With its palm fronds and white sandy beaches, the West Indies has a reputation for being laid back. But the region’s economy may be just a bit too laid back these days for the Canadian banks that operate in markets such as Jamaica and the Bahamas.
The global recession, particularly the decimated United States economy, has caused the once-reliable flow of free-spending vacationers to dwindle this year, leaving resorts and local residents who depend on tourism dollars to struggle with their own finances.
Delinquent loans are on the rise, including those held by the corporate and commercial clients who are traditionally the most lucrative clients for Canadian lenders operating in the West Indies, including Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Royal Bank of Canada.
Meanwhile, hotel expansion, which for decades has been a steady and profitable revenue stream for the banks, is now slowing. After a boom in resort expansion over the past few years, islands like Jamaica are now flush with hotel rooms and battling declining occupancy rates, making them unlikely to borrow for expansion.
