Mr. Clement V. Ruan Fss, Managing Director of D3 Enterprises, a leading businessman in Anguilla, has issued a Paper entitled: ANGUILLA INDIGIGENOUS BANKING CRISIS (Suggestions for Consideration as A WAY OUT).
The Paper, dated October 20, 2015, contains three main options to resolve the banking crisis involving the Caribbean Commercial Bank and the National Bank of Anguilla. The options, part of the wider document, are as follows:
Option 1.
Private Sector Management
The indigenous Banks were always managed by the Private Sector via a Board of Directors appointed by shareholders and Management appointed/employed by the Board. Higher Supervision was done by the ECCB. With regard to CCB, the Bank adhered to all requirements of ECCB, including the requested new capital of EC$70,000,000 to be placed in the Bank by August 16th 2013. Unfortunately, the CCB was taken over August 12th 2013 effectively dismissing the Board and effectively stopping the capital injection from being made. The fact is that since August 12th 2013, CCB’s general financial position has worsened as per eroded capital, increase in non-performing loans and possible increased losses.
Even under these conditions of added financial stress, both Banks continue to operate and serve the Public without any known (at least to this writer) capital injection from any source. This would suggest that the Banks financial health was strong and further capital might have been unnecessary.
It is without question therefore that the Board and Management had handled the Management of CCB, in particular, satisfactorily under the given circumstances prior to ECCB’s take over. The fact can be punctuated further by a review of any current financial data juxtaposed next to the financial position of CCB’s prior to the takeover by ECCB.
The Private Sector option must take into consideration one obvious fact with respect to NBA and CCB: The culture of each institution is different. This difference is necessary as it reflects the divergent interest and personalities in the community and as a consequence, it spurs meaningful competition between the two institutions wherein the general public benefitted. Any changes in those dynamics are likely to benefit the non-indigenous Bank.
The Private Sector Management option therefore calls for maintaining operations through a structure of shareholders appointing Board of Directors who will in turn hire Management. The Supervising authority should outline in writing, all requirements that are necessary, sufficient and practical to meet capital requirements and good governance standards. There must be prudent and justifiable time lined to achieve all requirements necessary to maintain solvency and capital levels. In other words, shareholders must always comply with regulatory requirements, especially with regards to protection of depositors’ monies: Capital adequacy is a must.
Operating under enabling and prudent banking rules and procedures, ‘the private sector – managed’ bank will be better positioned to thrive in an ever changing financial environment. This structure provides the directorship and company the necessary flexibility and business savvy to embrace best international banking practices through:
a. Synergizing with international players on areas of common interest – information exchange for regulatory due diligence purpose.
b. Technical and technological integration of systems.
c. Direct capital injection by way of ownership, for example.
These are just some of the actions the private sector management option can employ to meet and surpass regulatory mandates.
Option 2.
Public-Private Partnership of the Indigenous Banks
A Public/Private Partnership of the Indigenous Banks means that the indigenous Banks will be owned and operated through a joint relationship involving the Government and the Private Sector. Certain requirements and benefits will abound from this relationship. For example:
1. The partnership would require Government’s financial injection. This can be done either through Common Stock only, Preferred Stock holding only or a combination of equity (Common Stock and Preferred Stock). Common Stock holding will allow the Government or Public Partner to be always engaged in the decision – making processes.
2. This public and private sector partnership can result in the cross pollination of ideas to achieve the purpose/ objective which is the salvaging of the banks. To achieve this goal, the responsibilities of each entity and sector (private and public) must be defined and agreed to by the parties. Additionally, the general rules of corporate engagement must be understood and practiced by both parties. Essentially, appropriate governance practices will require a contractual agreement between the entities. This will be an enabling agreement which will seek to harness and to achieve the purpose and objective of the relationship.
The inner workings of this joint Public/Private Partner will be time consuming, at least in the initial stages. It is expected that both entities will endeavor to ensure that the proper and effective prism is developed to view and monitor the relevant steps and actions fudged to achieve the appropriate and common purpose.
This joint Public/Private Partnership will have some consequences which may be seen as positive or expedient. For example:
1. There will be a sharing of liabilities inherent in such a joint venture.
2. Equally, there will be a sharing of rewards (profits/dividends).
3. It will increase confidence on the part of the depositors especially. This is important for building the bank’s liquidity pool which is necessary for lending and investment in the local economy.
4. It will be a middle ground between fully private and fully public and therefore a reasonable compromise involving all stakeholders and persons of competing and diverse interest.
5. Last, but not least, the Private/ Public Partnership will be mutually beneficial as both entities work together toward restoration of indigenous Banking in a climate of economic revival for the general interest of Anguillans including the diaspora.
Option 3.
Full Governmental Control
The Third and Final Option by which Receivership may be ended is via Full Government Take Over and Control of the Indigenous Banks. At first, this may seem an appropriate and necessary solution: The Government took control and operations of the Banks in the interest of the general populace and the general good. Notwithstanding, the implied merits of this approach, the writer hasten to warn that the negative implication of this option far outweighs the perceived immediate and long term benefits. A few of these consequences are noted below:
1. Government ownership is likely to result in political cronyism – the bank will likely be used to further political parties’ interest. The fact that this is a possibility and even if it’s only one percent (1%) likely, then this Government ownership option should not be considered.
2. Government cannot and should not be the owners of a financial institution for which it has some degree of oversight from a regulatory perspective, even if regulation is done via an autonomous agency of Government as this does not avoid the appearance of conflict of interest. Good corporate governance requires objectivity in action and perception.
3. Full Government takeover sends a very negative message to the private sector and across the political, social and economic divide. This can be seen as very intrusive with socialistic implications.
It is important to note that the Indigenous Banks have shareholders. Therefore, even if the loans are “impaired”, these shareholders should be given the opportunity to raise the capital to satisfy regulatory requirement and to make good any shortcomings in the corporate governance processes. Given that the banks have been in receivership for over two (2) years, a reasonable conclusion is that there was no urgency to regularize any financial or governance matters. Accordingly, there was ample time to allow the shareholders to exercise their fundamental right and responsibility to address any shortfall in the banks’ capital.
In light of the aforementioned fact, a full Government takeover and management of the institutions is likely to create:
a. The convolution of government agencies (licensing and regulatory) involvement in the affairs of the banks. This creates a great potential for information leaks and breach of confidentiality. This can further manifest itself into undetermined negative perception by the public, including investors.
b. Distrust and brings into question the real reason for the takeover.
c. Erosion of confidence in the spirit of collective endeavor for a single purpose through private enterprise.
Government should always be seen as an enabler of enterprise, be it banking or other enterprises. Government should not, take control of an enterprise without first allowing the owner of the business, in this case the bank, their right to capitalize the business, per required regulatory mandate.
Although it might be argued that banking is different to all other business operation, the connotation of a Government takeover of the Indigenous Banks is that Government can takeover any private property. The realization of the possibility of private property confiscation by Government can cause lingering social and business apathy on the part of present and future ‘would be entrepreneurs’ as they would now have to consider the possibility of a government takeover of their business. It is also important to note that business persons and investors expect a return on their investments, not a takeover by governments.
Last, but not least, full Government takeover and control will likely result in suspicion as to the real purpose of the takeover. For example, once the Government owns the banks, such ownership opens other options such as further amalgamation with any bank in the region or elsewhere and not necessarily with Anguillian or of Anguillian interest. Unfortunately, this later point, as explained above may not necessarily be the desire or purpose of the Government. However, given the nature of our political relationship with the UK and our constitutional status, local Government might be, at the very least, coerced into the direction of amalgamation. This might be the UK Government’s way of mitigating perceived potential contingent liability.
