At a seminar held for members of the financial services sector, economist Dr. Gilbert Morris told participants that the current generation of Bahamians had an opportunity to begin to establish the foundation that would eventually see greater Bahamian ownership within the financial services sector.
ﾓDespite many years of experience, Bahamian bankers are unable to create and market products that would result not only in more money remaining in The Bahamas but in creating jobs for Bahamians,ﾒ Dr. Morris said.
ﾓAnd the reason for this,ﾒ he continued, ﾓis mainly because the banks are all foreign owned.ﾒ
He said foreign ownership of the banks in the financial services sector also had implications for governance.
Branches of foreign banks in The Bahamas are governed both by the laws of the Bahamas and those of their home country. Problems arise when there is a conflict between the demands of Bahamian banking regulators and the laws of the home office.
ﾓFor example when Bahamian regulators request that a particular action be taken,ﾒ Dr. Morris explained, ﾓif this action creates difficulties with the Bahamian branch of a Swiss-based bank for instance, they can meet with the regulator and point out that if this particular course of action is taken it would have a negative effect on the bank. Not wishing to offend or force the bank to leave, the regulator backs down.ﾒ
Dr. Morris pointed out that the foreign-owned bank could exert influence on regulators when it suited its interest because of the fear of withdrawal and the impact it would have in terms of loss of jobs and the ripple effect such loss would have for the extended circle of Bahamians dependent on jobs in the financial sector.
A similar point was made by the head of Credit Suisse Trust, Andrew Law who addressed a Corporate Governance seminar earlier this year.
ﾓPeople are not concerned about local laws but whether you meet international standards,ﾒ Mr. Law had said.
Referring to the inability of Bahamian bankers to make a meaningful contribution beyond having greater sums of disposable income, Dr. Morris said that if Bahamian bankers were able to participate in the economy they could structure products that could not only solve the housing problem but at the same time make it possible for Bahamians to afford their housing.
ﾓThe government housing scheme charges $53,000 for a home but by the time the homeowner has paid off the mortgage the house has not appreciated and the homeowner has very little in the way of marketable equity,ﾒ Dr. Morris explained.
He pointed to the fact that it was the imaginative use of the mortgage market in the US and Dubai that had generated jobs and wealth for the citizens of both countries.
ﾓToday in Dubai, a sandy place in the dessert, they are building 5,208 buildings and all of them are being funded by Real Estate Investment Trusts (REIT) created by Dubai bankers,ﾒ he said.
In the US, refinancing of residential mortgages based on the homeowners equity has become an annual event generating millions of dollars, which homeowners use for everything from home improvements to investment and significant spending, Dr. Morris explained.
He believed that if Bahamian bankers had greater control and ownership of the banking sector, similar products could be developed in tandem with the capital markets, which would spread the risks and thus make it more affordable for Bahamians to own their homes.
Participants at the seminar observed that there was a pool of expertise particularly in the area of trust management but that the expertise was confined to administration of trusts.
As an example they pointed to the fact that Bermuda had just changed its trust law from dependence on the trusteeﾴs judgment as to what is a good investment to balanced portfolio theory.
Participant Robin Scavella, a lawyer who works at BSI Overseas Bahamas Ltd explained that ﾓBermuda had moved from the principle of ﾓthe reasonable manﾒ to that of the ﾓinformed man.ﾒ She said the Bermudan trusts could now be ﾓtailor-made for specific investments.ﾒ
What this now means is that Bermudan trusts now have greater freedom in exploring and pursuing investment strategies, a development, which Dr. Morris described as ﾓopening up great vistas for Bermudan trusts.ﾒ
Some participants explained that over a year ago, a proposal to create similar changes to trust law in The Bahamas had been made to the relevant Bahamian regulatory agencies but that proposal had been rejected.
The overwhelming consensus at the seminar on the regulatory regime was that, more often than not, it was inimical to the growth and development of Bahamian ownership of the financial services sector.
Participants expressed concern that the publicly stated position of the regulatory czar, the Governor of the Central Bank of The Bahamas, Julian Francis, is to populate the jurisdiction with branches of reputable international banks.
C. E. Huggins, The Bahama Journal
