Gonsalves defends decision to privatise NCB

The St Vincent government maintains that privatising the National Commercial Bank (NCB) was a good decision, and is encouraging nationals to buy shares when they are offered to the public.

"We are confident that it is the correct policy within the framework I have outlined and for the benefits. The bank in 2010 is bigger, better and stronger than (in 2001)," Gonsalves told Parliament on Monday.

"All the data show that, and we intend to make it even bigger, better, stronger, through this process of incorporation with the Eastern Caribbean Financial Holding (EFCH), which is buying 51 per cent."

ECFH is paying EC$42 million (US$15.55 million) for the majority stake.

"The sale price is what is reflective of the book value, and I have been advised that companies, including banks, in the region trade more or less at their book values," the PM said.

The deal was struck even as the main opposition New Democratic Party, led by Arnhim Eustace, said the government had mismanaged the bank, bringing it to the point of collapse.

But Gonsalves told Parliament that the NCB has registered moderate growth in its asset base, averaging seven per cent between 2003 and 2008, and peaking at 15 per cent in 2007.

The prime minister said the dividend-retention policy adopted in 2003 resulted in the tier one capital breaching the eight per cent threshold mandated by the Eastern Caribbean Central Bank (ECCB) that same year.

The NCB, had in the past, explored avenues to augment its capital base by seeking strategic alliances with larger regional capital banks and/or divestment of majority ownership, said Gonsalves, who is also minister of finance.

"The recent global economic downturn and the attendant universal upheaval in the financial industry have once again elevated the issue of capital adequacy of financial institutions to a level of high priority and, similarly, its sufficiency," he said.

He said that stress tests on some banks in the United Sates and the United Kingdom have found their capital base to be inadequate.

Challenges acknowledged

Gonsalves said that while the ECCB had not mandated stress tests for banks in the region, the challenges facing the financial sector and threats to indigenous banks are widely acknowledged.

He suggested that the ECCB might require banks to increase their capital requirements from eight to 15 per cent, based on the findings of internal stress tests conducted by indigenous banks.

"If they were to do that, we will satisfy those requirements, but there are some other banks - indigenous banks - which would not have satisfied those requirements," he said.

Gonsalves said his government and ECFH were finalising all the legal and administrative arrangements to fully complete transfer of the shares.

The regulatory approvals should be secured by the first week in November, he said, by which time a transfer date will be agreed.

In the meantime, the bank continues to do business as usual.

The benefits to NCB of  "upstreaming into a larger regional bank," Gonsalves said, includes:

• access to a larger pool of core resources, including funding and other corporate activities, human resource management, risk management capabilities, fund management, marketing operations systems and procedures, and policy development;
• the provision of the necessary safety nets in the event of external shocks;
• expanding the scope for growth in core business;
• diversification into other sectors of financial services;
• localised decision making; and
• leveraging the strength of the respective boards to create or to be part of a regional brand.

"These are the basic reasons which have been advanced by the management of the bank," he said, noting that three experienced Vincentian bankers and ECCB governor, Sir K. Dwight Venner, had endorsed the policy adopted by the bank.

Opportunity for the ordinary man

Gonsalves said he hopes that when shares are offered to the public, "Vincentians would be properly advised so that the ordinary man - the man in the street - will be able to have an opportunity to buy shares in the bank".

He said the EC$100 million (US$37 million) borrowed from the Caribbean Development Bank (CDB) to clear up government debts at the NCB before the sale would not add any additional burden to taxpayers.

"We are just replacing EC$100 million there with EC$100 million from the Caribbean Development Bank, so that greater liquidity will be provided to the National Commercial Bank."

Gonsalves said the CDB funds cost 4.5 per cent, whereas borrowings by NCB would have had to be paid at twice the price, 9.0 per cent.

He said that state lands valued at EC$32 million (US$11.85 million), transferred from the state-owned National Properties Limited to NCB, would be retransferred when the bank receives the CDB loan funds.

"I want to say that the Caribbean Development Bank didn't come to us; I went to the Caribbean Development Bank for a public policy loan. This is what it is," he said, in reference to opposition claims that the CDB had stepped in to rescue the NCB.

- CMC