Ratings agency sees regional expansion of Trinidad & Tobago's banks as a double-edged sword

Wednesday, February 18, 2004

NEW YORK, USA: Fitch Ratings reported Tuesday that, capitalizing on their relative strength, Trinidad & Tobago (T&T) leading banks are increasingly looking to diversify assets and continue their growth through expansion into the Caribbean region. 

According to Fitch, regional expansion of T&T banks while providing potential growth opportunities can present challenges for the individual institutions. 'One potential downside of regional expansion is the effect of weaker economic fundamentals of neighboring countries on T&T banks' asset quality and overall risk profile,' says Fabrice Toka, Director at Fitch Ratings. 

In the Caribbean, the T&T banking system appears fairly advanced with relatively sophisticated institutions, products, and technologies, highlighting T&T's status as a regional economic power. 

Although the overall financial system experienced some stress during the 1983-93 recession, improvements in the real economy, local banks' ties to foreign institutions, and controlled financial deregulation helped avoid a financial meltdown as seen in other Caribbean economies. 

While the T&T banking system is open to new entrants, the small absolute size of the banking sector, coupled with the dominant position of long established banks, act effectively as barriers to entry. 

Banking supervision, via the Financial Institutions Act (1993) and the Financial Institutions (Prudential Criteria) Regulations (1994), has been brought closer to the Basle Core Principles. 

The introduction of consolidated supervision of financial groups, e.g. regulation of bank holding companies; stricter credit rules, e.g. loan classification and provisioning; and formal cooperation agreements with neighboring supervisory bodies are among the factors that the rating agency believes would raise the level and effectiveness of the supervisory framework for T&T banks. 

In 2001, the Central Bank initiated a long-term project to bring all financial services under a single regulatory entity. This integrated supervisory regime requires new legislation and increased human and technical resources. 

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