Mr. Chairman
His Excellency President Bharrat Jagdeo
Prime Minister the Hon. Samuel Hinds
Ministers of Government
Members of Parliament
Members of the Diplomatic Corps
Governor of the Bank of Guyana Lawrence Williams
The Chairman and Executive Members of the CAIB
Distinguished Delegates
Other Distinguished Guests
Representatives of the Media
Ladies and Gentlemen

On this the occasion of your Thirty-Fourth (34th) Meeting, let me, as Secretary-General of the Caribbean Community, at the outset offer congratulations to the Caribbean Association of Indigenous Banks (CAIB) on behalf of the Community. Your Organisation came into being as the result of a decision by the Eighth Meeting of the Conference of Heads of Government in 1973 – the very year CARICOM was established—and following on the recommendation of the inaugural meeting of the Standing Committee of Ministers Responsible for Finance that same year.

The Association was formed, initially, principally to promote cooperation in the training of personnel employed in the national commercial banks in the Commonwealth Caribbean. Since then you have demonstrated a sustained vibrancy and commitment to your mission via exchange of ideas and information; joint training in management and other operational areas; cooperation in tackling common issues and concerns; standardization of banking systems and audit procedures; credit card cooperation; development of industry standards; and establishment of data bases, to name but a few of the areas of co-operation. Yours has been truly an example of outstanding achievements.

It is useful, however, to recall the situation of the early 1970s when the CAIB was formed. Then, the banking industry was dominated by foreign transnational banks, which were not particularly sympathetic to the developmental aims and objectives of host countries. At that time, they tended to maintain an asset portfolio that was skewed in favour of granting loans to foreign transnational corporations operating in the real sector and to neglect locally-owned companies, especially the small and medium sized enterprises. Happily, we can say that no doubt due significantly to Institutions such as yours and complementary government policy, such a developmentally perverse creditworthiness situation hardly any longer obtains. Both local firms and local individuals are better served today, thanks to both a sea change in attitudes on the part of all actors in the industry and the fact that the indigenous banks have been enjoying an increasing market share in the industry.

Such an improvement on the domestic front was in no small measure due to the efforts of the CAIB and the instilling of best practices among its members. But the CAIB’s existence was once severely threatened and the CARICOM Secretariat is proud not only in planting the seed for the birth of the CAIB but, also, of the fact that it played a critical role in 1982, along with Steve Backer of the Guyana National Cooperative Bank, in resuscitating the then called Standing Committee of Chief Executives of Indigenous Banks which had become dormant since 1976.

Now that the infant Association of the early 1970s has grown into a matured adult, with some indigenous banks going cross-border and graduating into genuine Pan-Caribbean entities, and one or two actually having a commercial presence even outside of the Region, it is appropriate at this time to reflect on the challenges which might still be facing the CAIB and its members. Six (6) of these spring to mind.

First, while admittedly and understandably, profit making is a primary concern of banks, there is the need to ensure that they contribute in significant measure to the economic development of the Region. In the CARICOM Secretariat’s Caribbean Trade and Investment Report that was released last year, it was noted in Chapter 7 that there is a tendency of most banks towards a decline in commercial loans (to both large and small enterprises) and an increase in personal loans. While consumer needs have to be attended to, economic growth is somewhat compromised by the high import intensity of such consumption expenditure.

Second, the Report also referred to the rather high (double digit) rates of interest on commercial bank loans (despite the decline in recent years) and the adverse effect this might be having on economic activity. The very large interest rate spreads (between interest rates on deposits and advances) suggest that there is still considerable room for improvement in the efficiency of operations of commercial banks.

Third, the CARICOM Single Market and Economy (CSME) is a reality and indigenous banks should seek to take greater advantage of the opportunities presented. For example, with the elimination of exchange controls in all but two CARICOM countries, it is possible for commercial banks to engage in cross-border lending (via electronic banking) and so reduce reliance on the more costly alternative of establishing a commercial presence even in the smallest locations in order to do business. The Draft CARICOM Financial Services Agreement, in fact, facilitates cross-border supply by, for example, encouraging the acceptance of cross-border collateral.

Fourth, the CSME also requires the harmonisation of various policies, one of which relates to interest rates. For example,  paragraph (e) of Article 44 on 'Measures to Facilitate Establishment, Provision of Services and Movement of Capital' [of the Revised Treaty of Chaguaramas establishing the Caribbean Community including the CARICOM Single Market and Economy] states that appropriate measures are required for: "convergence of macro-economic performance and policies through the coordination or harmonisation of monetary and fiscal policies, including, in particular, policies relating to interest rates, exchange rates, tax structures and national budgetary deficits".

While the current regional regime of free movement of capital is expected to cause national interest rates to gravitate towards each other, and so reduce the existing significant discrepancies, the monetary union and single currency objective would require a more pro-active approach so as to prevent distortionary capital outflows and inflows from national economies.

Fifth, increasing liberalisation at the global, hemispheric and regional levels requires a greater degree of competitiveness on the part of the Region’s indigenous banks. Continued consolidation, via mergers and acquisitions, may be necessary given the typically small size of indigenous banking establishments and the resultant limited economies of scale and scope. But care has to be exercised that there is no violation of the CARICOM Competition Commission’s principle of non-abuse of dominant market power within the single regional economic space.

Most importantly, there is need for continuous innovation and increases in efficiency in order to protect domestic market shares and gain effective access to international markets. At the same time, the traumatic experience of one CARICOM Member State in the 1990s and the current sub-prime mortgage crisis and related credit crunch in the USA and certain other developed countries points to the perennial need for a balance between profit maximisation and risk taking. Innovation and introduction of new financial instruments, for example securitization, invariably designed to transfer risk, should not be allowed to imperil financial stability.

Sixth, the indigenous banking industry will need to be able to absorb external shocks and impositions without their leading to too great an administrative burden or adverse impact on operational costs. I refer, for example, to the Patriot Act of 2001 and the need to intensify anti-money laundering activities and, more recently, the attempt during the CARIFORUM-EU Negotiations of an Economic Partnership Agreement (EPA) to re-introduce through the backdoor, OECD-type tax strictures, albeit on offshore business. Thankfully, our Heads of Government seem to have spotted this ball from the time it left the bowler’s hand and have met it with a dead bat. NO!

Ladies and Gentlemen, in closing, I hope that you do not view these thoughts as presumptuous, coming as they do from a non-banker. I also trust that in your deliberations you may spend sometime to discuss them even briefly. Similarly it will be worth your while and in the interest of the Caribbean Community which you serve to consider how you as bankers can help to deliver some of benefits of the Single Market and Economy to the people of the Region. Indeed, I invite you to ensure that you play an active role in the development of the CSME, especially as regards the monetary cooperation aspects of the Single Economy. Already I note that Ms Frances Hamilton of Saint Lucia, your Chief Executive Officer has been nominated to serve on the Resource Mobilisation Task Force of the CARICOM Development Fund.

Finally, let me admit how delighted I am to be here and to have been afforded the opportunity to share with you a few ideas on this auspicious occasion. The Agenda over the next three days appears to be very interesting. I wish your deliberations all success.

I thank you.