Susan Gordon, Business Reporter
Latibeaudiere
A TOP Jamaican bank has said that excessive central bank oversight is hampering its move to build business as a deal broker and to position itself as the go-to firm for the structuring of big projects to be executed in Jamaica by overseas investors.
Marjorie Seeberan, who heads up National Commercial Bank (NCB) of Jamaica's corporate banking unit, says the Bank of Jamaica's (BoJ) requirements on loan collaterisation - the stress is on tangible assets - is more stringent than the global markets require and puts Jamaica in an uncompetitive position.
In that regard, Seeberan is suggesting that the banking laws, which police lending, be restructured to harmonise with the international capital markets.
The current regulations, she told the Financial Gleaner, were overly cautious in a post-Finsac environment.
But central bank governor, Derick Latibeaudiere, has immediately hit back that the BoJ's job, as it relates to the commercial banking sector, was to ensure that depositor's funds were secure - his implication being that it was not his remit to make it easy for banks to structure complex loan deals.
Protecting depositors
"Regulators can't say 'I'm out of that situation, so let's loosen the reins'. You have to keep your eye on the ball," said Latibeaudiere. "The remit of the central bank is not to make loans, but to make sure people's savings are safe. We have to be sure that who borrows pays back."
Latibeaudiere's stance was also echoed by two of the island's bankers, William 'Bill' Clarke and Milton Brady, who said the laws were working as they should to protect depositors.
The Jamaica Bankers Association, whose president Patrick Hylton is also managing director of NCB, has not responded to requests for comment.
Seeberan's call comes at a time when the United States financial markets have been hit by a credit squeeze linked to poorly securitised mortgages, a development likely to make local authorities even more cautious.
Local banking laws stress loans backed by tangible assets, and frowns on collaterisation using near-cash assets such as receivables and inventory, according to Seeberan., who previously worked with JP Morgan for 25 years.
She argued the policy was ultimately more costly for the bank and investors, with Jamaican credit facilities being seen as uncompetitive especially when blue chip customers are involved.
Bad loans, sinking banks
Marjorie Seeberan, head of corporate banking at National Commercial Bank, says local banks could broker more big corporate deals if companies could use receivables and inventory as collateral. - File Photos
"In North America, you test the cash flow to cover the deal. In Jamaica we look at assets," said the corporate banker.
"The tangible assets appear to be secured but in a deal there is a cost to register your security interest. It's costly and becomes uncompetitive and becomes illiquid in case of a meltdown, because the value is not secured."
The upshot is that investors are tapping institutions in other jurisdictions to handle their transactions, said Seeberan.
Last year, for example, NCB's corporate division had to bypass deals with combined value of US$370 million (J$26.45 billion), said the banking executive.
Incidentally, NCB was among the institutions that FINSAC bailed out in the 1990s. The bank had become weighted down by bad loans, after its clients' businesses began to buckle under high interest rates. Finsac stepped in and spun off the non-performing loans into Recon Trust and later sold the bank to its current owner billionaire investor Michael Lee Chin.
Other bankers whose institutions had weathered the financial crisis, William 'Bill' Clarke, the president and chief executive officer of the Bank of Nova Scotia Jamaica Limited, and Milton Brady, managing director of FirstCaribbean International Bank Jamaica (operational under the CIBC brand during the meltdown), have said they do not agree with Seeberan's take that the regulatory framework was restrictive.
The system, they said, was not only in keeping with regional and global standards but has stood the test of time.
"We don't have a problem with the regulations," said Clarke.
Brady said too that his bank's business was not challenged by the laws.
"Banks are not about security or collateral. Those are secondary," said the FirstCaribbean Jamaica boss.
"It's about evaluating the risks of borrowers to repay," he said, alluding to the sub-prime fallout in the United States (U.S.) where banks and mortgage institutions have lost tens of billions after loan recipients began defaulting on variable rate mortgages as the payments got larger.
Banks, he added, were not venture capitalists, but fiduciaries whose primary job was to ensure that the funds entrusted to them as deposits were safeguarded.
There was, however, one area that Brady agreed needed amendment - that of 'extendable securities'. Under Jamaican law, borrowers have to put up tangible assets such as cash or real estate as security for loans, while stocks, receivables and inventory are not considered 'extendable', meaning the future income they represent cannot be taken into account, or securitised as backing for a loan that is being structured now.
Seeberan said that even the blue chip companies, which pass the universal test on the integrity of their cash flows based on their receivables, would be constrained to borrow from local banks using their expected income as collateral.
Built around receivables
"Our regulators say receivables are not extendable securities," she said.
"In other jurisdictions, you can finance the loan based on receivables; in our jurisdiction they see only assets or cash as security."
Brady, in backing Seeberan, said a whole segment of the capital markets in the U.S. was built up around receivables.
He also cited the Sangster's International Airport deal for which financing was secured against future income from departure tax.
"Companies like General Electric have grown on financing receivables, and that's something to be developed in Jamaica," said Brady.
"I'm sure we would do more business if that were to change."
But he would also add that it was not a hindrance to his business.
The banker said that once reporting standards were maintained to satisfy regulators, receivables could be leveraged into a more valuable asset.
Still, the signal from Latibeaudiere is that nothing is likely to change, with the signs indicating that the banking sector was healthy.
"The remit we have is to make sure people's money is protected; and that's where it starts and ends," the central bank governor told the Financial Gleaner.
"Right now the level of bad loans is low, so I think the banks are secured. All indications show this."
susan.gordon@gleanerjm.com
