from 70-75 percent to 40-45 percent. Credit derivatives create new possibilities for risk transformation through innovative structures such as credit default swaps, basket swaps and debt To download the entire white paper, visit www.sas.com/creditriskwp

risk management Implementing Basel II in the Compliance Continuum Kiran Narsu & Arun Pigaley

he authors identify a “continuum of stages” on a these often do not have nearly enough of the risk data elements bank’s journey to Basel II compliance. Banks, they required, and even if they do, the data elements are often not at the Targue, would benefit greatly from benchmarking suitable level of granularity required for downstream capital compu- themselves as to which stage they are at in the continu- tation of risk weighted assets. Subsequently, the pain of enhancing um. This will serve them in their endeavours towards such repositories to include the appropriate data is a challenge that Basel II compliance, while at the same time helping them must be properly addressed. enjoy the benefits of maintaining reduced capital. Data Quality Challenges: While availability and completeness of Faced with impending Basel II deadlines in key jurisdictions, and data are critical, banks must also ensure that data that is used for cap- engaged in frenetic implementation of compliance initiatives, several ital computation is accurate. Banks, therefore, must seek to reconcile banks are now beginning to realise that their perceptions of the accounting system data with general ledger data, and pass necessary Accord have been off-the-mark, after all. In our research, we have adjustment entries in order to ensure that they are synchronised. identified several stages of a Basel II compliance programme. Banks can benefit enormously from understanding this “continuum” of In general, banks should not underestimate the importance of ensur- stages in their journey to Basel II compliance. Internationally active ing strong data quality processes during the build and delivery of the banks seeking Basel II compliance typically proceed through three risk central repository. Banks will be serving potentially multiple regu- distinct stages along the continuum. While banks may have imple- latory masters during the Basel II supervisory review process, and bad mented varying types of vendor solutions or built technological data entering into a capital computation system, no matter how pow- frameworks during each of the stages outlined below, the existence of erful the system, will result in extra work for the finance organisation technology platforms erected during each stage does not appear to in correcting the numbers. Typically, the primary owners at a bank be a barrier to progress along subsequent stages of the continuum. that face these challenges during the first stage of the Basel II Compliance continuum are the technology staff who have an in- Stage I – Data: In the first stage of compliance, banks often wres- depth data element knowledge. tle with data challenges: Stage II – modeling: As banks grow more confident in the quali- • Data availability challenges ty, sufficiency and availability of their data, and move along the contin- • Data movement challenges uum, they face a new set of challenges. Inherent to the Basel II com- • Data quality challenges pliance process is an accurate means of estimating the Probability of Data Availability Challenges: Banks have varying expectations Default (PD) of an obligor or the Loss Given Default (LGD) of an from the Basel approach they undertake. For instance, Bank A, adopt- exposure. Here, numerous landmines await most banks. Given that ing an Internal Ratings-Based (IRB) Advanced Approach for credit models for PD must be based on historical default data, the lack of risk, will have to wrestle with significantly more data than would Bank availability of such data severely compromises the bank’s ability to B that is planning to adopt the Standardised Approach. Common to estimate and validate its PD models. Many banks attempt to solve both the Standardised Approach and the Internal Ratings-Based this problem by purchasing published default data from various ven- Approach is the validation of Internal Ratings data. For this, banks dors, but then, the bank must ensure that their portfolios correlate to would depend on default data supplied by an external data provider the external vendor’s data in order to determine just how applicable such as Moody’s KMV. However, only the Internal Ratings-Based the external default data is to the bank’s customer base. Approach requires data about recoveries—data that is not required However, for some businesses, such as Private Banking, such data is under the Standardised Approach. In all cases, however, data availabil- difficult to collect as there is seldom sufficient internal default history ity begins with an understanding of data for a chosen approach (as or any external data provider. This restricts a bank’s ability to use vali- also the ability to find incremental data when mandated by the home dated IRB Models for estimating PDs or LGDs. The above problems or host country—say Advanced Internal Ratings-Based or Foundation also lead to the possibility of supervisors being unwilling to accept the Internal Ratings-Based, in addition to Standardised). Data element PD/LGD estimates provided by the bank since they would be unable identification ensures that the bank knows the data that is required to back-test and validate them. for its preferred approach. In most cases, the risk group within the bank is the primary owner of Data Movement and Consolidation Challenges: Once data the development and implementation of the statistical models used is identified and available, banks need to ensure that the proper in estimation of PD and LGD, among others. “pipes” are laid to move data out of the appropriate transaction sys- tems into a repository or central “risk warehouse”. Many banks have Stage III: Capital Computation: The Basel II compliance initia- several such warehouse investments, but in our research we find that tive at a bank is complete when it is able to compute regulatory cap-

59 ital and provide the appropriate capital adequacy return (reports) to regula- Moreover, adequately addressing Pillar II and Pillar III to the satisfaction of tor(s). Banks which have progressed through the first two stages of the con- their supervisors is often overlooked by many banks caught up in the tinuum begin exploring in detail, at this stage, the capital computation mechanics of the Pillar I calculations. With Pillar III, the requirement to sup- process which they perceive to be both well defined (which it is) and easy to port multiple reporting formats brings its own challenges. For example, implement using simple tools such as spreadsheets (which it is not). In fact, supervisors may at any given point, for market discipline purposes, call on a one may consider the capital computation process to be the most challeng- bank to share new information about the risk being carried in their books, ing stage of the compliance continuum due in large part to the gulf which may, in turn, imply a new set of reports at very short notice. This would between early expectations and late-stage realisation of the nitty-gritty require the creation of a new computational set that previously was not avail- details, compounded by the ever-shrinking number of days left to comply, able in the engine. Banks must ensure that the appropriate level of Pillar III for a bank. These capital computations done by a bank span credit, market capabilities are provided in the solution they implement. and operational risk. Similarly, the challenge of providing Supervisory Oversight over the Pillar I Credit Risk Computational Challenges: While many banks believe calculations is significant, as the computational processes need to be trans- that the only decision they will need to take is to pick one of three approach- parent, accessible and detailed enough to explain all aspects of the calcula- es for calculating unexpected loss—Advanced Internal Ratings-Based tions. The finance department at a bank is typically designated with the task (AIRB), Foundation IRB (FIRB), or Standardised—it needs to be kept in mind, of performing capital computations and the necessary reporting to the that the Accord prescribes an abundance of options within these three basic supervisors. approaches. For instance, there are two options for assigning Risk Weights Conclusion: Banks today are discovering the above continuum the hard and two collateral handling options to choose from within the Standardised way—by discovering the problems as they stumble along the path to com- approach itself. Further, within the IRB Approaches, there are two different pliance. However, if they can benchmark themselves on which stage they options for treating specialised lending and equity exposures. When one fall in along the above continuum, and buckle themselves up for the chal- considers all permutations, and couples this with the requirement for multi- lenges that lie ahead, it will not only serve them well in their endeavours jurisdictional reporting (e.g., reporting as per CAD III in Europe and OCC towards Basel II compliance but help them enjoy the benefits of maintain- requirements in the USA), and the necessity to support different approach- ing reduced capital. es for each jurisdiction (including all the options within each approach), the computation process becomes immensely challenging. Therefore, any Kiran Narsu is the Vice President, Business Development, Reveleus; computational engine, whether bought or built, must have the ability to sup- e-mail: [email protected]; Arun Pigaley is the Head, port any and all of these approaches simultaneously, and support the ability Functional Solutions Group, Reveleus; to switch between these approaches when necessary. e-mail: [email protected].

risk management Cutting off the Money & Uncovering Terrorist Financing

Mark Moorman

oney to fund terrorist activities moves through gies presented by policy groups, industry groups or law enforcement the world’s financial system via wire transfers agencies. But, as groups such as the Financial Action Task Force Mand in and out of personal and business check- (FATF) have learned, there are few hard patterns with terrorist financ- ing accounts. It can sit in the accounts of illegitimate ing. charities and be laundered through buying and selling securities and other commodities, or purchasing and In addition, terrorist financing tends to occur in much smaller transac- cashing out insurance policies. In light of the tragic events tion amounts than traditional money laundering – making it much of Sept. 11, 2001, law enforcement wants to halt the more difficult for financial institutions to set thresholds that can effec- money flow, expecting financial services companies to tively discriminate between terrorist activities and normal legal trans- help, as required by such laws as the USA PATRIOT Act. actions. Not Your Typical Laundering: While terrorist financing is defined For instance, in studying the financing behind the events of Sept. 11, as a form of money laundering, it doesn’t work the way conventional terrorists have been discovered to occasionally funnel money money laundering works. The money frequently starts out clean, e.g., through charitable groups. A rules-based approach could flag all char- as a “charitable donation,” before being funneled to the terrorists. itable funds that handle international wire transfers or have directors Terrorist financing is also more time-sensitive: Freezing a suspected from other countries sitting on their boards. But many innocent char- terrorist’s account could save innocent lives. Governments around ities would be flagged and terrorists could figure out what to list on the world are trying to combat terrorist financing by requiring finan- bank applications to avoid raising those flags. cial institutions to uncover patterns and spot suspicious activities. Anomaly-based approach: The FATF has recommended that The USA PATRIOT Act added securities brokers and dealers, and programmes used to detect money laundering and terrorist financ- money services businesses to the list of institutions that need to file ing pay special attention to “unusual” transactions or activities, and suspicious activity reports (SARs). Banks had already been filing SARs many regulatory mandates incorporate similar language. Using and Cash Transaction Reports (CTRs) prior to the USA PATRIOT Act. descriptive analytic techniques, an anomaly-based approach looks Failure to file reports in a timely manner can have significant conse- for activities that would not be considered “normal” or “usual” for a quences, especially when potential terrorist financing exists. Riggs given entity. Bank failed to report suspicious large-sum transactions and was fined $25 million in May 2004 by federal regulators for violating anti- money laundering laws – an unprecedented amount and further “Laws require financial institutions to help uncover indication of the government’s emphasis on eliminating terrorist terrorist financing, but traditional anti-money launder- financing. ing solutions may not be suited for this purpose… Financial institutions, eager to avoid both legal and public censure, Financial institutions, eager to avoid both legal and want to do whatever it takes. “Whatever it takes,” however, has the proverbial needle in a haystack challenge attached to it. public censure, want to do whatever it takes.” Zeroing in on the terrorism dollar: Money laundering detec- tion systems have been around for several years. Over time, the tech- Various methods can be used to define “normal,” such as building niques used by these systems have evolved from purely rules-based profiles of past account activity or creating peer groups of accounts systems in the early days to today’s more analytic-based systems that that should behave in a similar manner. Once “normal” is defined, the use techniques such as anomaly detection (profiling and peer group- anomaly detection engine can identify those activities that do not fall ing) and predictive modeling (neural networks and decision trees). within the normal range using descriptive statistical measures such as Although these systems continue to improve, extending them to standard deviations or variances. combat terrorist financing is challenging since this type of financing has unique characteristics. The financial activities of the Sept. 11 terrorists provide a striking exam- ple of how anomaly detection can be used to thwart terrorist financ- Rules-based approach: Rules-based systems are designed to ing. The terrorists that took down Flight 11 entered the country on stu- uncover specific transactions or patterns that are often associated dent visas. But unlike most students, they had bank accounts with with criminal financial activity. The rules are typically based on topolo- large sums of money moving in and out – mostly via large wire trans-

63 fers from known terrorist-supporting countries – and with few of the typical bined into a holistic, risk-based approach can account activity be evaluated expenses expected of students. in the context of other risk factors so that the most relevant alerts are raised. One drawback to an anomaly-based approach is that there could be other With a risk-based approach, financial organisations can employ a combina- valid or legal reasons for the anomaly. Care must be taken to select metrics tion of rules, anomaly detection or other advanced analytics, assign a risk that truly discriminate between normal and suspicious activity, rather than weighting to each scenario, and then combine the scores at the entity level simply distinguish normal from unusual. to assign an overall risk score to that entity. Under this approach, a given cus- tomer or account could warrant an investigation based on a single high-risk Predictive modeling approach: By using historical information on activity or a combination of several lower-risk activities or attributes. known suspicious and unsuspicious activities, analysts can use predictive Organisational policies and procedures would dictate what actions must be techniques such as decision trees, regression analysis and neural networks taken at various risk-score levels. to build models that score any new activity as to its likelihood of being sus- picious. This approach has been used very successfully in fraud detection In addition to providing a more holistic approach to traditional money laun- (so much so that credit card companies run advertisements touting of their dering detection, the risk-based approach allows financial organisations to ability to detect fraud before the consumer knows anything is amiss). more effectively evaluate the subtle patterns of terrorist financing in the con- text of other existing risk attributes. And finally, the approach addresses reg- Although a proven, valid approach for detecting such criminal financial ulatory guidance that has encouraged financial organisations to take a “risk- activities as fraud, predictive modeling must have historical data for known based approach” to their overall anti-money laundering programmes. good and bad activities to train the models. Since the emphasis on money laundering, especially terrorist financing, is relatively new, this data often Complying with regulations for identifying money laundering and terrorist does not exist in many organisations. If a model is built with data that con- financing presents a unique challenge to financial institutions. Whether it is tains activities that are not flagged as being suspicious, yet under current avoiding the multi-million dollar penalties that face Riggs Bank, or possibly interpretations should be, the model’s accuracy will suffer. providing the key piece of information that leads law enforcement officials to expose a plot, detecting terrorist financing requires long-range planning Finding a more comprehensive way: Although all of the above in picking solutions to manage it. approaches have been used successfully in detecting various criminal finan- cial activities, none are sufficient for capturing the current broad range of activities (including terrorist financing) without also generating an unwieldy Mark Moorman is Vice President of SAS Financial amount of false positive alerts. Only when the various techniques are com- Services Practice; web: www.sas.com

A World of Warmth P.O. Box 10, St. Peter’s Montserrat T: (664) 491-3843 F: (664) 491-3163

Your Bank, Your Future

• A Full Range of Banking Services • Foreign Currency Accounts • Micro-Wire Transfers

C ORRESPONDENT B ANKS • BankAmerica International • Toronto Dominion Bank • HSBC Bank PLC - New York - Toronto - London

risk management Risk Modeling under Basel II: Getting to grips with the Detail

S. Venkat Raman

ith Basel II around the corner, progressive Moving to IRB essentially involves the ability of a bank to implement banks should migrate to more sophisticated or design a credit rating model and process which can consistently Wcredit risk management. The author discusses assign a “correct” credit rating for each loan or investment made by considerations when designing a credit rating model. the bank, not to mention a higher degree of data organisation, skill upgradation and system preparedness that complements such risk In an article published in Caribbean Account 2004, we discussed a modeling. This is easier said than done. While a relatively small popu- road map for Caribbean banks to move towards Basel-II. As regula- lation of banks, mostly the large, top-tier multinational banks are tors in most Caribbean countries still grapple with the largely unfin- known to use sophisticated risk models, in the vast majority of ished agenda of risk based supervision, it is still early days to mark a domestic/local banks across the developing world, the models in use timeline for Basel II implementation. However, with the minimal are rudimentary in nature and construct. sophistication demanded and the flexibilities allowed under the Standardised Approach, one would expect most bank supervisors to Building Blocks-The foundation: In developing and imple- opt for this approach to begin with. For credit risk management, menting credit risk models, particularly for emerging economies like under the standardised approach, banks will apply differential risk the Caribbean, an array of questions need to be addressed, given the weights depending on the credit rating that borrowers or invest- reality that a has always to balance the qualitative and quanti- ments have been assigned by qualified credit rating agencies. tative aspects, decide on the level of customisation etc. So if you head Unrated credits would be allocated a risk weight of 100%. the risk function in a bank, where do you start? Besides differences in the economic and business environments, size, customer profile and While the Standardised Approach indeed allows a relatively easy tran- organisation structure, there are often significant differences in the sition to be Basel-II compliant, it is clearly not a long term solution. management culture of banks. Model design and selection starts External credit ratings, especially in the financial markets of develop- right here. We examine here some of the basic building blocks in ing economies, will not cover a large proportion of bank borrowers. choosing or designing a credit risk model: This will result in the capital requirements being influenced more by the unrated borrowers with the 100% risk weight linkage. This in 1. Application: What specific purpose does the model serve?: effect negates the whole thrust of risk orientation of the Basel-II Model design has to start with an appreciation of the underlying accord, which permit banks to get more risk sensitised and provide objectives, function or application for which the model is being capital based on actual risk in their portfolio (the concept of econom- designed or procured. The use of the “rating” generated by the ic capital versus regulatory capital). Therefore, in CariCRIS’ opinion, credit risk model – whether for a elimination/ first level screening, progressive banks will and should seek to migrate at the earliest, to a or for a detailed rating - will determine the level of rigour and accu- higher level of sophistication, as required for being allowed to operate racy, and the flexibilities in the model. For instance, a “Quick the Internal Ratings Based Approach (IRB) and subsequently under Rating Model” can be designed by using only financial perfor- Advanced IRB. This, if not for reaping the full benefit of Basel-II dis- mance indicators. This would be quite different from building a pensation, at least for strengthening their own underwriting stan- comprehensive internal credit rating model, which can generate a dards. credit rating which can closely match the elements included in external credit ratings.

Credit Risk Models - The Building Blocks: 2. Who are you rating? It is virtually impossible to fashion one single model that can properly assess and rate all kinds of entities. To get a comprehensive coverage for your portfolio, you may need Type of entities a variety of models; at the same time, to keep the process from to be rated getting too complex, some rationalisation or compromise is called for. For instance, if the portfolio composition is such that Organisation Credit Structure Application one core model can cover almost 75% of the portfolio by value, & Processes Risk Model then in all likelihood, one or maximum, two models will suffice. 3. What are the information inputs into the model? A Information Skill model is only as good as the information that feeds into it. While a Inputs Sets good model always tries to reduce the subjective elements to the minimum possible without compromising assessment quality, this

67

always increases the need for reliable, readily usable information. can serve as useful tools in this process, to help unbiased scoring, stan- Therefore it is important to have a good idea of data availability and dardisation and consistency across the institution. data constraints before you design or choose a model for your applica- tion. 3. More ratios don’t make a more accurate model: In construct- ing a model, as important as capturing qualitative factors, is the right 4. Organisational Issues: How will the model work?: Many good selection and combination of financial ratios or parameters, and their models end up as non-starters, because the design of their workflow is relative weights. Many risk management departments in banks suc- not well mapped into the bank’s decision process. It is also a common cumb to the temptation of including in the model, as many of the ratios temptation to build in an excessive set of inputs by way of checks & bal- that the bank tends to use in its regular appraisal process, assuming that ances, hierarchical controls and even information inputs. Such “over- it will improve the model accuracy. However, the objective of credit risk design” tends to make the model very cumbersome and slow to use, modeling is different from that of detailed credit appraisal. A model and it can easily end up being the bottleneck in the credit decision tries to categorise a borrower, relatively quickly, into risk bands; whereas, process. Given that an internal credit rating is at best a facilitating deci- an appraisal also seeks to provide deeper insights about the risks asso- sion tool, over-designing a model is a sure way of ensuring that it does ciated in an intended credit exposure, offering comprehensive analysis not work at all. wherever necessary. Each financial ratio (and there are more than a score of such popular ratios) can no doubt provide an element of addi- 5. Understanding the skill sets of users: Model design has to fac- tional information about the borrower. But in designing a model, strik- tor in the skill levels of users or conversely, if required skill sets are not ing a good balance between additional information content in the ratio, readily available, the implementation process has to ensure that users’ the power of the ratio to differentiate and the weight to be accorded to skill level are adapted or augmented to meet requirements. This is the ratio is extremely critical. While more ratio analysis can help in a because, apart from purely numerical or statistical models, effective detailed appraisal, when constructing a model, including more ratios models need the user to exercise proper judgment. beyond a threshold, will not add to its differentiating power – on the Model Design-The ingredients: Having determined the broad contrary, it can make the model less accurate by reducing the relative framework and enabling environment of the desired credit rating model, weight of other critical factors. the next step is to get down to the actual design. While the design ele- Implementation-the last mile: Coming to the final post, the last mile ments would invariably have to be customised from institution to institu- is the longest! Many models don’t end up being effective, despite good tion depending on differences in the business model, products, client pro- design, because of shoddy implementation. Implementing a credit risk file and so on, there are some good design principles of practical utility, par- model tends to throw up several tricky situations, as it is directly related to ticularly as suited to mid to large sized indigenous banks operating in the the core banking function of lending and tends to challenge some of the Caribbean, lending to or investing in small to large scale entities. traditional practices. Good “implementation” really starts right at the 1. Go easy on statistical modeling: There exist a variety of numeri- beginning- from the point of model design and conceptualisation itself. cal, statistical and even market based models for credit risk measure- There are several important aspects which need to be addressed in this ment, such as regression, econometrics, simulation, optimisation or a respect – a few are highlighted here: combination of the above techniques. The Z-score like models based on 1.Get the operating group to “own” the model: This is a “soft” but discriminant analysis, KMV’s credit model based on option pricing are very important issue in implementing a risk model. No model is perfect examples. While some of these models have had a modicum of success and the success of a model depends on how users leverage its strong in developed markets such as the USA, the precision of these models points and appreciate its limitations. To manage the change process depends on the availability of accurate and comprehensive data relating successfully, the model has to be viewed as something the users them- to corporate defaults, credit ratings and loan losses. In the Caribbean selves have virtually created or helped create. Such an “ownership” is a and other emerging markets, comprehensive corporate financial data prerequisite for a model to be effective, as otherwise picking faults with itself is usually hard to come by, leave alone default statistics; in the a model can become commonplace. A good practice is to get the Caribbean the concept of credit ratings itself is yet to take roots. users to be closely involved in the entire chain of model development, Therefore, unless the objective is to have a model which only does a from design to implementation, for addressing their concerns and broad segregation or screening of borrowers for a “go-no go” decision, incorporating their feedback as appropriate. (and not a comprehensive risk analysis), purely numerical or quantita- tive approaches are best avoided in the Caribbean context. 2. Managing the transition: When a credit risk model is put in place in a bank for the first time, or revamped, the results thrown up by the 2. Capturing the qualitative risks: Judging a borrower for credit wor- model may not agree with previously taken credit decisions. To manage thiness necessitates going beyond analysis of financial statements. It this situation, it is important that the senior management of the bank requires a deep appreciation and unbiased qualitative judgement of visibly position the use of the model not as criticism of past practices factors such as industry prospects, market position, management track but as an improvement, and also allay any fears people may have of any record, risk appetite of management, growth plans, technology efficien- “witch-hunting” based on past decisions. The new rating system may cy, etc. Such subjective factors defy quantitative benchmarking and also result in significant changes to the overall ratings of the bank’s cred- numerical modeling. Nevertheless, a risk assessment model, if it is to it portfolio, which can be “traumatic”, and therefore will need significant reflect credit risk comprehensively, needs to capture such qualitative management attention. factors. The solution often lies in breaking down “qualitative business risk” into sub-factors to capture key risk factors on an 80:20 principle and simulate the process of applying judgement on qualitative factors. S. Venkat Raman is the CEO & Chief Rating Officer, CariCRIS; Descriptive scoring guidelines and peer group comparison techniques e-mail: [email protected]

69

risk management Standing Together against Big-time Fraud

Martin Gibbon

hishing, Identity theft … part of the new lexicon of fine for misleading securities research. At the same time, individual fraud in the financial services sector. The author customers are collectively demanding not just greater convenience Psays fraud creates both financial risk for sharehold- of services, but higher levels of protection for their assets. ers and reputational risk for banks. Noting that the same fraud model is often perpetrated on many financial insti- But there are specific business reasons for an industry-wide solution, tutions at the same time “moving through the global sys- as well. Customers, for instance, may have several accounts across tem like the financial flu”, the author argues that the multiple banks and investment firms, and their overall patterns of quickest way to stop the disease in its tracks is to inocu- activity may be deemed suspicious even if no individual account late against it via an industry-wide operational risk mitiga- looks unusual on its own. Additionally, cross-institution collaboration tion solution. is a practical and effective way to counter what may soon develop into an epidemic of stolen identities and pilfered passwords. Financial criminals and fraudsters aren't necessarily small-time all the time. There are instances when they think big, moving quickly to cap- Given that victims usually have different accounts with several finan- italise on man-made or natural disasters like the September 11th ter- cial institutions, an industry approach is likely to offer heightened vig- rorist attacks or the December 2004 South Asia tsunami, striking ilance and control. An analogy would be the increased effectiveness when the financial services industry as a whole may be most vulner- of the World Health Organisation in the instance of a real medical able. That's why an industry-wide operational risk mitigation solution epidemic. makes sense and in the end can save money. Last but not least, it's simply good business to know who your cus- Categories of financial services risk are many, and can include tomers are, to whom they're related and what their total product mix employment practices, workplace safety, and client product and busi- is. That information can be used not just to help rein in fraud, but to ness practices. But by far the most damaging are external fraud, dam- develop targeted marketing campaigns and make smarter decisions ages to company assets, business disruption and information system related to policies and procedures. Which bank, for example, wants to failures. In the U.S. alone, - that tricks account decline a credit card application from the daughter of a CEO who holders into releasing confidential information - cost banks and cred- happens to head one of its largest corporate accounts? it card companies US$1.2 billion in 2003. Identity theft losses have Putting it together: For any industry solution to fraud, there are been estimated at US$48 billion globally, with consumers reporting three basic requirements: shared information, operational risk mitiga- US$5 billion in out-of-pocket expenses during 2002. tion and cost reduction. An industry data pool, for example, can lead The right medicine: Often, the same fraud model is perpetrated to a useful synthesis of information not easily or comprehensively pro- on many financial institutions at the same time, moving through the vided by an individual . One example is sanitized global system like the financial flu. Application fraud, for instance, insurance claim and operational loss records offered by independent occurs when criminals apply for loans at different banks, one after the software vendors and professional organisations such as the British other, using inaccurate or hijacked personal and credit data. The Bankers Association. Another is a joint service between IBM and the quickest way to stop that disease in its tracks is to inoculate against it Depository Trust and Clearing Corporation, which provides a consis- on an industry-wide level, so what happens to one bank doesn't nec- tent, documented and provable process for gathering customer essarily happen to another. information and performing due diligence for account openings. There are plenty of good reasons for financial services companies to An industry solution also should help mitigate operational risk. While consider an industry-wide approach, not the least of which is pressure it may be expected that most individual banks, investment firms and from stakeholders and the general public. Regulatory agencies insurance companies will have carried out operational risk assess- around the world are drawing a fierce focus on fraud, zeroing in on ments on their major business and technological components, total institutions with inadequate systems, controls, policies and proce- industry-wide damage may well be greater than the sum of its com- dures to address the threat. For shareholders, fraud poses not just an ponent parts. In other words, the cumulative risk presented by com- immediate financial risk, but a reputational risk to the companies in ponents A, B and C may be over and above the risks they represent which they have invested. There's a reason share price goes down on individually. As new fraud models are adopted by criminals, they are reports of internal or external fraud. likely to be applied in quick succession to many banks before they're able to develop individual defense mechanisms, compounding the The media are always ready to run those reports on the front page, damage. too, ever vigilant for the next Enron or US$100 million brokerage firm

71

risk management

In terms of cost reduction, financial services institutions can make a case for cost-efficiency and productivity based on the transference of certain activities or business components to an industry-level outsourcer. Dresdner Bank, for instance, has successfully outsourced its market feeds. While Basel II regu- lations mandate that operational risk cannot be outsourced, components of it can be. To be sure, some information already is being shared on an industry-wide level: for instance, insurance claim databases, international banking loss data and black lists of fraudsters. But often it's not being used as effectively as it could be in the fight against fraud and operational risk, and its scope is limited. Adding application data, individual customer information, and deeper and broader information about counterparties would have a synergistic effect, providing a more powerful tool in the overall mitigation of risk. IT rules: The technology to more effectively parse that infor- mation is readily available, and in general would need to be selected for high performance, scalability and reliability. Specifically, an industry solution would require a rules-driven system running standardised protocols and designed to priori- tise against factors such as counterparties, size of transaction and nature of transaction. The idea is to structure the system so that, when fraudsters attack, decision trees route data to alternate transport mechanisms and allow limited resources to be applied in the most appropriate way. But to implement a truly effective industry solution to man- age operational risk, technology may not necessarily be the most important differentiator. It may well be data manage- ment and process expertise, which means choosing the right business partner to execute against those requirements. In formulating and implementing an industry-level approach to risk mitigation, financial institutions should begin their search for a business partner that: • Has a comprehensive understanding of all elements of the financial services sector; • Understands, as well, the needs of stakeholders; • Has the expertise to design and operate a cutting-edge, IT-driven model; • Can provide demonstrated business process manage- ment skills. In fact, outsourcing an industry solution for risk management offers a number of benefits. Common code can be assigned to identification data to provide a single customer view, as mandated by Basel II. Or information could be sent to an industry hub for data matches and transmitted back to indi- vidual financial institutions. And, an industry-wide approach would offer access to a broader market, faster fraud response and ultimately, less bad debt. It's a real win-win situation. For everyone, but the bad guys.

Martin Gibbon, Risk and Compliance Solutions, IBM Business Consulting Services; e-mail: [email protected]

Relationship Management Boost Customer Profitability with Predictive Analytics

Phil Winters

“Perhaps no technology has added to revenue and profitability growth as much as predictive analyt- ics,” says the author, noting the examples of customer segmentation and retention. And use of pre- dictive analytics techniques to serve individual product lines and lines of business is growing tremen- dously. The author makes prediction of his own: “Moving forward, the focus will be on extending its use across the enterprise. The result will be a company-wide, in-depth knowledge of customers and an integrated, proven approach to maximising customer satisfaction and profitable cross-selling.”

inancial services is one of the most competitive indus- variables affecting customer attrition. With this knowledge, they tries in the world. While significant time and energy are can then develop strategies to retain their most profitable and Fspent addressing today’s challenges, tomorrow brings potentially profitable customers. new issues that once again threaten growth, profitability and Financial services companies are now among the largest and investor confidence/protection. most mature users of predictive analytics. While they have One strategy banks and insurers use in this never-ending battle become extremely sophisticated in understanding and retain- is information technology (IT). IDC projects that the financial ing their customers, they now have to address other chal- services industry will account for more than 20 percent of the lenges, including: $1.2 trillion spent worldwide on IT between 2004 and 2008. • Channel options. Customers increasingly can choose Historically, however, IT – and especially predictive analytics – how they want to interact. In the case of banks, channels have expanded beyond the branch to include call cen- has been used in a stop-gap, one-off manner. The sum of indi- tres, ATMs, e-mail and the Web. So while efforts may vidual projects initiated to solve tactical business challenges have been made to maximize the success of one chan- has failed to improve overall enterprise efficiency. By changing nel, today that same focus needs to apply to ensuring a that focus to a holistic, enterprise-wide approach, financial ser- successful customer experience integrated across all vices organisations can achieve better long-term cost savings, channels. revenue growth and profitability – regardless of the new chal- lenge waiting around the corner. • Profitability. The focus on bottom-line growth will never relent. So while firms are better at retaining their best Predictive analytics as a revenue driver: In the 1990s, IT customers, today they need to secure the loyalty and investments were focused primarily on reducing costs and increase the profitability of those clients. boosting efficiency. In recent years, due in large part to the glob- Increasing customer satisfaction and profitability: While al economic downturn, consolidation, revenue generation and the challenges are daunting, the good news for the industry is customer loyalty have become important factors. that the same predictive analytic technology that has pro- Perhaps no technology has added to revenue and profitability duced dramatic results with customer segmentation and growth as much as predictive analytics. Two examples include retention can also address the issues outlined above. The goal customer segmentation and retention. is for customers to have smart, appropriate interactions regard- less of which channels they use. To accomplish this and also Segmentation has allowed insurers, banks and others to create increase customer profitability, organisations need to: groupings of similar customers that go far beyond traditional, • Create appropriate, personalised intelligence about indi- overly broad criteria like age and income. By incorporating per- viduals. sonal characteristics ranging from attitudes and predicted pref- erences to future behavior, firms have a significantly better and • Ensure that detailed knowledge is available and used in-depth understanding of like-minded customers. This allows across the company. them to better target customer segments with customised According to the Butler Group, “All too frequently the purchase offers through the right channels at the right time and at the of BI [business intelligence] products is sanctioned on a case- right price. Retention enables organisations to understand the by-case basis in an attempt to plug short-term information gaps

75 within a department or functional area. The classic example is to use BI to ing the return on each customer interaction, or learning how to improve the address the shortcomings in the native reporting and analysis capabilities of next one, is hard enough with one channel. The problem is compounded an operational application, such as mortgage processing or insurance by: claims administration. While the deployed BI tool may address this particu- • Multiple channels. lar issue, it does nothing to enhance wider organisational decision-making • Customer perception that is based not only on the goods/services and performance management, which by their nature require the integra- bought but also how easy it is to do business with companies. tion of data from multiple sources.” (Source: Butler Group, “Business Intelligence in Financial Services. Strategies and Technologies for Managing • The significant portion of customer intelligence that is accessible only Risk and Enhancing Value,” July 2004.) in back offices. A core capability of predictive analytic technology is the ability to share infor- Forrester Research (Forrester Research, Inc., “Predictive Analytics To Cross- mation throughout organisations by leveraging the power and value that Sell Finance,” June 18, 2004.) recently spoke with European financial services often lies hidden in existing environments. Companies can turn every firms that use predictive analytics in sales and marketing. It found that: employee into a knowledge worker by expanding access to predictive, ana- • One-third of firms expect to increase customer satisfaction by expos- lytic-based customer insight beyond individual departments and back ing customers to fewer, better-targeted cross-selling campaigns and offices, and by embedding predictive analytics into business processes. offers. This allows companies to track and respond to customers with a consistent • Nearly two-thirds hope to increase their use of analytics. message across all touch points, such as call centres, branch sales and ser- • With marketing budgets stretched, executives also seek to reduce vice personnel, ATM interactions, direct marketing, and the Web. Both overall campaign costs and increase sales revenues by investing in inbound and outbound interactions can be personalised at every opportu- analytics. nity so that, from the customer’s perspective, they receive the best service There is a groundswell of support for the use of predictive analytics by finan- regardless of channel. This is essential to retention. cial services firms. Why? Because by expanding its use beyond a single prod- uct or line of business, the technology delivers even greater advantages. Improved cross-selling: Needless to say, efficient cross-selling requires that the timing of interactions be appropriate from the customer’s perspec- Customer satisfaction regardless of channel: Maximizing and measur- tive. The problem for companies is how to determine the most appropriate time. Equipped with detailed customer information, one answer is to use cross-selling depends on the analysis of detailed information about the cus- trigger-based marketing. tomer – demographics, lifestyle, life stage, attrition scores, account history, buying behavior, for example – with a focus on what product is appropriate This strategy entails installing alert systems that identify suitable cross-sell for a customer. opportunities based on changes in an individual customer’s behavior – changes that can be customer- or product-related. For example, if a cus- “Appropriate” means that the customer derives benefit from the product tomer makes an unusually large deposit after receiving a bonus, a trigger and that the customer uses the new product in a manner that is profitable could prompt a cross-sell opportunity for an investment discussion. Or, to the bank. Factors like customer lifetime value and long-term profitability behavioral analysis could identify that a customer has slowly started to with- development are crucial. draw deposited funds from a , which could indicate an intention to leave the financial institution. Bringing this information together across the enterprise allows companies to take advantage of individual sales opportunities, regardless of channel, as Experience has shown that offering the right product at the right price and well as better manage the total, ongoing customer dialogue and relation- time is not always enough. To be successful, trigger marketing should work ship. By basing decisions on facts, not guesses, firms can increase cross-sales hand in hand with other in-house predictive analytic systems. This aligns not effectiveness – and do it profitably. only the right product, price and time but also the message and channel most likely to get a successful response without leaving out the optimised Predictive analytics is delivering tangible top- and bottom-line results to cost/return ratio for the bank in order to steadily improve its operational financial services firms. In recent years, use of this technique to serve individ- model. ual product lines and lines of business has grown tremendously. Moving for- ward, the focus will be on extending its use across the enterprise. The result More profitable cross-selling: Cross-selling is not new. What is, however, will be a company-wide, in-depth knowledge of customers and an integrat- is the understanding that traditional techniques have been relatively ineffec- ed, proven approach to maximising customer satisfaction and profitable tive for increasing revenue. Many tactics merely increase the volume of cross-selling. products sold, not the profit. The fault lies not in the strategy alone but also in the way it is executed. Many firms try to cross-sell with a focus on product volume. The end result can be cannibalization or unprofitable use of a prod- Phil Winters is Vice President of Customer Intelligence uct, as opposed to wallet-share increase or balance sheet growth. Effective for SAS International.

members round-up

ANGUILLA expand by deepening its roots within home markets while exploring opportunities abroad. The registered Principals in its investment Caribbean Commercial Bank (Anguilla) Ltd. department were the first in the OECS region to be licensed to trade Managing Director: Mr. Preston Bryan on the Eastern Caribbean Securities Exchange (ECSE). Through its P.O. Box 23, 1 St. Marys Street, The Valley, ANGUILLA subsidiaries, ABI is the first OECS institution to venture into the US Tel: (264) 497 2571/3, Fax: (264) 497 3570 financial market with the establishment of the Florida-based ASD Bro- E-Mail: [email protected] / [email protected] kerage and Investment Inc., which provides investment advice and Website: www.ccb.ai broker/dealer services. ABI’s directors take seriously their corporate Caribbean Commercial Bank (Anguilla) Ltd. is a private corporation responsibility and contribute generously to the economic, social and which is entirely locally owned. It was incorporated in Anguilla in cultural development of the nation. This is reflected in the Bank’s five November 1976 and began operations in July 1977. The bank's goals Eastern Caribbean Central Bank awards for Best Corporate Citizen were to meet the financial needs of the community that were not, in and Good Corporate Citizen among commercial banks in the OECS, the opinion of the founders, being adequately addressed by the two in the last three years. ABI’s asset base as at September 30, 2004 international competitors. It operates from a single branch, with two was US$207.26 million. ATMs, staffed by 41 employees, and aims to be "the best and most successful company in the financial services industry providing high Antigua Commercial Bank quality financial services, well trained, motivated and rewarded staff, General Manager: Mr. Gladston S. Joseph and meaningful participation in the social and economic develop- Thames & St. Mary's Streets, P.O. Box 95, ment of the community it serves". The Bank's asset base as at Octo- St. John's, ANTIGUA ber 31, 2004 was US$139.7 million. Tel: (268) 481 4200-3, Fax: (268) 481 4229 E-Mail: [email protected] National Bank of Anguilla Ltd. CAIB Rep.: Mrs. Denise Armstrong Chief Executive Officer: Mr. E. Valentine Banks Manager, Private & Corporate Banking P.O. Box 44, The Valley, ANGUILLA E-Mail:[email protected] Tel: (264) 497 2101/4, Fax: (264) 497 8139 The Antigua Commercial Bank (ACB) was incorporated in 1955 with a E-Mail: [email protected], Website: www.nba.ai share capital of EC$100,000. It is the country's first indigenous bank Established in 1985, with the purchase of the Anguilla operations of and . ACB is well known for its role in assisting local Bank of America, the National Bank of Anguilla is a publicly owned entrepreneurs and small business people. Its subsidiary, ACB Mort- company offering residents and non-residents a variety of personal and gage and Trust Company Ltd, is the largest indigenous provider of commercial banking products and services. It has one office staffed mortgage finance in the island. ACB aims "to be the best financial by 77 employees. In terms of market share the National Bank of Anguil- services provider, creating wealth for its customers, investors, staff la is the largest commercial bank operating in Anguilla. The Bank joint- and communities both regionally and beyond". The Bank operates ly with the Caribbean Commercial Bank (Anguilla) Limited launched two (2) branches and two (2) agencies and has the largest network of the first Data processing center in the OECS. The center processes the Automated Teller Machines on the island (7). ACB’s staff complement transactions of the two banks and those of other non-bank institutions. is 110 and it is one of the largest indigenous commercial banks in National Bank of Anguilla (NBA) is "committed to excellence in finan- Antigua & Barbuda with an asset size of US$224.8 million as at Sep- cial services through skilled and dedicated management and staff tember 30, 2004. The Bank will celebrate its 50th year of operation for the benefit of customers, shareholders and the community". Its on October 20, 2005. asset base was US$235.6 million as at March 31, 2005. Bank of Antigua Ltd. ANTIGUA & BARBUDA Managing Director: Mr. Kenny J. Byron P.O. Box 315, St. John's, ANTIGUA ABI Bank Ltd. Tel: (268) 480 5300, Fax: (268) 480 5433 Managing Director: Mr. McAlister Abbott CAIB Rep: Mr. William E. McDavid Redcliffe Street, P.O. Box 1679, St. John's, ANTIGUA Senior Vice President Tel: (268) 480 2700-1, Fax: (268) 480 2750 E-Mail: [email protected] CAIB Rep: Mr. Henley Richardson,Country Manager Website: www.bankofantigua.com Tel: (268) 480 2725, E-Mail: [email protected] The Bank of Antigua Ltd was incorporated in February 1981 and began Website: www.abifinancial.com operations in November 1981. It was purchased in 1990 by the Stan- ABI Bank Ltd. – formerly Antigua Barbuda Investment Bank Ltd. – cel- ford Bank Holdings Ltd., its major shareholder. The bank operates ebrated its 15th anniversary in March 2005. ABI is a member of the three (3) branches and a mobile unit, four ATMs, and is staffed by a progressive ABI Financial Group, a diverse whose com- total of 75 employees. The Bank's mission statement is: "To provide panies specialize in domestic and international banking, trusts, invest- the most friendly and efficient banking services to customers and ments, insurance, real estate development and tourism. ABI has fast to achieve continued growth and profitability". Its asset base was become a household name in Antigua & Barbuda, and continues to US$151 million as at December 31, 2004.

79

members round-up Caribbean Union Bank Ltd. Tel: (246) 431 5905; Fax: (246) 429 2606 Chief Executive Officer: Mr. Ivan Browne Email: [email protected] P.O. Box W2010, Friars Hill Road, Website: www.bnbbarbados.com St Johns, ANTIGUA Barbados National Bank Inc. (BNB Inc.) was established in March 1978 Tel: (268) 481 8271, Fax: (268) 481 8291 following an amalgamation of three government-owned financial insti- E-mail: [email protected] tutions, Barbados Savings Bank, which dates back to 1852, Sugar The Caribbean Union Bank Ltd. was incorporated in Antigua on 24th Industry Agricultural Bank and the National Housing Corporation (Pub- August 2004 under the Companies Act of Antigua and Barbuda No. lic Officers Housing Loan Fund). In April 1978, the bank acquired the 18 of 1995 and was granted a Domestic Banking license on Septem- assets of Bank of America in Barbados. BNB Inc. was partially priva- ber 1st 2005. The planned opening to the general public is scheduled tized following a public offering in 2000 and in 2003, the Government for December 5, 2005. The principal functions of the Bank are to offer of Barbados sold 57% of its shareholding in BNB Inc. to Republic Bank financial services to both personal and corporate entities. As at August Limited of Trinidad and Tobago, which subsequently increased its 30, 2005 the Bank’s Opening Unaudited Balance Sheet reported total shareholding to 65.13%. Barbados National Bank Inc. operates eight assets of US$2.19 million. branches and twenty ATMs island wide. The BNB Inc. Group includes two subsidiaries - BNB Finance & Trust Corporation and Barbados Global Bank of Commerce Ltd. Mortgage Finance Company Limited and is staffed by 472 employees. Chairman and CEO: Mr. Brian Stuart-Young BNB's objective is to be the financial institution of choice in Barbados 4 Woods Centre, P.O. Box W1803, for its customers, shareholders and staff. It is now one of the largest St. John's, ANTIGUA banks in Barbados and as at September 30, 2004, had an asset base Tel: (268) 480 2240, Fax: (268) 462 1831 of US $776.4 million. Email: [email protected] Website: www.globalbank.ag Butterfield Bank (Barbados) Limited Global Bank of Commerce Ltd is a locally owned and operated institu- Managing Director: Mr. Mariano R. Browne tion that has provided international financial services from Antigua Mutual Building, 1 Beckwith Place, Broad Street since April 1983. It hosts strong technology driven services, including Bridgetown, BARBADOS Tel: (246) 431 4500, Fax: (246) 430 0222 internet banking, U.S. Dollar demand deposit accounts, electronic com- E-Mail: [email protected] merce facilities, and prepaid card services. The Bank embraces the Website: www.bankofbutterfield.com vision that it can provide globally competitive financial services prod- ucts regardless of its size and geographic location. It has a corporate Butterfield Bank (Barbados) Limited is a subsidiary of The Bank of N.T. headquarters at its Global Financial Centre on Friars Hill Road and a Butterfield and Son Limited, established in Bermuda in 1858, with branch office at Woods Centre in St. John's, staffed by 36 employees, other branches in Bahamas, Cayman Islands, Guernsey and United and had a total asset base of US$74.5 million, shareholder equity of Kingdom. Barbados comprises a domestic commercial bank offering US$7.8 million,, and a return on equity of 13% as at December 2004. banking services to the local community and an offshore entity, But- terfield catering to the investment needs of high RBTT Bank Caribbean Limited (Antigua) net worth clients. The Butterfield Group has over US $8 Billion in Regional Director and Managing Director: assets and US $70 Billion in Funds Under Management. In 2003, Stan- Mr. David Hackett dard and Poors awarded the group, 1st place in the world for the 5- Country Manager: Mr. Marlon Rawlins year performances of the overall group of Butterfield Funds and the High Street, P.O. Box 1324, St John’s, ANTIGUA Butterfield Capital Appreciation Bond Fund. In 2003 and 2004, The Tel: (268) 462 4217, Fax (268) 462 5040 Banker magazine awarded The Bank of the Year to the Cayman and E-Mail: [email protected], Website: www.rbtt.com Bermuda offices for their excellence in customer service. Butterfield RBTT Bank Caribbean Ltd. is a wholly owned subsidiary of R & M Hold- Bank realized a net income of US$0.75 million and had a total asset ings Ltd. Its parent group is RBTT Financial Holdings Limited., which base of US$174 million, at year ending December 31st 2004. provides operating management support and controls financial and Caribbean Financial Services Corporation operating management practices. The Bank offers high quality and innovative, individual, commercial and international banking services, (Associate Member) Managing Director: Mrs. Hazel Highland designed to meet the needs of Caribbean people. RBTT Bank Radley Court, Collymore Rd., St. Michael, BARBADOS Caribbean also has branches in St Vincent, Bequia in the Grenadines Tel: (246) 431 6400, Fax: (246) 426 1869 and Saint Lucia. (Refer RBTT Bank Limited, Trinidad for asset base). E-Mail: [email protected] Caribbean Financial Services Corporation (CFSC), a regional private BARBADOS sector company, commenced operations in 1984 as a collaborative enterprise between regional companies, international development Barbados National Bank Inc. agencies, and multinational financial institutions. CFSC provides a Managing Director & CEO: Mr. Robert Le Hunte range of services to the CARICOM business community by making Independence Square, medium and long term loans and equity investments to commercially P.O. Box 1002, Bridgetown, BARBADOS viable projects for which funding is often unavailable. Emphasis is

81 members round-up placed on projects which create employment and generate for- eign exchange. The Corporation had an asset base of US$37.3 million at year ending March 31, 2005.

Consolidated Finance Co. Limited (A Wholly owned Subsidiary of The Bank of Nevis Ltd.) (Associate Member) President: Mr. John R.S. MacKenzie "Tamarind", Collymore Rock, St. Michael, BARBADOS Tel: (246) 467 2350, Fax: (246) 426 8626 CAIB Rep.: Mrs Frances Parravicino,Vice President E-Mail: [email protected] An Offshore Bank in a stable jurisdiction Consolidated Finance Co Limited was incorporated in 1983. It is a with the following benefits:- member of Ansa McAl (Barbados) Group of Companies, backed by the Ansa McAl Group of Trinidad and Tobago. It is the largest • Financial Privacy financial institution of its kind in Barbados, and is licensed to carry on business as a finance company. Principal activities are the pro- • Protection By vision of hire-purchase financing , leasing of motor vehicles and The Confidential Relationships Act equipment and acceptance of deposits for fixed terms. Consoli- • Tax Free Interest Income dated Finance Co Limited has a staff of 23 employees and had an asset base of US$75.9 million as at December 31, 2004. • Credit Card Services • Modern Technology RBTT Bank Barbados Limited President & Chief Executive Officer: Mr. John Beale • Investment Advice Lower Broad Street, Bridgetown, BARBADOS • Same Day Wire Transfers Tel: (246) 431 2500, Fax: (246) 431 2530 E-Mail: [email protected] • Custodial and Agency Services Website: www.rbtt.com • Qualified and Professional RBTT Bank Barbados Limited (formally Caribbean Commercial Management Bank Limited) is a member of the region's leading financial group - the RBTT Financial Group. The Bank was acquired by RBTT Finan- cial Holdings Limited on June 24, 2004. RBTT Bank Barbados offers a comprehensive range of quality and innovative individual and commercial banking services including demand deposits; time deposits and regular savings accounts; chequing accounts; trade Fees And Interest Rates Very Competitive finance and international money transfer services; commercial and consumer lending including credit cards. The Bank's four branches are strategically located across Barbados, with a staff of 148 and with convenient opening hours including Saturdays. RBTT Bank Barbados Limited had an asset base of US$214.1 mil- lion as at December 31, 2004

Contact us at: Signia Financial Group Incorporation Telephone: (869) 469-0080, 469-1153 (Associate Member) Fax: (869) 469-5798 Chief Executive Officer: Mr. Anthony Shaw 1st Floor Carlisle House, Hicks Street Email : [email protected] Bridgetown, BARBADOS SWIFT:BNEVKNNE Tel: (246) 429 7344, Fax: (246) 434 0057 The Bank of Nevis Ltd. E-Mail: [email protected] P.O. Box 450, Main Street, Website: www.signiafinancial.com Charlestown, Nevis, W.I. Signia Financial Group Inc. was incorporated on September 13th 1996 under the companies Act of Barbados under the name Gen- eral Finance Corporation (Barbados) Limited. With a staff comple- ment of 19, the group’s principal activities are the provision of term “Securing Your Financial Future” finance, motor vehicle leasing and the acceptance of deposits. On June 30th 2003, the company was 100% acquired by CSGK Finance Holdings Limited, and is a joint venture between Cave Website: www.thebankofnevis.com Shepherd & Company Limited, United Insurance Company Limit- ed, and Grace Kennedy & Company Limited. Signia Financial members round-up Group Inc. aims to be a leader in specialty financial services in the Caribbean by partnering with their clients to expand their finan- cial opportunities by innovatively integrating, developing and expanding their products and services. As a licensed financial insti- tution in Barbados, the Signia engages in all areas of consumer and corporate finance. As at September 30th 2004, Signia’s asset base was US$12.7 million.

BELIZE

The Belize Bank Limited Chairman and CEO: Mr. Philip Johnson Deputy Chairman: Mr. Eamon Courtenay 60 Market Square, P.O. Box 364, Belize City, BELIZE Tel: (501) 227 7132-5, Fax: (501) 227 2712 E-Mail: [email protected] Take advantage of high Website: www.belizebank.com interest rates paid on The Belize Bank Limited commenced banking operations in Belize by purchasing the Royal Bank of Canada in April 1987. Registered deposits and Enhance under the Banks and Financial Institutions Act, the Belize Bank your investment potential Limited is the largest full service commercial banking operation in Belize, providing a complete range of banking and financial ser- vices to both domestic and international customers. The Belize Bank is well placed to provide high quality professional service through its countrywide network of 12 branches and 17 ATMs. In 2000, the Bank extended its services to the Turks and Caicos Islands (TCI) through its wholly owned subsidiary, The Belize Bank Bank with the Bank of Nevis for: (Turks and Caicos) Limited. Belize is uniquely positioned as a part of Central America and the Caribbean, a region of the world with • High Quality Service immense growth potential. The Bank’s asset base as at year end in March 2005 was US$459 million. • Security • Convenience CAYMAN ISLANDS • Flexibility Cayman National Bank Ltd. • Affordability President: Mr. Ormond A. Williams 200 Elgin Ave., P.O. Box 1097 GT, GRAND CAYMAN Tel: (345) 949 4655, Fax: (345) 949 7506 Truly an indigenous Bank:- E-Mail: [email protected] Website: www.caymannational.com • Putting the country’s resources to Cayman National Bank (CNB) Ltd is located in the fifth largest work to build a stronger economy. financial centre in the world - the Cayman Islands, which includes • Empowering our people! Grand Cayman, Cayman Brac and Little Cayman. CNB is the largest of 6 other wholly-owned subsidiaries of Cayman National Corpo- • Improving the Quality of Life ration Ltd, a publicly owned and traded Cayman company. CNB with its 6 Customer Service Center is the only bank that has a pres- ence on all three islands making up the Cayman Islands. Its fleet The Bank of Nevis Ltd. of 15 ATMs is the largest in the Cayman Islands. For more than 30 P.O. Box 450, Main Street, years, the Cayman National Group of Companies has provided its Charlestown, Nevis,W.I. customers with a full range of domestic and international finan- SWIFT:BNEVKNNE cial services. Through its subsidiaries, the Group is able to meet Tel:1(869) 469-5564/0080 virtually any of their customers' personal or business financial objectives – full service retail and corporate banking, online bank- Fax: 1(869) 469-5798 ing, investment services, general, health and captive insurance, E-mail: [email protected] trust services, company formation, administration and manage- Website: www.thebankofnevis.com ment, fund management and private banking. The Group has also members round-up established itself as an integral part of Cayman, both in the community Tel: (345) 949 8002, Fax: (345) 949 4006 as well as in the financial arena. Cayman National Bank was voted ‘Bank E-Mail: [email protected] of the Year 2005 in the Cayman Islands’ by the Banker Magazine. Cay- Website: www.ncbcayman.com man National Bank (CNB) Ltd has a staff of 167 and its asset base at NCB (Cayman) Ltd. was incorporated in the Cayman Islands in Septem- September 30, 2004 was US$848.4 million. ber 1992. The company is a wholly-owned subsidiary of National Com- mercial Bank Jamaica Ltd. The Bank's principal activities are the provi- Cayman Islands Development Bank sion of banking and financial services to overseas clients. Recently it General Manager: Ms. Angela J. Miller expanded into money services business for the Jamaican population in P.O. Box 2576 GT, 36B Dr. Roy’s Drive, the Cayman Islands. As of September 30, 2004, the Bank had an asset George Town, Grand Cayman, CAYMAN ISLANDS B.W.I. base of US$68 million. and reflected a profit of US$1.2 million. Tel: (345) 949 7511, Fax: (345) 949 6168 E-Mail: [email protected] The Cayman Islands Development Bank (CIDB), a statutory authority DOMINICA wholly owned by the Cayman Islands Government, was established in March 2002. The primary function of the Bank is to mobilize and pro- National Bank of Dominica (NBD) vide financing for as well as to promote and facilitate the expansion and Chairman and CAIB Rep.: Mr. Milton Lawrence strengthening of the economic development of the Islands. As the Acting Managing Director: Mr. Gregory de Gannes Islands’ only development bank, CIDBs role is to complement and sup- 64 Hillsborough St., P.O. Box 271, Roseau, DOMINICA plement the activities of the local commercial banks. Lending is primar- Tel: (767) 255-2300, Fax: (767) 448 3982 ily focused on three key areas: small businesses, the housing sector E-Mail: [email protected] Website: www.nbdominica.com and human resource development. The Bank’s capital and reserves amounted to US $6.7 million as at June 30, 2004 and the total assets The National Bank of Dominica (NBD), (formerly the National Commer- stood at US $9.5 million. cial Bank of Dominica Ltd) began operations in March 1978, with its subsidiary, the Agricultural Industrial and Development Bank of Domini- NCB (Cayman)Ltd. ca. In 1982, the two institutions were separated and the National Com- Managing Director: Mr. Phillip Harrison mercial Bank of Dominica Ltd. was created. It is an indigenous institu- Elgin Ave., P.O. Box 31120 SMB, GRAND CAYMAN tion with 49 % Government of Dominica ownership (government hav- members round-up ing recently begun to divest itself of the majority ownership of the Bank), that could provide service to the working class and the small business 5% ownership by the Dominica Social Security, and the remainder of owners. Seizing the opportunity, the Bank began operations from a sin- the shareholding distributed among the private sector . The Bank oper- gle branch in St. George's. Today, the bank has a staff of 90 persons ates four branches and has as its subsidiaries, National Mortgage offering the full range of commercial services at four branches and five Finance Company of Dominica Ltd (NMFC) and the National Investment ATMs. The Grenada Co-operative Bank Ltd aims "to be the leading Corporation (NIC). Recently, NBD purchased the assets of a local branch Grenadian provider of high quality financial and related services to of the French bank, Banque Francaise Commerciale, which has now individuals and in the local and international markets become the Bank's fifth branch. The National Bank of Dominica is dedi- maximizing benefits for all stakeholders". The bank recognizes that cated to improving the quality of life of its people while focusing on when it comes to finances, a caring and understanding relationship is attaining the optimum combination of profit, growth, return on invest- everything. It’s asset base was US$98 million as at September 30, ment and financial stability. The Bank achieves its goals through dedi- 2004. cation to quality, integrity and excellence, complying fully with the coun- try’s laws. This is clearly visible in the commitment and care extended National Commercial Bank of Grenada Ltd. to its customers, employees, people and shareholders. It is now Domini- Managing Director & Secretary: Mr. Daniel Roberts ca's largest bank with a staff of 110 and an asset base of US $191.6 mil- NCB House, Grand Anse, P.O. Box 857, St. George’s, lion as at June 30, 2004. GRENADA Tel: (473) 444 2265, Fax: (473) 444 5501 GRENADA E-Mail: [email protected] Website: www.ncbgrenada.com Grenada Co-operative Bank Ltd. The National Commercial Bank of Grenada Ltd. was incorporated as a Managing Director: Mr. Gordon V. Steele state owned bank in October 1979. In 1980, the Bank acquired the # 8 Church St., P.O. Box 135, St. George's, GRENADA Grenada operations of Canadian Imperial Bank of Commerce and also Tel: (473) 440 2111, Fax: (473) 440 6600 purchased the Grenville branch operations of Royal Bank of Canada. In E-Mail: [email protected] September 1992 the Bank was privatized when 51 percent of its shares The Grenada Co-operative Bank Ltd., once fondly referred to as the was purchased by Republic Bank Ltd. The remaining shares are owned "Penny Bank", was established in 1932 out of a dire need for a bank largely by Grenadians. The Bank seeks to provide the highest quality members round-up financial services in the most effective and efficient manner, and to Ltd. became a subsidiary of RBTT Bank Caribbean Limited in 1999. The implement policies strategically aimed at benefiting all stakeholders- Bank operates four branches, staffed by 109 employees. RBTT Finan- shareholders, customers, employees and the communities in which it cial Holdings Ltd. provides operating management support and con- operates. It has the largest electronic banking network in Grenada trols its financial and operating management policies. Its mission state- which includes, Telephone Banking Service and nine Automated Bank- ment is "to provide high quality financial services through well trained ing Machines. On October 15, 2004, NCB celebrated 25 years of ser- and motivated staff, responsive to the needs of the community while vice to the people of Grenada, Carriacou and Petite Martinique. The providing maximum benefits to our customers and shareholders". Bank is widely recognized as a good corporate citizen and in 2001, (Refer to RBTT Bank Limited, Trinidad for Asset base). 2003 and 2004 was awarded the title of Best Corporate Citizen among commercial banks in the OECS by the Eastern Caribbean Central Bank. The Bank operates eight branches throughout the State of Grenada, is GUYANA staffed by 233 employees and had an asset base of US$226.5 million as at September 30, 2004. Citizens Bank Guyana Inc. Managing Director: Mr. T. Alan Parris RBTT Bank Grenada Ltd. 210 Camp & Charlotte Streets, Lacytown, Regional Director & Managing Director: Georgetown, GUYANA Mr. David Hackett Tel: (592) 226 1708-9, Fax: (592) 227 8251 Country Manager: Mrs. Cyrilla Gemon E-Mail: [email protected] Grand Anse, P.O. Box 4, St. George's, GRENADA Citizens Bank Guyana Inc. was incorporated in Guyana in November Tel: (473) 444 4919, Fax: (473) 444 2807 1993 and began operations in November 1994 with 100% of its capital E-Mail: [email protected] being held by Citizens Bank Ltd (Jamaica). In October 1998, the 70% Website: www.rbtt.com interest held by Citizens Bank of Jamaica was acquired by local share- In December 1996, 15% of the Grenada Bank of Commerce's shares holders resulting in Banks DIH Ltd. holding 51%, Hand-in-Hand Mutual were sold to the National Insurance Scheme (Grenada). In 1997, RBTT Fire Insurance Co Ltd. 17.5%, Continental Group of Companies 15.5% Bank Limited purchased 50% shareholding in the Bank which now and the remaining 16.5% being held by 62 shareholders. It has three stands at 62%. Consequent upon a corporate restructuring of the Royal branches, staffed by 70 employees and had an asset base of US$66.6 Bank of Trinidad and Tobago Ltd. Group, Grenada Bank of Commerce million as at September 30, 2004. members round-up Guyana Bank for Trade and Industry Ltd. tains a constant focus on providing efficient and quality service to its Chief Executive Officer: Mr. R. K. Sharma customers. The Bank also has a reputation for encouraging the Arts CAIB Rep.: Mr. John Tracey, Director - Credit and Culture of Guyana among its other acts of social responsibility. The 47-48 Water Street, P.O. Box 10280, Dome of the main branch, which is adorned with the paintings of per- Georgetown, GUYANA sons who have made significant contributions to life in Guyana, is unique Tel: (592) 226 8430-9, Fax: (592) 227 1612 among Bank buildings in the country. The Bank has market share of E-Mail: [email protected] 20% in assets, 20% in deposits, and 17% in lending. GBTI is the sec- Website: www.gbtibank.com ond largest commercial bank in Guyana, with an asset base of US $146 The Bank has a rich and successful history that dates back to the estab- million at December 31, 2004. lishment of the first commercial bank in British Guiana in 1837, and was part of the Barclays Bank network up to 1987. In 1987, Barclays Bank Hand-in-Hand Trust Corporation Inc. sold their local operations to the Government of Guyana, and the Bank General Manager: Mr. Hewley Nelson was renamed Guyana Bank for Trade and Industry Limited. In 1991, the 62-63 Middle Street, P.O. Box 10569, GBTI became a public company and now has over 1,800 shareholders, North Cummingsburg, Georgetown, GUYANA including a majority shareholder. GBTI provides an extensive range of Tel: (592) 227 1772, Fax: (592) 226 9971 services to its corporate and individual clients through its six country- E-Mail: [email protected], Website: www.gncbtrust.com wide branches. The Bank offers savings accounts for the various age groups: Early Savers Accounts (birth to 17 years); Prime Life Accounts Hand-in-Hand Trust Corporation Inc., formerly GNCB Trust Corporation (55 years and over) and Statement Savings Accounts (linked to the Inc., was incorporated in 1971 as a wholly owned subsidiary of the ATM Service). A range of business and investment accounts cater to Guyana National Cooperative Bank Ltd. with its own Board of Directors. the business community, and financing is offered under the GBTI Quali- In 1977, it was incorporated as a public company and is one of the ty Lifestyle and Commercial Loan Plans. The Bank also provides inter- largest providers of mortgage finance in Guyana. The company has national business services such as money transfer, bills collection, bills been privatized and is now owned by Hand In Hand Mutual Inc. Insur- discounting, and pre-export financing; and technology-based services ance Company Ltd. Its mission is "to complement the services provid- such as Telephone Banking and Debit Cards for its network of ATMs ed by other institutions the sum of which is the improvement of the qual- (11) and Point of Sale Terminals located throughout the country. Over ity of life of the people of our community". Its asset base stood at the years, the Bank has built up a reputation for innovation, and main- US$33.8 million as at June 30, 2004.

members round-up National Bank of Industry and Commerce Ltd. HAITI Managing Director: Mr. Michael Archibald Promenade Court, 155/6 New Market St., UNIBANK S.A. P.O. Box 10440, South Cummingsburg, Georgetown, GUYANA Chairman & CEO: Mr. F. Carl Braun Tel: (592) 223 7938-49, Fax: (592) 233 5007 Senior Executive Vice President & General Manager: E-Mail: [email protected], Website: www.nbicgy.com Mr. Franck Helmcke National Bank of Industry and Commerce Ltd. (NBIC) has been part of P.O. Box 46, Port-au-Prince, HAITI, HT 6110 Guyana's landscape for almost 17 decades. It is the successor to the Tel :(509) 299 2080 thru 299 2086; (509) 510 7684 British Guiana Bank which commenced operations in 1837. In 1914, Fax: (509) 299 2067 British Guiana Bank's operations were sold to the Royal Bank of Cana- E-Mail: [email protected] da, which was then acquired by the Government of Guyana in 1984, and Website: www.unibankhaiti.com vested in the National Bank of Industry and Commerce Ltd. In October UNIBANK S.A. is a privately-owned Haitian commercial bank which 1997, 47.5% of the shares held by the Government and the National forms part of a diversified financial services group called "Groupe Insurance Scheme was sold to Republic Bank Ltd. of Trinidad and Toba- go, which today holds 51% of the stockholdings of the bank. NBIC oper- Financier National"(GFN®). Incorporated under the laws of Haiti and ates from eleven locations with a total staff of 551 as at August 31 2005. inaugurated in July 1993, it is Haiti’s fastest growing bank. The Bank’s The Bank aims "to provide leadership in banking and other financial mission is to be the best bank in Haiti in terms of its service quality, cor- services by delivering the highest quality service and respect to it’s porate citizenship and general commitment to the development of bank- customers, supporting an environment for maximum job satisfaction ing services for all Haitians. UNIBANK ranks first or second in assets, and career development for it’s employees, ensuring an optimum deposits, credit, number of accounts, branches, foreign exchange trad- return on investment to it’s shareholders, maintaining financial stabili- ing, and international payments. It has 36 branches (20 in Port-au- ty, integrity, confidence and social responsibility, realizing it’s commit- ment to the economic development of Guyana, through the use of Prince and 16 in 13 provincial cities). The Group employs 1,273 people, modern technology and continuous innovation". The Bank now have of whom 54 are located in the USA and Canada. UNIBANK’s assets as 24 ABM’s nationwide and its asset base as at September 30, 2004 was of September 2004 were US$359.9 million and represent a 25% mar- approximately US$310.7 million. ket share. NATIONAL COMMERCIAL BANK (SVG) LTD The Nation’s Bank is here to meet All Your Banking members round-up JAMAICA offer. First Global Bank Limited continues to distinguish itself from oth- ers by providing value-added commercial and investment banking prod- Capital & Credit Merchant Bank Ltd ucts and services to Caribbean people wherever in the world they live. President & Chief Executive Officer: Mr. Curtis A. Martin The banks mission is “to be a highly successful commercial bank 6 - 8 Grenada Way, Kingston 5, JAMAICA renowned for its superior personalized customer service, innovative- Tel: (876) 960 5320, Fax: (876) 960 1381 ness and financial strength”. With its head office located in the heart E-Mail: [email protected] of Jamaica’s business capital, the bank has grown to become a strong Website: www.capital-credit.com force within the financial industry. First Global had an asset base of US$286.4 million at December 31, 2004. Capital & Credit Merchant Bank Limited (CCMB) is primarily engaged in the business of merchant and investment banking. At the commence- Intertrade Finance Corporation Limited ment of operations in 1994, the Bank had an asset base of US$0.5 mil- (Associate Member) lion and was at that time the smallest of 30 merchant banks operating CEO: Mrs. Joan Powell in Jamaica. However, the state of the Jamaican marketplace and of 23 Barbados Avenue, P.O. Box 533, Kingston 5, Capital Credit Merchant Bank has changed dramatically and it now JAMAICA ranks as the largest and most profitable merchant bank in Jamaica Tel: (876) 920 0402-4, Fax: (876) 920 0105 among the 5 merchant banks now operating. After 11 years of consis- E-Mail: [email protected] tently profitable performance, the Bank continues to create new and formidable records in financial achievements. In pursuit of its corpo- Intertrade Finance Corporation Limited, is known for its innovativeness. rate strategy, Caribvision 2010, the Bank has expanded to provide more A private company which is entirely locally owned, it was incorporated financing and investment options with the launch of two subsidiaries, in Jamaica on April 11, 1995 and commenced operations on June 5, Capital & Credit Securities Limited (CCSL), a member of the Jamaica 1995. Its principal activities include funds management in both local Stock Exchange and a primary dealer of Government Securities, and and foreign currencies, operation of a cambio and other international Capital & Credit Fund Managers Ltd. (CCFM), a mutual fund manage- business, trade financing and purchase and resale of investments. The ment company. Both companies are licensed by the Jamaican Finan- company acts as a secondary broker/dealer in government securities cial Securities Commission (JFSC). In keeping with the drive to expand such as Treasury Bills, Treasury Notes and Treasury Bonds. Since the business opportunities for existing and potential clients, the Bank has start of its operations, the company has grown significantly and is now steadily increased its employee complement to the current 217. Cus- ranked within the top five in the non-bank financial services organiza- tomers can now experience the special Capital & Credit treatment at tions. Its asset base as at June 2004 was US$9.2 million. CCMB’s two branches in the island’s two cities, Kingston and Montego Bay; at CCSL’s 2 branches, also in both cities and at CCFM’s offices in Jamaica Money Market Brokers Limited (JMMB) Kingston. CCMB is the first Jamaican merchant bank to record over (Associate Member) US$36 million in Shareholders Equity and the first to be listed on the Managing Director: Mrs. Donna Duncan-Scott Jamaica and Trinidad & Tobago Stock Exchanges. As at December 31, 6 Haughton Terrace, Kingston 10, JAMAICA 2004, it held total assets under Management valued in excess of Tel: (876) 920 5050 Fax: (876) 920 7281 Toll free: 1 888 GET JMMB US$963 Million. E-Mail: [email protected], Website: www.jmmb.com First Global Bank Ltd Jamaica Money Market Brokers Limited (JMMB) has since inception President: Mr Wayne Wray established itself as the leading Money Market Broker in the Caribbean. LOJ Centre, 28/48 Barbados Avenue Known for its pioneering spirit, the company has consistently introduced Kingston 5, JAMAICA new products and services to the average investor. Tel: (876) 929 3383-6, Fax: (876) 929 3654 The brainchild of the late Joan Duncan, JMMB opened for business in E-Mail: [email protected] November 1992 as the first Money Market Broker and Dealer in Website: www.firstglobal-bank.com Jamaica. The vision was to provide investment services to a wider cross First Global Bank Limited, a wholly owned subsidiary of Grace, Kennedy section of Jamaican people. Today, JMMB has over 75,000 clients and & Company Limited, began operations under its current name in Janu- 8 branches (soon to be 10) island-wide. The company’s vision has also ary 2001. The bank has begun to expand its operations within Jamaica spread to Caribbean Markets where in 2002 through joint ventures they by opening two new branches. The first of which is located in Montego have become successful active players in Trinidad and Tobago with Bay, made possible through the acquisition of Citibank’s retail banking Caribbean Money Market Brokers (CMMB) and its equities arm portfolio. The second is an in-store branch, located in Hi-Lo Supermar- Caribbean Money Market Brokers Securities Limited (CMMBSL). The ket, Manor Park, increasing its network to three branches island wide. JMMB is a listed company on the Jamaica and Trinidad and Tobago These locations are expected to improve the banks visibility and Stock Exchanges and is soon to be listed on the Barbados Stock increase convenience for the banks clients. The bank will continue to Exchange. Similar ventures have also been established in Barbados expand into other strategic locations as it continues to grow. FGB's prod- and Saint Lucia, proving once again that the formula Vision + Values + ucts and service menu includes interest bearing Chequing, Savings and Expertise = Phenomenal Success. Its asset base as at March 31, 2005 Fixed Deposit Accounts at competitive interest rates. In addition, Non- was US$1.14 billion. Residents can benefit from the banks Tax Free savings instruments and a charge-free internet banking service through FGB Online at www.first- Jamaica National global-bank.com. Telephone banking, online bill payment and credit General Manager: Mr. Earl Jarret card services compliment the suite of products that First Global has to 2-4 Constant Spring Road. 91 members round-up Kingston 10, JAMAICA Tel: (876) 926 1344-9; 926 1600–3 Fax: (876) 968 6596; 926 7661 E-Mail: [email protected] Website:www.jnbs.com The Jamaica National Building Society, “The Society”, was estab- lished in 1874 under the name of Westmoreland Building Society. The Society is licensed in Jamaica under the Building Societies Act and the Bank of Jamaica (Building Societies) Regulations 1995 and is a mutual organization in which all holders of shares (sav- ings accounts) have one vote. The Jamaica National Building Soci- ety is the leading building society in Jamaica and the Caribbean and is the third largest financial institution in Jamaica in terms of assets, savings and capital base. The Society provides home loans, mobilizes and maintains savings accounts, trades in foreign cur- rencies and facilitates international money transfers. The Society has an extensive distribution network with 23 branches, 17 ATM’s and 3 money shops in Jamaica as well as Overseas Representa- tive Offices in the USA, Canada and the UK. JNBS is the parent of a diverse group with over 10 subsidiaries and a staff complement of 703 locally and internationally. As at March 31st 2005, the Soci- ety’s asset base was approximately US$709.9 million.

National Commercial Bank Jamaica Ltd Group Managing Director: Mr. Patrick Hylton 32 Trafalgar Rd., P.O. Box 88, Kingston, JAMAICA Tel: (876) 929 9050/89, Fax: (876) 929 8399 E-Mail: [email protected] Website: www.jncb.com The tag-line of the National Commercial Bank (NCB), ‘building a better Jamaica’, is especially apt as the organization’s roots have been in Jamaica for over one hundred and fifty years. What is now National Commercial Bank Jamaica Limited first began when the Colonial Bank of London, England, commenced operations in Jamaica in 1837 and through a series of mergers and acquisitions, became the National Commercial Bank in 1977. In 2002 the AIC Group, led by Jamaican-Canadian billionaire Michael Lee-Chin, acquired 75% of the shares in the National Commercial Bank. With the backing of AIC Limited, Canada’s largest privately held mutual fund company, NCB has been better able to create long-term wealth for clients and be a leader in financial services in Jamaica. NCB offers a wide range of banking and financial services with a staff complement of 2,400 and through a branch network of over 45 locations and 145 island-wide ABM locations, internet banking and toll-free Customer Care Centre. The Bank also has a represen- tative office in the United Kingdom. The National Commercial Bank boasts a number of significant milestones including the launch of the first Jamaican credit card "Keycard" in 1981. In 1983, NCB became the first Jamaican bank to have deposits in excess of J$1.0 billion and is also the first bank to offer Internet Banking in Jamaica. The core subsidiary companies comprise: NCB Capital Markets Limited, which offer securities, stock brokerage, fund and investment management services; West Indies Trust Company offering pension and property management services; NCB Insur- ance Company providing bank-assurance products; NCB (Jamaica) Nominees with registrar services, off-shore banking services via NCB (Cayman) Limited and remittances through Senvia Money Ser- vices (UK) Limited. NCB had total assets of US$3 billion and total equity of US$286.8 million as of September 30 2004. members round-up ST RBTT Bank Jamaica Ltd. NATIONAL BANK Regional Director: Mr. Rodney S. Prasad ST. LUCIA LIMITED 17 Dominica Drive, P.O. Box 483 1 Kingston 5, JAMAICA Tel: (876) 960 2340-2, Fax: (876) 960 4678 E-Mail: [email protected] st Website: www.rbtt.com The 1 Indigenous Bank RBTT Bank Jamaica Ltd. is the result of the financial and opera- The St. Lucia Cooperative Bank Limited began tional merger of the former Eagle Commercial Bank, Island Victo- trading under its new name 1st National Bank St. ria Bank, Workers Savings and Loan Bank and Citizens Bank Ltd. Lucia Limited effective January 1st, 2005. This name The bank is now a wholly owned subsidiary of RBTT Financial Hold- ings Ltd. and operates from 21 branches with a staff of 898. The change in no way affects the shareholding structure of Bank provides a complete range of banking and financial services the Bank but reflects the stated wish of the to individuals and corporate clients locally and abroad. (Refer to shareholders and customers of the Bank to re-brand RBTT Bank Limited, Trinidad for asset base). while retaining the rich heritage of the institution. 1st National Bank St. Lucia Limited is committed to MONTSERRAT providing high quality products and services at competitive prices ensuring that the customer gets Bank of Montserrat Ltd. value for money. Our knowledgeable and well trained Manager: Mr. Anton Doldron staff are Here For You and will deliver 1st class P.O. Box 10, St. Peter’s, MONTSERRAT customer service. It is our privilege to offer 1st class Tel: (664) 491 3843, Fax: (664) 491 3163 banking expertise, integrity, confidentiality, courtesy, E-Mail: [email protected] and consideration as we serve you. The Bank of Montserrat Ltd began operations in 1988 as a gov- ernment owned institution. In 1993, due to the volcano crises, the Eastern Caribbean Central Bank stepped in and restructured the We are happy to play our part and can offer a package bank and effectively took over control. Despite this setback the designed to meet your overall banking needs including: Bank has sought to modernize technology and improve services, with a focus on staff training. The Bank of Montserrat Ltd has a Savings Accounts Consumer Loans staff of 20 and its assets stood at US$60.4 million as at Septem- Current Accounts Commercial Loans ber 30, 2004. Fixed Deposits Overdraft Facilities

ST KITTS & NEVIS Standing Orders Travellers Cheques

Caribbean Confederation of Credit Unions Safe Deposit Boxes Visa Credit Cards Chief Executive Officer: Mr. Martin Guevara Corner of Wilkin St. and St Johnston Ave., Fortlands Night Deposit Services Cash Advances P.O. Box, 1213, Basseterre, ST. KITTS Tel: (869) 466 9453, Fax: (869) 466 6957 Automated Teller Machines Bills for Collection E-Mail: [email protected] or [email protected], Website: www.caribccu. Foreign Currency SWIFT Transfers The Caribbean Confederation of Credit Unions (CCCU) was estab- Back to School Loans Letters of Credit lished in August 1972 in the island of Dominica as the successor to the West Indies Conference of Credit Societies. This privately Student Loans Mortgage Loans owned organisation is an affiliate of the World Council of Credit Unions and is now based in St Kitts. Its office is staffed by five per- sons. CCCU together with its Affiliates, seeks to achieve its “Credit INVEST IN YOUR BANK . . . YOUR FUTURE Union…are where you belong” goal of increasing popular partici- pation in the financial markets as well as in the development process. It seeks to expand savings mobilization, and the produc- 21 Bridge St., Castries ¥ Tel: (758) 455 7000 ¥ Fax: (758) 453 1630 Commercial St., Vieux Fort ¥ Tel: (758) 454 6213 ¥ Fax: (758) 454 6137 tive sector, resulting in job creation and increased income genera- Rodney Bay, Gros Islet ¥ Tel: (758) 452 8882/3 ¥ Fax: (758) 452 8884 tion among rural and urban families in the Caribbean. It has credit G.F.L. Charles Airport Agency, Castries ¥ Tel/Fax: (758) 451 8482 union leagues in all Caribbean countries and credit unions in four E-mail: [email protected] ¥ SWIFT : LUOBLCLC islands, 342 in all representing 1.6 million members with total assets of just under US$2.0 billion as at December 31, 2004. members round-up Caribbean Credit Card Corporation Ltd. (Associate Member) General Manager: Mr. Jessel Gadsby P.O. Box 993, Bladen Commercial Development, Basseterre, ST. KITTS Tel: (869) 466 6517, Fax: (869) 465 0890 E-Mail: [email protected] This Credit Card company was incorporated in Antigua in Septem- ber 1992 and re-registered in St. Kitts-Nevis in January 1994. It commenced commercial activities in July 1994, its principal activ- ity being the conducting of credit card operations under Visa and Mastercard licensing arrangements. The company’s shareholders are the indigenous banks in the OECS sub-region. The 4C’s, as it is popularly known, had an asset base of US$14 million as at Sep- tember 30, 2004.

RBTT Bank (SKN) Ltd. Managing Director: Mr. David Hackett Country Manager: Mrs. Lenora Ventour-Corbie Chapel Street, P.O. Box 60, Charlestown, NEVIS Tel: (869) 469 5277, Fax: (869) 469 1493 E-Mail: [email protected] Website: www.rbtt.com The predecessor of this Bank was incorporated in Nevis in April 1955 as Nevis Banking Company Ltd. RBTT Bank Limited, through RBTT Bank Caribbean Limited, acquired a majority interest in the company in 1996. The Bank provides a full range of high quality, individual commercial and international services. RBTT Financial Holdings Ltd. provides operating management support and con- trols its financial and operating management practices. (Refer to RBTT Bank Limited, Trinidad for asset base).

St. Kitts-Nevis-Anguilla National Bank Ltd. Managing Director: Mr. Edmund W. Lawrence CAIB Rep.: Mr. Winston Hutchinson Senior Manager, Comptroller Division Central Street, P.O. Box 343, Basseterre, ST. KITTS Tel: (869) 465 2204 ext 507, Fax: (869) 465 1050 E-Mail: [email protected] Website: www.sknanb.com St. Kitts-Nevis-Anguilla National Bank Ltd was incorporated as a public limited company in February 1971 after acquiring the assets of St. Kitts Industrial Bank Ltd. In February 1972, this commercial bank established National Trust Company (St. Kitts-Nevis-Anguil- la) Ltd. and in 1973, National Caribbean Insurance Company Ltd. became a wholly-owned subsidiary of the Trust Company. To meet the needs of the market, the bank in 2001 established St Kitts and Nevis Mortgage and Investment Company Limited. The Bank, Trust Insurance and Mortgage Companies comprise the National Bank Group of Companies. The Bank has five branches and one sub-office. Its 148 employees pursue the group’s mission “to be the efficient, profitable and growth-oriented financial group, pro- moting social and economic development in the national and regional community by providing high quality financial services and products at competitive prices”. The Bank had an asset base of US$486.7 million as at June 30, 2004. members round-up The Bank of Nevis Ltd. General Manager: Mr. Rawlinson Isaac CAIB Rep: Mr. Hanzel Manners, CFO Main St., P.O. Box 450, Charlestown, NEVIS Tel: (869) 469 5564, Fax; (869) 469 5798 E-mail: [email protected] Website: www.thebankofnevis.com This commercial bank was incorporated in Nevis in August 1984 and opened for business in December 1985. Its original authorized share capital was EC$5 million but this figure was increased to EC$10 million in 1998 when it started its first subsidiary, Bank of Nevis International. To date, the Bank has one ATM and one branch. The Bank of Nevis Ltd. is staffed by 44 employees, and strives “to be the premier financial institution in the markets in which it operates through the delivery of high quality products and services, to preserve the integrity and safety of the Bank’s deposits and capital while ensuring consistently superior finan- cial performance, to create maximum value for its shareholders, to be a responsible corporate citizen and to advance the person- al growth and development of its employees”. The Bank’s vision is to “strive to create wealth for all stakeholders by providing world class financial services.” The Bank’s assets totaled US$121.3 mil- lion as at June 30, 2004.

SAINT LUCIA

Bank of Saint Lucia Limited Group Managing Director: Mr. Robert Norstrom Bridge Street, P.O. Box 1860, Castries, SAINT LUCIA Tel: (758) 456 6000, Fax: (758) 456 6702 E-Mail: [email protected] Website: www.bankofsaintlucia.com Bank of Saint Lucia Limited started its operations in July 2001 fol- lowing the merger of the National Commercial Bank of Saint Lucia Ltd and the Saint Lucia Development Bank. The Bank along with its sister companies: Bank of Saint Lucia International Ltd and EC Global Insurance Company Ltd are subsidiaries of the East Caribbean Financial Limited. Bank of Saint Lucia currently operates a total of five branches and nine Automatic Teller Machines (ATMs) with a staff compliment of 244 employees providing a wide range of financial and related services including corporate, retail, development and investment banking. The Bank enjoyed a 40% market share and had an asset base of approxi- mately US$398 million as at December 2004.

1st National Bank St Lucia Limited Managing Director: Mr. G. Carlton Glasgow 21 Bridge St., P.O. Box 168, Castries, SAINT LUCIA Tel: (758) 455 7000, Fax: (758) 453 1630 E-Mail: [email protected] 1st National Bank St. Lucia Limited (Formerly St. Lucia Cooperative Bank Ltd) began trading under its new name effective January 1st 2005. This name change in no way affects the shareholding struc- ture of the Bank but reflects the stated wish of the shareholders and customers of the Bank to re-brand while retaining the rich her- itage of the institution. The Bank is proud to be the first indigenous Bank in Saint Lucia having been incorporated in 1937 and com- members round-up

menced operations in 1938. The institution has grown from a small sav- Tel: (784) 457 1844, Fax: (784) 456 2612 ings and loans organization with share capital of EC $50,000.00 to a E-Mail: [email protected] full service commercial bank with authorized share capital of EC $5 mil- National Commercial Bank (SVG) Ltd was established in 1977 and has lion. 1st National Bank St. Lucia Limited’s objective is to continue to pro- a staff complement of 171 at its main branch and six sub branches. The vide the highest quality financial service, in order to satisfy the needs of mission statement of this wholly Government owned bank is "to be a its customers and the interests of shareholders, employees and the Saint provider of efficient and sound financial services; to anticipate and Lucian public. As a result, the Bank was recognized by the Eastern meet the needs of its customers with superior products and person- Caribbean Central Bank in 2004 for Excellence in Customer Service . alized service; and to aid in nation building". The Bank has a total of 9 The Bank is committed to contributing towards the improvement of eco- ATMs and its asset base as at June 30, 2004 was US$181 million. nomic and social standards in Saint Lucia. With four branches and a staff complement of 81, the Bank had an asset base of US$82 million RBTT Bank Caribbean Ltd. as at December 31, 2004. Regional Director & Managing Director: Mr. David Hackett Country Manager: Mr. Desmond Austin RBTT Bank Caribbean Limited (Saint Lucia) South River Rd., P.O. Box 118, Kingstown, ST. VINCENT Regional Director & Managing Director: Mr. David Hackett Tel: (784) 456 1501, Fax: (784) 456 2141 Country Manager: Mr. David Lum Kong E-Mail: [email protected] 22 Micoud Street, P.O. Box 1531, Castries, SAINT LUCIA Website: www.rbtt.com Tel: (758) 452 2265, Fax: (758) 452 1668 E-Mail: [email protected] RBTT Bank Caribbean Ltd. was incorporated in St. Vincent and the Website: www.rbtt.com Grenadines in December 1985 to take over the operations of Royal Bank of Canada in that country. The Bank's parent company is RBTT Finan- RBTT Bank Caribbean Ltd. is a wholly owned subsidiary of R & M Hold- cial Holdings Ltd. of Trinidad and Tobago. The main banking arm of the ings Ltd. Its parent group is RBTT Financial Holdings Limited., which RBTT Group in the Eastern Caribbean, the bank offers a wide range of provides operating management support and controls financial and high quality banking services through strategically located branches in operating management practices. The Bank offers high quality and inno- Saint Lucia, Antigua, and Bequia in the Grenadines. (Refer to RBTT Bank vative, individual, commercial and international banking services, Limited, Trinidad for asset base). designed to meet the needs of Caribbean people. RBTT Bank Caribbean also has branches in St Vincent, Bequia in the Grenadines and Antigua. (Refer RBTT Bank Limited, Trinidad for asset base). SURINAME

The Mutual Finance Inc. De Surinaamsche Bank N.V (Associate Member) (Also commercially known as DSB Bank) General Manager: Mr. Rae Atkinson President: Mr. Sigmund L.J. Proeve P.O. Box 1699 Henck Arron Street NR 26, P.O. Box 1806, Sagicor Financial Centre Paramaribo, SURINAME Choc Bay, Castries, SAINT LUCIA Tel: (597) 471100, Direct Line: (597) 425720, Tel: (758) 452 4272, Fax: (758) 452 4279 Fax: (597) 411750 Website: www.sagicor.com E-Mail: [email protected], Website: www.dsbbank.sr The Mutual Finance Inc., “MFI”, was incorporated on May 1998 under De Surinaamsche Bank N.V. was founded in 1865 by the Nederlandsche the Banking Act No. 7 of 1991. The Company, which is staffed by 8 Handel-Maatschappij which later merged with the Twentse Bank to employees, is a subsidiary of Sagicor Life Inc. (formally The Barbados become Algemene Bank Nederland. In 1976 the Government of Suri- Mutual Life Assurance Society), a company founded in Barbados which name bought 10% of the shares while 41% was taken up by private owns seventy percent of the issued share capital. The principal func- investors and 49% remained with Algemene Bank Nederland; ABN later tions of MFI are to source funds primarily through the issue of and to merged with AMRO Bank to form ABN AMRO Bank N.V. De Surinaam- use those funds to provide its customers with Lease and Premium sche bank functioned as the circulation bank for the Government of Suri- Financing, Home Equity loans, Land Purchase loans, Consumer name until 1957. In July 2001 ABN AMRO Bank N.V. sold its 49% par- Durables, Machinery & Equipment loans. In keeping with its parent com- ticipation in De Surinaamsche Bank to ASSURIA N.V., an insurance com- pany’s name change, MFI, whose asset base was in excess of US$6.67 pany in Suriname. The Bank operates 6 branches, staffed by 370 million as of December 31st 2004, is also in the process of rebranding, employees. The Bank's mission is "to offer prime quality products and and changing its name to Sagicor Finance Inc as the group continues service through enthusiastic and expert staff and to foster client loyalty, its rationalization and expansion. thus creating a win-win situation for the client as well as the bank". Its asset base exceeded US$279.3 Million as at December 31, 2004

ST VINCENT Handels-Krediet-en Industriebank N.V. & THE GRENADINES (Hakrinbank NV) Managing Director & CEO: Mr. Jimmy D. Bousaid National Commercial Bank (SVG) Ltd P.O. Box 1813, Paramaribo, SURINAME CEO: Mr. Phillip Hernandez Tel: (597) 477722, Fax: (597) 472066 Bedford & Grenville Streets, E-Mail: [email protected] P.O. Box 880, Kingstown, ST. VINCENT Website: www.hakrinbank.com

96 members round-up

Hakrinbank N.V. is a commercial bank established in Suriname in 1936 E-Mail: [email protected], Website: www.cibtt.com and had as its predecessor Vervuurt's Bank L.L.C. In 1973 the Bank was This company was incorporated in the Trinidad and Tobago in June reorganized and its name was changed to Handels-Krediet-en Indus- 1988, licensed to carry on business of a financial nature and to operate triebank, fondly called Hakrinbank. During the second half of the eight- the business of a merchant bank, finance house, confirming house, trust ies, two foreign banks viz. Bank of America and Rabobank (Holland) company, mortgage institution and leasing corporation. It is a wholly divested their shares that were taken up by the state (51%) and private owned subsidiary of CL Financial Ltd., a leading Caribbean-based inter- investors (49%). The Bank has as its subsidiary De Nationale Trust & national conglomerate. The Bank has shown phenomenal growth and Financierings Maatschappij N V. Current staffing amounts to 240, which had an asset base of US$ 1.3 billion as at December 31, 2004. is the total for the head office and six branches. Its assets totaled approx- imately US$148 million as at December 31, 2004. DFL Caribbean Holdings Ltd. Managing Director: Mr. Gerard Pemberton RBTT Bank (Suriname) NV 10 Cipriani Boulevard, P.O. Box 187, Port of Spain, Managing Director: Mr. Peter Ng A Tham TRINIDAD & TOBAGO Kerkplein 1, P.O. Box 1836, Paramaribo, SURINAME Tel: (868) 625 0007, Fax: (868) 623 8491 Tel: (597) 471555, Fax: (597) 411325 E-Mail: [email protected] E-Mail: [email protected] Website: www.dflcaribbean.com Website: www.rbtt.com The DFL Caribbean Group has five subsidiaries, including Development With a network of 5 branches, and as a member of a large regional Finance Ltd, which has an international credit rating of BB (Fitch Rat- financial institution, the Bank offers a comprehensive range of spe- ings) and is licensed in Trinidad and Tobago under the Financial Institu- cialised products and services, including corporate finance, capital mar- tions Act in addition to being licensed as an issuer and underwriter kets and asset management, customized and specially designed to under the Securities Industry Act. Caribbean Development Capital Lim- meet the sophisticated needs of its local, regional and international ited (DevCap) manages DFL's private equity business, CDN Manage- clients. (Refer to RBTT Bank Limited, Trinidad for asset base). ment Services Limited provides management development, SME con- sulting and private sector development services and Microfin Caribbean TRINIDAD & TOBAGO Holdings Limited operates microfinance subsidiaries in Trinidad, Saint Lucia and Grenada. DFLSA Incorporated was recently licensed by the Caribbean Money Market Brokers Limited Bank of Guyana. At December 31st 2004, the Group’s Net Assets amounted to US$20.4 million. (Associate Member) Managing Director & CEO: Mr. Ram Ramesh First Citizens Bank Ltd. 1 Richmond Street, Ground Floor CEO: Mr. Larry Howai Furness Court, Independence Square 9 Queen's Park East, Port of Spain, TRINIDAD Port of Spain, TRINIDAD & TOBAGO Tel: (868) 624 3178, Fax: (868) 627 4548 Tel: (868) 623 7815, Fax: (868) 627 2930 E-Mail: [email protected] E-Mail: [email protected] CAIB Rep: Mr. Dirk Smith Website: www.mycmmb.com Tel: (868) 624 3178, Fax: (868) 623 3393 Caribbean Money Market Brokers Limited (CMMB) manages invest- E-Mail: [email protected] ments in debt and equity, government securities and corporate paper; Website: www.simplyfirst.net underwrites Government Bonds and offer same-day settlements for all First Citizens Bank was established in 1993 and has forged its reputa- fixed income transactions. CMMB provides a full range of Fixed Income tion on good service and on being the most technologically advanced Products such as Fixed Income Paper, Caribbean & Latin American bank in Trinidad and Tobago. In 2003, the Bank was rated “First in Bonds, Money Market Accounts, Index-linked portfolios, Derivatives and Soundness” in Trinidad and Tobago by the Banker Magazine, a sub- Portfolio Management Services. As a member of the Trinidad and Toba- sidiary of the Financial Times, London, in its review of the World’s top go, Barbados and Eastern Caribbean Stock Exchanges, CMMB also 1000 banks. On two occasions (in 2001 and 2003), the Bank won the actively trades in equities thereby ensuring that they provide a complete Tyrone Samlalsingh Pinnacle Award, from the South Chamber of Indus- range of services that caters to all their clients investing needs. CMMB try and Commerce for excellence in innovation, information, communi- has emerged as a pioneer in the regional financial services sector and cations technology and e-commerce. First Citizens Bank is in receipt of has raised the level of awareness and sophistication of the capital mar- the highest rating, (BBB-/Positive/A-3) from Standard and Poor’s for an kets in the region through its numerous publications such as the Bond indigenous bank in the English-speaking Caribbean. Standard and Guide and the Caribbean Financial Quarterly. CMMB looks forward to Poor’s also upgraded the rating outlook for the Group from stable to expanding its services across the region in an effort to create a more positive. Additionally, the Bank was judged by the Banker Magazine in vibrant securities market. As at March 31 2005, the CMMB had over 2005 as the 'best bank' in Trinidad & Tobago. First Citizens Bank has US $1 billion in assets under management. become the fastest growing bank in Trinidad and Tobago and is look- ing beyond North America to markets in Europe and Asia. Its 21 branch- Clico Investment Bank Ltd. (CIB) es staffed by over 1100 employees, offer a full range of retail and com- President: Mr. Lennox W. Archer mercial banking services, in addition to merchant and trustee services, 1 Rust Street, St. Clair, Port of Spain, that are offered through its subsidiary, First Citizens Trust and Asset Republic of TRINIDAD & TOBAGO, W.I. Tel: (868) 628 3628, Fax: (868) 628 3639 Management Limited. The Bank has a vision to become the most com- petitive financial group in Trinidad and Tobago with a well established

97 members round-up international presence. Its aim is to build a highly profitable financial whose needs it professionally meets on both a business as well as a service franchise renowned for innovativeness, customer service and personal level. Nurtured by the faith and trust of its customers, IBL has financial prudence. The Group continues to improve its performance grown and thrived, spreading South to Marabella where in 2000 it with an increase in pre-tax profits of 10.14% to US $29.0 million at the opened a second branch. Fully conscious of the need to satisfy all the end of March 2005 from US $26.3 million at the end of September financial demands of an upscale, sophisticated clientele, it added a Mer- 2004. The Bank’s asset base increased from US $961.7 million to US chant Bank in 2001 to complement the Group's offerings. IBL's Trust $1.2 billion at the end of the financial year 30th September 2004. and Merchant banking operation, is soon to be relocated to Port of Spain, in the heart of the City. IBL and Jamaica Money Market Brokers Intercommercial Bank Limited (IBL) (JMMB) established a strategic alliance in March 2004 - whereby JMMB (Associate Member) holds a 50% ownership of the Bank with management control. A sharply Managing Director: Mr. Andral (Jack) Shirley focused business strategy was developed to leverage the opportunities Old Southern Main Road, Chaguanas, that now exist through this shareholder relationship and as a guide for TRINIDAD & TOBAGO IBL to become a first-class brand. In support of this initiative IBL has Tel: (868) 665 4IBL (4425); Fax: (868) 658 5813 revamped its organizational structure; undertaken a business reengi- E-Mail: [email protected] neering exercise and is preparing to adopt a new Information Technolo- Website: www.ibltt.com gy platform - all with the aim of improving internal operating efficien- cies to support a new business model and becoming truly "customer Intercommercial Bank has experienced growth from its early days when centric". Its Mission is “to passionately serve its customers, community, the Bank was just a small seedling surrounded by a forest of financial shareholders and team members with integrity, trust, transparency, love services giants. It put roots down in Chaguanas in June 1998 opening and respect”. Trinidad's latest entrant into the commercial banking sec- it’s doors to serve the retail and commercial banking needs of Trinidad's tor, IBL had a capital base of US$8.3 million and assets in excess of fastest growing centre for commercial and industrial development in US$75.5 million as at December 2004. Central Trinidad. Its head office, in Chaguanas, is in close proximity to the cluster of companies comprising the oil, gas and energy sectors of RBTT Bank Limited the local economy. Even back in 1998, IBL knew it had what it takes to Managing Director & CEO: Mr. Suresh B. Sookoo grow and flourish in spite of the intensely competitive banking environ- Head Office: 19-21 Park Street, Port of Spain, TRINIDAD ment and has since attracted a solid base of corporate clients engaged Tel: (868) 623 4291, Fax: (868) 625 3764 in businesses that range in size from the small and medium entrepre- E-Mail: [email protected] neur to large industrial, manufacturing, and commercial enterprises CAIB Rep.: Mr. Hayden Blades members round-up

Manager Economic Research, Risk Management Group. Republic Bank Limited Tel: (868) 623 1322, Fax: (868) 623 3396 Chairman: Mr. Ronald F.deC. Harford E-Mail: [email protected] Managing Director: Mr. David Dulal-Whiteway Website: www.rbtt.com 9-17 Park St., Port of Spain, TRINIDAD & TOBAGO, W.I. RBTT Bank Limited. has a long and impressive history in Trinidad and Tel: (868) 623 1056, Fax: (868) 624 1282 Tobago which dates back to 1902. It was incorporated in July 1971 for E-Mail: [email protected], Website: the purpose of being a domestic bank but assumed the role of holding www.republictt.com company as the RBTT Group expanded and diversified within the finan- Republic Bank has a banking history that can be traced to 1837 when cial services sector. With the reorganization of the Group by the incor- the Colonial Bank was formed. The Bank later evolved to Barclays Bank poration of RBTT Financial Holdings Ltd. in July 1998, RBTT Bank of Trinidad and Tobago Limited in 1972. At this time it retained its status became its wholly-owned subsidiary. RBTT Bank has 24 branches in as a part of an international operation. However in 1977, the majority of Trinidad and Tobago. Its mission is "to excel in the creation of a com- the shareholding passed into the charge of local hands. Reflecting its prehensive range of quality financial services, through well-trained, new role as the bank for the nation, the bank became known as Repub- committed and rewarded staff, to achieve superior value for its share- lic Bank Limited in 1981. Republic Bank Limited is now one of the largest holders and customers, and to contribute in an exemplary way, to and most successful indigenous banks in the Caribbean, serving retail national and regional development, and the social progress and eco- banking customers, corporate clients and governments throughout the nomic prosperity of the peoples it serves.” Total Group assets as at 31 Caribbean. With a 40% market share in Trinidad and Tobago, Republic March 2005 was US$6.2 billion made up; Trinidad & Tobago US$3.1 Bank offers an extensive range of banking services, including credit and billion, Dutch Caribbean (Aruba, Curacao, St Maarten and Suriname) debit card issuance and processing, leasing, trustee services, mutual US $1.5 billion, Jamaica US$727 million, Eastern Caribbean and Barba- fund and investment management and merchant banking. The Group dos US$873 million. (Important note: Refer to Antigua, Saint Lucia and St Vincent) now comprises 15 subsidiaries and four associated companies. The Group’s staff complement as at 2005 is 2,790, and has a total of 43 RBTT Bank Caribbean Ltd. branches with 101 ABM.s. The Republic Bank Group maintains a strong Regional Director & Managing Director: Mr. David Hackett regional presence through its subsidiaries in the Dominican Republic, 55 Independence Square, Port of Spain, TRINIDAD Barbados, Cayman Islands, Grenada and Guyana and headquarters in Tel: (868) 625 3511, Fax: (868) 625 8781 Trinidad and Tobago has 167 years in the banking industry and as at E-Mail: [email protected], Website: www.rbtt.com September 2004 had an asset base of over US$4.6 billion.

Business Efficiency The Process Imperative Harold Hendrie Every bank should dedicate resources to the measurement and improvement of processes that employees use daily, argues the author, who describes the “Process Imperative” as a key compo- nent in Transformation – the way forward for Caribbean banks. ne of the performance measures that I consistently report on Canadian Banks 2005 – Perspectives on the see in use by financial services institutions is the Canadian Banking Industry outlined that the 2004 Efficiency OEfficiency Ratio, also referred to as the "Overhead Ratio for the top six banks ranged from 57.62% to 71.5%. An Burden" or "Overhead Efficiency Ratio". The ratio is essentially August 2004 research report on First Caribbean International a measure of how well resources are used to generate income Bank from Caribbean Money Market Brokers cited a 2003 as organisations seek to transform themselves into more effi- Efficiency Ratio range from 37% to 56.5% for three of the major cient operations. This discourse on the process imperative for banks in the region. This is just a sample of the global industry Caribbean Banks relates directly to performance improve- focus on improving the Efficiency Ratio of banks. ment in the same area – making better use of resources to gen- erate more income at reduced costs with improved service There are many factors that together make big differences delivery and employee satisfaction. between top-tier performers and the rest. The big manage- ment challenge lies in finding key areas of a bank’s operations The Efficiency Ratio: I am aware of four ways in which the on which to focus attention in order to leverage reduction in Efficiency Ratio is calculated by banks: the Efficiency Ratio in a tangible way. For many banks it is often 1. Non-interest expense divided by total revenue less inter- a combination of significant changes in work processes, sys- est expense. tems, procedures, work measurement, policies, human 2. Non-interest expense divided by net interest income resource management approaches, marketing approaches, before provision for loan losses. information systems development and deployment, and cor- porate culture. This combination usually dominates a compa- 3. Non-interest expense divided by total revenue. ny’s project portfolio when it embraces the process imperative 4. Operating expenses divided by fee income plus tax and goes in pursuit of the most profound source of leverage for equivalent net interest income. improving efficiency – paying consistent attention to business This ratio is the reverse of Operating Leverage, i.e. fixed operat- process efficiency throughout the enterprise, and beyond the ing expenses expressed as a percentage of revenue. For exam- enterprise to include attention to external processes that ple, if non-interest expenses are $50m and revenue less inter- impact on the company’s performance. est expense is $100M the efficiency ratio is 0.5 or 50% What is Process? Before going further, let’s develop a uni- (50/100), while the operating leverage is 2.0 or 200% (100/50). form understanding of process. Michael Hammer probably However the Efficiency Ratio is calculated, it tells a story about offers the most profound guidance in this area. He advocates the overhead structure of a financial services organisation – that “Put most simply, a business process is end-to-end work how efficiently the company is operating, how it is able to min- that produces something of value. More formally it is an organ- imise costs, and how productive it is at delivering products and ised group of related activities that together create customer services at a good profit. A similar story is told by other ratios value. The focus in a process is not on individual units of work, such as income per head of staff, deposits per head of staff, which by themselves accomplish nothing for a customer, but overhead expenses per head of staff, and profit per head of rather on an entire group of activities that, when effectively staff. For all versions of the efficiency ratio, an increase means brought together, create a result that customers value”. Every that a larger percentage of each dollar earned is leaving the aspect of work in a bank can be translated into “organised company in expenses. Of course, the target for most banks is groups of related activities that together create customer moving towards a lower and lower efficiency ratio to demon- value.” Think of your bank in process terms and you will see strate management competency and effectiveness. More that every activity is a step in one specific process or another – attention to business process efficiency is making a difference to approve and disburse a loan to a customer, pay a check, for many banks across the globe. receive a deposit, replenish an ATM, manage an investment A Global Focus: The Robert E. Nolan Company, Inc. 2004 portfolio, dispatch a statement to a customer, record and Efficiency Ratio Benchmarking Study reported overall efficien- respond to a customer query, issue a certificate of deposit, cy ratios for US banks ranging from 34.3% to 96.9%, with an develop a new product, place an advertisement in the media, average efficiency ratio of 58.8%. The PricewaterhouseCoopers hire a new employee, schedule a training programme, place an

101 order for equipment with a supplier, manage receivables and workforce may not be your best option, as the unchanged quantity payables, appraise an employee’s performance, maintain the list of and quality of activities then has to be shared amongst the retained authorised signatories, track product profitability, and so on. employees. The impact and consequences are likely to be longer cycle time, poorer quality, service degradation, increased overtime, In his seminal text “The Agenda”, Hammer wrote about “one large and lower staff morale. The better first step may well be examination bank that has entirely separate operations for checking accounts, of the activities in which your resources are engaged to find unneces- credit cards, home mortgages, and business loans. It is well known in sary work that can be eliminated, and necessary work that could be banking circles that the most profitable customers are those to whom performed more efficiently. Activities in the workplace can simply be a bank sells multiple products. Yet this bank does nothing to facilitate classified as: multiple relationships. From the customer’s point of view, dealing with it is no more convenient than dealing with multiple banks. And hor- • Value-adding work that contributes directly to the results that ror stories abound. Like the customer with a million-dollar mortgage customers expect and are willing to pay for. who was denied a mere $3,000.00 line of credit on a credit card, or • Waste: Unnecessary work such as filling in the same data more the customer who was overwhelmed by receiving a dozen different than once on different forms, mistakes that cause rework to get statements from the bank.” In a commentary on Business Process the output right, and excessive referrals to higher authority for Management in the Finance Sector, the Oracle software company decisions on low-risk matters. states that “Financial institutions today combine a wide range of prod- • Non-value-adding work: Necessary work for which we cannot uct and service offerings, across banking, insurance and asset man- charge the customer and stay competitive with pricing; work agement. They operate in global and cross border markets. They the customer is not willing to pay for; work we have to do in have increasingly sophisticated and mobile customer bases. order to perform the value-adding work. Includes typical over- Increased regulatory vigilance and new corporate governance rules head such as checking, counter-checking, administrative con- have the potential to add new layers of complexity and cost. And trols, etc., often multiplied for the sake of necessary security there continues to be consolidation, merger and acquisition in the measures, dual control, audit controls, etc., all of which add sector.” cost, slow things down, add some measure of inflexibility to The Drive to Integrate: “For all these reasons the effective man- operations, and generate errors. agement of complexity and change is a key determinant of future Non-Value Added: Reducing "non-value-added" activities and success with business transformation initiatives. Those who automate waste is the essence of pursuing the process imperative to effectively and streamline their operations most effectively will gain significant reduce cost, cycle time, and complexity while improving service qual- advantage. Integration is now more than ever the key to efficiency, ity, increasing flexibility, improving job satisfaction, and boosting enabling lower transaction costs and increased sales volumes. This is employee morale, all without compromising security/compliance true for capital markets, for retail financial services, and for the corpo- requirements. A good example is improvements that some banks rate sector. An integrated approach to business processes should be have made in teller effectiveness and efficiency. The operational a significant item on every agenda for the way forward. It allows prod- focus in teller operations must focus on security factors out of neces- ucts, processes, systems, data and the applications that underpin sity. Historically therefore, transaction flows have included redundant them to evolve quickly. Whether it is providing a loan, setting up an steps to tighten up the balancing process, including multiple count- , or executing an investment instruction, optimising ing of cash before paying out to customers, and the practice of "back- the sale-to-fulfillment process will always win new business, cement ing" deposit and withdrawal slips – writing the exact currency denom- customer loyalty, and reduce costs. Lack of integration across lending, inations received or paid out on the back of the slip to enable tracing payments and trading, on the other hand, simply presents competi- of errors when necessary. Such non-value-adding steps focused on tors who are more efficient with a huge profit opportunity.” transaction accuracy at additional cost, longer transaction time, lower teller productivity, and longer waiting time for customers in the bank- The process imperative simply advocates that every bank should ing hall. Process-focused banks have estimated that the extended have a group of resources dedicated to the measurement and transaction time caused by these extra steps (as much as 20%) is not improvement of processes that employees use day in and day out to cost beneficial. In other words, the cost of the candle is not worth the produce the products and services required by internal and external level of light that it produces. customers. They must differentiate themselves from competitors on the basis of activity and processing performance, one of the major As a customer, I have actually experienced a difference in process effi- sources of competitive advantage in an industry where all players in a ciency with a currency exchange transaction in branches of two given market have access to the same external sources of informa- banks located on the same street in a Caribbean city. The teller in tion, labor market, and information technology tools. When seeking Bank A took the US currency, examined the bills for authenticity, to control costs, management must look way beyond the P&L state- asked for the denominations in which I wanted the local currency, cal- ments and the quick fix of reducing the workforce and consequently culated the local equivalent, and then proceeded to complete a form the payroll, and direct their attention to process efficiency. Examine to record the numbers of ALL the US currency bills I wanted changed the quantity and quality of activities on which the company is spend- into local currency, my name and address and signature, as well as a ing. When staff costs are seen to be exceptionally high, reducing the listing of the denominations of the bills I tendered and those paid.

102

The teller in Bank B took the US currency, examined the bills for process efficiency goals, understand how each process in which they authenticity, asked for the denominations in which I wanted the local participate is performing, know and strive to meet and exceed cus- currency, calculated the local equivalent, and handed over the local tomer requirements, and know their role in the overall plan to currency without completing any form or recording details of the bills improve efficiency ratios. Managers in a process enterprise continu- received or paid. The courtesy level was high in both cases, but one ously look beyond transactional processes and also pay attention to transaction took about seven minutes to complete, while the other infrastructure processes such as those related to data and voice was completed in less than two minutes. telecommunications efficiency, enabling processes such as risk man- agement, cash management and information sharing, developmen- Think about the bank that maintains statistics on the volume of check tal processes such as training needs analysis, competency develop- and withdrawal transactions that are being referred to supervisors for ment and succession planning, and governing processes such as over-teller-limit transactions. At some point officials responsible for strategic planning and corporate performance evaluation. productivity improvement realised that a significant portion of referred transactions were marginally above the existing limit. They This discourse does not allow for a more detailed look at all that is then examined the risk involved in raising the referral limit, raised the required to create a process enterprise, but I must emphasise that this limit to a risk-acceptable level, effectively reduced the number of is a shift in business thinking to be taken very seriously. It represents referrals, and immediately improved the productivity of tellers and major change for many organisations, and the change management supervisors while upgrading the quality of teller service. The same component is therefore critical. Before attempting major process effi- bank also completed a similar exercise for loan referrals to senior offi- ciency initiatives, business leaders must first learn how to manage the cials and eventually raised the referral limit for credit officers to kind of organisation needed to ensure sustained high-performance improve both productivity and service. processes. They must understand the impact of process changes on the roles and responsibilities of employees at all levels and how to get A very enterprising regional bank that is leading the way with Internet the employee base centered on the process imperative. Leaders banking in its market has extended process performance beyond its must also understand the potential impact on organisational struc- boundaries by establishing online access to utility companies to ture, work and performance measurement systems information sys- retrieve and display actual bill details on their utility bill payment tems, and how corporate strategy and other organisational develop- screens. A customer is able to see the actual amount due to a utility ment initiatives are linked to the process imperative. company, and then have their payment sent electronically to the util- ity company immediately upon payment making the entire transac- Keys to Success: Successful process efficiency initiatives take a tion paperless – from their bank account to their utility account. long-term view and focus early on educating the management team Several steps have been eliminated from the typical transaction chain on understanding and managing processes (including how the busi- utility payments to companies whose information systems are suffi- ness is tied together with processes), establishing a business systems ciently advanced to facilitate the secure exchange of transaction data. and process improvement function with clear responsibility for man- aging the implementation with intense focus on project manage- The foregoing examples are simple illustrations of how some banks ment and change management discipline, measuring existing are paying attention to process performance and allied factors such process performance in terms of customer value and cost per trans- as cycle time, and reaping the benefits of reducing transaction costs, action to enable prioritisation of processes in need of improvement. improving the margins that they retain on transaction income, and Most importantly, leaders must understand how corporate culture improving their efficiency ratio while at the same time improving ser- will need to change to support operating as a process enterprise. vice delivery and workforce utilization. Of course, other factors such as workforce capability to handle increased responsibility and techno- Abundant evidence exists to demonstrate that when major process logical capability to fully automate process steps must have been changes are attempted without fundamental changes in corporate addressed. Note that process changes never succeed by themselves. culture, there is little hope of enduring improvement in organisation- As indicated earlier, it is often a combination of significant changes al performance. Although process improvement projects may be that lead to success – processes plus systems, procedures, work mea- methodically and vigorously implemented, many such efforts do not surement, policies, human resource management approaches, mar- produce desired results because the predominant culture of the keting approaches, information systems development and deploy- enterprise remains the same – the values, the ways of thinking, the ment, and a shift in the corporate culture. It is the way in which these management styles, individual habits and preferences to fix rather success components are designed, integrated and deployed that than prevent problems, job structures that force people to pay atten- makes the biggest difference. tion to the urgent and neglect the important, and measurement that focuses on quality before quality. The Process Enterprise: Building a process enterprise – one in which all work is thought of, designed, performed and managed as The Process Imperative in the broad perspective outlined should process work by everyone, should be on the strategic agenda of every therefore be seen as a key component in Transformation – the way regional bank, not just a few. Such enterprises are characterised by forward for Caribbean banks. the presence of multi-disciplinary teams that are held accountable for Harold Hendrie is the Principal Consultant, Strategic never-ending results in process efficiency with a customer satisfaction Alignment Initiatives; e-mail: [email protected]; and business efficiency outcome focus. Employees internalise web: www.sai.bz

105

Governance The Changing Face of Corporate Caribbean

Andrea Gaillard-St.Rose, FCIS, CFE, MBA, CGA, CA

“Corporate Governance initiatives are very much alive in the Caribbean,” says the author, who examines a range of issues, from Board Composition and Director Selection, to Compensation for and Education of Directors. The conclusion: To survive, most companies will find that achieving compliance in the area of Corporate Governance is not an option, but an imperative.

he increased focus on Corporate Governance The foregoing therefore indicates that Corporate Governance following the demise of a number of corporations initiatives are very much alive in the Caribbean. Tin the United States of America, has had its Board Composition and Director Selection: In discharg- impact on the Boards of Caribbean Corporations, the ing its oversight responsibility to ensure that the interests of the “Corporate Caribbean”. Increasingly, as they become company, its shareholders, and other stakeholders are served, more knowledgeable, shareholders are making demands increased focus will now be placed on the skills set of individu- of directors in their role as watchdogs over corporate gov- als being nominated for Board membership. No longer will the ernance activities. In the Caribbean, corporate boards can “fit and proper” criteria which exist under most legislative expect increased scrutiny over their corporate governance regimes suffice. activities, in particular, those of financial institutions. Boards that are in compliance will be rewarded, as Additional qualities such as knowledge of the industry in which research has shown that there is a close nexus between the business operates, independence, knowledge of financial corporate governance activities, macroeconomic develop- reporting (required for audit committee members) and risk ment, investor confidence and shareholder value. management will rank high on the selection agenda. Recent Corporate Governance Initiatives: In the OECS, In meeting its strategic objectives, increased consideration will the Eastern Caribbean Central Bank (ECCB) has led the way be given to the formation of governance/nominations com- with its proposed “Guidelines on Corporate Governance for mittees; whose role will include the furtherance of Board diver- Institutions Licensed to Conduct Banking Business Under the sity, the evaluation of the skills requirement of the Board, and Banking Act”, the draft of which was issued for comment dur- the making of recommendations for filling any gaps identified. ing the latter part of this year. This evaluation will be facilitated by a self assessment process, in which members are asked to identify the skills that they Regionally, the Caribbean Technical Working Group on bring – this will be compared with the strategic needs of the Corporate Governance (CTWG) recently issued for com- Board. Too often, Board membership skills are not aligned with ment, its “Draft Corporate Governance Principles for the strategic objectives of the Company. A typical area is that of Caribbean Countries”. The Private Sector Organisation of information technology (IT). We all know how heavily reliant Jamaica has also issued its draft of a “Proposed Code on financial institutions, for example, are on IT. However it is ques- Corporate Governance”. tionable whether Board membership includes the IT skills that are necessary for challenging management’s assertions regard- While the latter is based on The Combined Code on ing the strategic IT needs of such institutions. Corporate Governance issued by the Financial Reporting Council (FRC) of the United Kingdom, the Draft Corporate Another area of consideration will be the ability of members to Governance Principles for Caribbean Countries draws heavily commit the time necessary for ensuring effective Board perfor- from the “OECD Principles of Corporate Governance” which mance. Increasingly, shareholders are requesting disclosure in was revised in April 2004. On the international scene, in annual reports regarding the frequency of meetings and the response to the latter revision, the Basel Committee on attendance by members. Prospective members will therefore Banking Supervision, has issued a consultative document enti- be required to confirm in writing their ability to devote the time tled, “Enhancing Corporate Governance for Banking necessary for effectively discharging their responsibilities. Organisations”, comment for which is due by October 31, Members who are unable to meet the requirements will be 2005. We can therefore expect some changes in the gover- asked to tender their resignations. A high frequency of absen- nance guidelines issued by Central Banks in the Caribbean. teeism at Board meetings cannot auger well for the optimal

107 performance of the Board and therefore, the existence of the absentee understand the risk exposures facing the company as well as mitigation director will be a thing of the past. strategies that address the same. They must also possess the knowledge necessary to challenge the judgments and critical estimates that underlie Compensation for Directors: In light of the skills sets being demanded the financial reports issued by management. It will be remembered that by Corporate Caribbean, it is expected that compensation for directors will accounting failures played a large part in the demise of Enron – accounting be on the increase. Let’s face it; most directors on Corporate Boards in the for special purpose entities, revenue recognition and related party transac- Caribbean are underpaid, which in part explains the high absenteeism at tions. meetings. In many cases, one will agree that corporations do drive a very good bargain when the skills sets of directors are matched with the com- Achieving Compliance: In most countries, Corporate Governance initia- pensation they obtain. tives are not legislated – they merely provide guidelines. In the United States of America, however, legislation is in place to enforce certain corporate gov- It is expected that identical compensation packages for directors will be a ernance activities, as reflected by the Sarbanes- Oxley (SOX) Act. It has thing of the past and compensation will be tied to the roles and responsibil- been argued that the Caribbean should provide legislation on its equivalent ities undertaken by directors. In addition, equity compensation plans will be of SOX. In any event, material subsidiaries of SEC listed companies in the on the rise as many argue that it is a very effective way of aligning director’s Caribbean, must comply with the requirements of the Act. With respect to interests with that of shareholders. In keeping with good governance prac- indigenous Financial Institutions in the Caribbean, it is expected that tices, formal self evaluations will be expected from directors based on estab- increasing demands will be made by corresponding banks in exchange for lished criteria, as a means of measuring performance. their continued banking relationships, thus enforcing compliance. Directors’ Education: Director education ranks high in the governance In short, to survive, most companies will find that achieving compliance will practices adopted by most countries, as a means of helping directors fulfill not be an option, but an imperative. their fiduciary obligations to the company. It is expected that companies will adopt quality Board education programmes that are tailored to meet the Andrea Gaillard-St.Rose is the Founder of Andrea St. Rose & needs of the institution. Increased attention is expected to be placed in the Associates, a provider of Financial Consultancy - Internal Audit, areas of best practice in corporate governance, corporate risk management Fraud, Corporate Governance and Corporate Secretarial Services; and financial reporting. Directors must have the necessary knowledge to e-mail: [email protected]