Ronald Harford, Chairman, Republic Financial Holdings: Interview

Interview: Ronald Harford

What major developments will 2018 bring to the economy of Trinidad and Tobago?

RONALD HARFORD: A further deterioration of the economy is expected in 2018, with the first signs of recovery likely to be noticeable by 2019, and the first signals showing that the country is moving in the right direction by 2020. The prolonged economic deterioration is partially the result of the government’s slow implementation of restorative measures, something the economy needs. Despite a series of announcements, a majority of the promised reforms have failed to materialise. Among these, the land tax has yet to be established, water and electricity prices are still subsidised to a considerable extent, and the new tax authority is still a considerable way off from being a fully functioning body.

Despite delays in the implementation of these policies, higher government revenue is expected as a result of the new array of taxes and royalties to be collected from March 2018 onwards. This will definitely help stabilise the current fiscal deficit figures, and ease the payment arrears the administration has with suppliers and contractors. Ongoing improvement in the economy, alongside more upstream production in the oil and gas sector, will result in government revenue figures rising to 80% of recorded levels in 2015 up to 2020, a great relief after the 90% drop in revenue after 2015.

Where do you see the greatest opportunities for financial services growth in the region?

HARFORD: In the English-speaking Caribbean, Jamaica, the Cayman Islands and, to a lesser extent, the Bahamas seem to be the most promising markets. In the Spanish-speaking Caribbean, the economy of the Dominican Republic is going through a boom period that could prove very profitable for the sector. As for Guyana, it will become an ideal investment destination for the sector from 2020 onwards, when large investments in energy will materialise. Substantial housing needs and real estate appetite in all the aforementioned markets mean that mortgage loans will primarily be driving growth in the banking sector. In addition, as a result of the ongoing rise in living standards throughout the region, consumption loans will increasingly play a more prominent role in the market. The segment has an additional window of opportunity in lending to governments for necessary infrastructure upgrades. Lastly, in markets where tourism plays a significant role in the economy, the development of new tourism resorts and other projects could be an additional part of the industry’s business portfolio.

How can excess liquidity be more effectively distributed to key economic sectors?

HARFORD: A large share of the previously held excess liquidity in the system has already been taken up, and surprisingly the system is not as liquid as we had thought. Over $4bn was borrowed by the government in recent years , effectively engulfing a large share of that available excess liquidity. In this context banks do not have the large leeway they previously had to lend money and transform deposits into loans.

What impact has the loosening of correspondent banking relations had on the provision of regional financial services in the country?

HARFORD: It has definitely been an issue for smaller banks, where carrying out a more thorough risk assessment by foreign correspondent entities is more difficult. In addition, smaller banks do not usually have the capacity to certify that deposits do not have an origin in certain activities, such as gambling and the like. Our correspondents stand behind us because of size, volume and risk assessment capacity. Smaller banks, on the contrary, have struggled because of the additional structures needed to properly track all transactions, prevent money laundering and ultimately avoid the risk of being blacklisted by the US federal authorities and other global financial institutions and governments.