Scotiabank pulls out of Guyana

– Govt expresses concern

A major shake-up is looming on the financial landscape, as Canadian-based Scotia Bank will be pulling out its operations in Guyana and a number of other countries. The bank branches will in turn be bought over by Republic Bank.
Guyana Times understands that the deal is worth US$123 million and was executed on Tuesday. According to Chairman of Republic Financial Holdings Limited (RFHL) Ronald Harford, who made the announcement, the move will benefit everyone in the long-run. This includes Scotiabank clients and employees and the group’s own stakeholders.
“This acquisition represents another major milestone for the Republic Group.  As we grow and acquire significant positions in our existing markets, it is important that we continue to broaden our footprint, regionally and internationally.”
“This agreement, which is subject to all regulatory approvals, affords us the opportunity to reach more clients in the Eastern Caribbean and Guyana, two markets we are familiar with, and build new relationships in St Maarten,” Harford said in a statement from the bank, also promising that all impacted Scotiabank employees will join the Republic Group.
Broken down, the US$123 million purchase price represents US$25 million of total shareholding of Scotiabank Anguilla Limited; and a premium of US$98 million over net asset value for operations in the other eight countries – St Maarten, Anguilla, Antigua and Barbuda, Dominica, Grenada, St Kitts and Nevis, St Lucia and St Vincent and the Grenadines.
“This price does not include any amounts required to capitalise the branches post-closing. The agreement signals the commencement of a transaction that is subject to all regulatory and other customary approvals and conditions,” the bank stated.
It is understood that the Republic Group’s total asset base as at September 30, 2018 was US$10.5 billion, with equity at US$1.5 billion and shareholder profits for the year ended September 30, 2018 of US$198 million.
Acquiring Scotia means the Group’s asset size will increase by approximately US$2.5 billion. Investment and banking consultant Citigroup Global Markets Inc is said to be advising RFHL on the transaction. In a statement, Scotia Bank’s head of International banking, Ignacio (Nacho) Deschamps, sought to assuage any concerns about the takeover of his bank’s branches.
“Scotiabank is proud to work with the Republic Group – a leader in financial services in the Caribbean who is well positioned to invest and grow the business, and to provide customers across the region with leading financial solutions that meet their needs,” he said.

Monopoly
But Scotia bank’s presence in Guyana is of such a magnitude that even Government is concerned about the transaction, with the Finance Ministry expressing regret at the buyout soon after it was announced.
According to a statement from the Ministry, the Financial Institutions Act (FIA) has clear stipulations regarding ‘acquisition of control’ and requires approval from the Bank of Guyana. The Ministry noted that an application must first be submitted and due diligence conducted.
The Ministry also noted that the FIA addresses any fundamental changes that arise out of mergers and transfer of assets or liabilities. And they pointed out that the agreement raises a number of issues within the banking sector… the effects of which must be considered by the Finance Ministry, the Bank of Guyana and the Government.
According to the Ministry, Republic Bank already occupies 35.4 per cent of the banking systems total assets in Guyana and 36.8 per cent of all deposits. The Ministry noted that if Republic Bank now acquires Scotia, this will increase to 51 per cent of both assets and deposits.
“This raises concerns about an over-concentration of banking services, market domination and the ‘too big to fail’ risks,” the Ministry stated, questioning the potential effect on competition and the potential for Republic Bank to have too much influence on prices and rates for banking services.
Besides the potential for lost jobs arising from Republic Bank consolidating its branches, the Ministry also noted that there may be issues related to correspondent banking options.
“The Scotiabank decision, which is made when Guyana’s economy is on the cusp of financial transformation with the onset of massive new oil and gas sector raises concerns and is regretted,” the Ministry stated.
“The Ministry of Finance wishes to assure that it will continue to stay abreast of this matter, will act in the best interest of the Guyanese people and will issue subsequent updates as necessary.”
Scotia Bank currently has five branches in Guyana. There are two in Georgetown: Carmichael and Robb Streets, Georgetown, Region Four (Demerara-Mahaica); one in New Amsterdam, Berbice, Region Five (Mahaica-Berbice); one in Bartica, Region Seven (Cuyuni-Mazaruni); and another in Parika, East Bank Essequibo, Region Three (Essequibo Islands-West Demerara).
Already, persons have expressed concerns that the agreement was made without notifying with customers.