Expert highlights issues in regional financial sector

The financial sector is a dynamic and complex one.

Referring to the Caribbean financial sector, Professor Compton Bourne, Executive Director of the Caribbean Centre for Money and Finance, noted that over the last two decades there have been many institutional changes, including the establishment of new financial service firms and the emergence of financial conglomerates.

Professor Compton Bourne.

“Similarly, in terms of ownership, there have been quite a few changes in some countries – the commercial banks having moved from foreign ownership to local ownership, have gone back to foreign ownership. We see in some instances the movement from public sector ownership or state ownership of banks to private ownership of banks. We see movement from local ownership to regional ownership, so there have been changes in the ownership patterns as well – at least in the banking industry and some other parts of the financial sector,” he said.

Addressing those attending the opening ceremony of the Second Conference of the Inter-American Development Bank Funded Project – ‘Financial Risk Assessment in an Integrating Region: The Caribbean’, which took place at the Hilton Hotel, Professor Bourne added that there have also been changes in the instruments that are used and the macro-economic environment.

He noted that there are cross border linkages within the financial sector within CARICOM, such that there are foreign and Caribbean owned banks operating in multiple jurisdictions, and the emergence of conglomerates with various parts of the conglomerate operating separately or as a holding company in various territories, which he said introduces the issue of risks contagion.

“An emerging area of interest which might feature in the discussion is that of the domestic public sector debt, or local debt of government. As has happened in some jurisdictions, government has borrowed extensively from one or two financial entities and that creates the question sometimes of overexposure of those entities to government debt. So this is another issue, and that issue I mentioned, which is kind of preliminary, is the excess liquidity problem,” he stated.

The Caribbean Centre for Money and Finance head made the comments as he noted that in recent years the Caribbean had been characterised by high levels of liquidity, which has posed a challenge for the region. He warned that if it is persistent, firms begin to modify their risk preferences because they are driven by a need to make profits and they take on more risky portfolios.

“The other risk is of course when governments try to mop up the liquidity by borrowing from the banks, then that creates a fiscal problem,” he added. (JRT)