Fellow Directors and members of our Institute, this report on the operations of our Institute is for the year ended 30th June 2013. I do so in these challenging times when the global financial crisis is still negatively impacting the Region as a whole, including the Financial Services Sector. In times like these we need to reflect on where we are and on the manner in which we go forward in our delivery of services to our clients. Clearly, it cannot be business as usual and we require the ideas of all stakeholders to chart the future direction.
Let us reflect for a while on trends in an increasingly global environment from which we cannot escape.
International banks today are rapidly retreating from markets, countries and lines of business that might attract the attention of Regulators and Prosecutors. One of its casualties is the institution of correspondent banking. These are arrangements that have long been in place to allow customers of a bank in one country to send money to contacts in another country. This system which is as old as international finance is now being threatened by the enforcement of rules aimed at preventing money laundering and terrorist financing. The number of linkages between banks have been declining largely because of the series of prosecutions of big international banks in America and Europe for lapses in their controls relating to terrorist financing and money laundering.
Bankers have drawn two lessons from this. The first is that U. S. prosecutors and regulators seem to be applying stiffer standards than have been agreed by the Financial Action Task Force (FATF). This is the body that oversees the implementation of international rules on money laundering and terrorist financing. The second is that American regulators are leading the charge in demanding that banks know who their customers’ customers are. Hardest hit are banks in countries judged as high risk by the FATF. While our countries may not yet fall into that category, we need to be concerned when it comes to sharing of information with overseas regulatory bodies for which membership of the International Organisation of Securities Commissions (IOSCO) is an essential ingredient. Until we succeed in being members of this organisation we could be categorised as high risk and therefore become eligible to be placed on a Black List.
In most countries international banks are not ending relationships because they have evidence of wrongdoing. It is simply because the costs and hassle of checking on their correspondents outweigh the modest profits they generate on this activity.
Contemporary wisdom holds that cheap competition from Internet banking is killing the physical offices. To the extent that branches still make economic sense it must be filled with aggressive salespeople pushing ancillary products. Is it the case that few customers warm to their local branch banks because most offer similar products in similarly drab surroundings? Visiting them the critics say is tolerable at best and often tedious, thanks to long queues and tiresome paperwork. Do we fit this description? By contrast there are a few examples of banks trying to make a difference by creating outlets that neighbourhoods would welcome and people would want to visit. They attempt to make even the most mundane transactions a treat. In one particular example, tellers hand out a chocolate with each cash withdrawal. This bank prides itself in doing everything differently. It holds to the view that adding new branches is vital for the cheap funds they bring in through deposits and the opportunity they provide to market more profitable products than current accounts. Its success demonstrates that banking is not merely about hard numbers but instilling a new culture. It has shown an ability to avoid the censure that has bedeviled its bigger competitors, but its recent growth through the purchase of another bank provides a challenge to prove that a large bank can be different as well.
When Douglas Merril left Google he founded ZEST FINANCE to develop a simple theory that consumers’ on-line behaviour can be a proxy for their reliability in managing money. “All data is credit data” he once said, we just don’t know how to use it yet. Zest is a fast growing technology company. In contemporary jargon it belongs to that category of company called Fintech services. Their aim is to revolutionise the way banks and other financial companies operate. These technology companies assert that many people who have traditionally been denied credit, either because they lack a record of previous borrowing, or because that record is bad – will be validated by their broader approach to credit scoring. By using ‘big data’ records sourced from individuals, social network and Internet footprints, typical credit scores can end up 40% higher, Zest says. That could be good for lenders who can take on more business with less risk of default; and good for borrowers who want the money. This data analysis can be
particularly powerful in our developing economies where persons need more money than they have to educate their children or to start small businesses. Admittedly, some of the data sources may raise concerns, but it is refreshing to see new ideas being brought on board to augment the traditional processes of granting consumer credit.
While ‘big data’ provides a second plank for credit to stand on, a third innovation is emerging which is equally promising. A company called VisualDNA has been receiving attention for the credit scoring of loan applicants through a form of psychometric testing. “Not everyone has a credit score but everyone has a personality type”, argues Alex Willock, the company’s founder. VisualDNA tests administered via a lender is relatively quick, taking 10 or 15 minutes. The bulk of the questions ask applicants to choose pictures from a selection that can reveal their attitude to types of risk.
The company’s technology has been running for a couple of years and some lenders who have used the system have reported improvements of as much as 50% in loan default rates. The Credit Card Company MasterCard is among clients who have signed up while banks in South Africa, Mexico and Turkey have signed on a trial basis. Whether we like it or not, technology is the future. We are unlikely to retreat to the old order of a bank manager knowing each of his/her customers individually and making credit judgments on that basis. ‘Big data’ and psychometric tests have the potential to replicate the personal touch and ensure lenders know more about their customers than they did in the past.
As in previous years, the Institute was able to deliver a varied training programme which attracted participants from most of the member territories. A Credit Analysis and Management Workshop was held in Dominica over a period of four (4) days in July 2012, which attracted twenty-seven participants. The ECIB’s team of Patrick Thomas and Louis Parris were the facilitators. During the same month a Customer Service Workshop was held at the St Kitts Marriott Resort where seventeen (17) participants were in attendance. Ms. Shirlene Nibbs of Antigua was the facilitator. Meanwhile the Young Employees Socialisation Programme was held over ten (10) days in St Kitts and seven (7) days in St Lucia once more during the month of July. Twenty-five (25) participants attended in St Kitts and twenty-two (22) in St Lucia, while the same programme attracted eighteen (18) participants in St Vincent during the month of August. The institute continued to register students for the UWI accredited BSc Banking and Finance Programme with twenty-four (24) subject areas being offered to students in Anguilla, Antigua, Belize, Dominica, Grenada, St Kitts & Nevis, St Lucia and St Vincent. The sixteenth Eastern Caribbean Securities Market (ECSM) Certification Programme was offered during the month of May. There were eleven (11) attendees from Barbados, Jamaica, Grenada, St Lucia and Nevis.
The Institute continues its quest for alternative sources of funding for its programme. A Canadian International Development Agency (CIDA) Programme was approved but the funds were deobligated due to budgetary constraints. Currently an application for CDB funding of equipment to deliver the Institute’s on-line programmes is under active consideration and a response is being awaited.
This has been a challenging year with shortfalls in membership subscriptions and the curtailment of expenditure on items approved in the budget for the 2012/2013 financial year. We trust that the situation will improve during the 2013/2014 financial year.
As we come to the end of another year’s operations we wish to place on record our sincere appreciation of the continued support by the ECCB, all Corporate Members, the Executive Committee and the local committees. We also acknowledge the contribution made by Mr. Analdo Bailey, the Chief Executive Officer in providing leadership to the Organisation with the assistance of Mrs. Sheryl Evans, Administrative Secretary and Mrs. Beverly Freeman, Secretary. While the past year has had its tremendous challenges let us continue to work tirelessly in search of the opportunities that may lurk behind such challenges.
Errol N. Allen
Thursday, 3 July 2014