On planning for future challenges and the need to foster financial inclusion Will 2018 mark an inflexion point in the Trinbagonian economy, and what major developments are expected?
NIGEL ROMANO: The year began with positive news, especially in the hydrocarbons sector – the country’s economic locomotive. Increased gas production, along with a rise in international oil and gas prices, seem to indicate that a period of stabilisation is likely. That said, a general economic improvement is also dependent on the government’s fiscal and macroeconomic policies.
In this regard, it should be noted that since 2016 the Trinbagonian economy has seen a dramatic decrease in the amount of available foreign exchange in the system, largely as a consequence of falling oil and gas production and prices. The government’s bid to maintain and protect the exchange rate has had an impact on this macroeconomic hurdle. There is a general perception that the Trinidad and Tobago dollar is overvalued. Therefore, people at all levels have been holding onto their US dollars, in anticipation of a depreciation of the T&T dollar. As a result, the supply of any surplus US dollars has not been released into the market. An improvement in the economy, specifically an increase in exports, is necessary in order for the flow of foreign exchange to improve and for the pressures on the exchange rate to ease without additional interventions from the Central Bank of T&T.
Where do you see the greatest opportunities for financial services growth in the Caribbean region?
ROMANO: Without a doubt, financial inclusion holds great promise. A substantial share of the population in the eastern Caribbean is outside of the formal banking sector, which means that they are not enjoying the benefits of interacting with the formal banking system. The situation is certainly more evident in some countries, like Guyana, where there is an even larger pool of individuals excluded from the banking sector. This leads to a two-fold problem.
First, there are large stocks of cash that are not available for savings or investment through the formal banking and financial system given the need to know our customers. Second, those outside of the formal banking sector have no credit history, as their transacting history is not captured. This leads to very poor credit ratings should they ever request a loan, even though they may have faithfully met all loan obligations and are in possession of good collateral. Financial exclusion implies that those outside the financial system are pushed to access informal sources if in need of extra capital, and become victims of usurious practices from loan sharks, pay day lenders, etc. Such a situation results in a vicious cycle. It is therefore necessary to promote widespread financial inclusion to help these individuals become more independent and self-reliant, thereby establishing the foundation for multi-generational wealth creation.
Are mobile and e-banking to be regarded as complementary or competitive to traditional banking services in the region?
ROMANO: Both mobile and e-banking solutions should be regarded as business opportunities. The future of the financial sector will be marked by an increase in digitisation, where current features of the banking ecosystem, such as physical bank branches, will gradually become obsolete. Paying and receiving money on mobile devices is the future, especially in this region.
Looking at the experiences of some African countries, mobile banking is an excellent entry point for segments of the population that have, until now, been excluded from the formal banking ecosystem. Digital services will not only change the relationship between banks and customers, but they will also disrupt the core banking systems that we take for granted today. Big data is already a crucial tool in the adjudication of loans and other financial products, particularly as a provider of information on individual life patterns, as people who follow habits and patterns more rigorously are also more likely to be disciplined and service their debts faithfully.
Which external factors have the most potential to impact T&T and the Caribbean’s banking industry in the short to medium term?
ROMANO: The 2017 hurricane season made the sector aware of the many risks climate change presents. In this light, I think that climate change, rather than large systemic or financial shocks, will have the most disruptive effect on the sector. For the Caribbean region in particular, this means hurricanes. Both the financial and insurance sectors must consider whether they are prepared to endure hurricanes or other extreme natural disasters in unexpected places.
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