Editorial
Local Banks - Licensed in WhoseBest Interest?
The multi-billion dollar banking industry,as part of the ever-burgeoning financial sector, is one of thetwin pillars of the Cayman Islands economy and is the foundationof the islands' renown as the world's fifth largest financialcentre.
According to information from the Monetary Authority, at June2000, total assets of the banks stood at US $747.6 billion, anear 50 percent growth over the 1996 figure of US $497 billion.
The sector is comprised of 31 Category A banks - licensed to conductbusiness within and outside the Cayman Islands - 418 CategoryB banks, which are not licensed to take deposits from personsresident here or invest in asset which represents a claim on personsresident in the islands, and 15 Category B Restricted banks. Inaddition, there are 116 licensed Trusts - 54 unrestricted and62 restricted.
Given its size and importance to the local economy, many havelong argued that the banking sector's contribution to the publicpurse and to the development is far from what it could, or shouldbe. Time and again, indigineous entrepreneurs, particularly smallbusinesses, have expressed frustration in accessing loans at reasonablerates from the Class A banks.
A primary source of the frustration has been the fact that bankshere operate
with a prime rate, usually one percent above that in the US .But the further rub is that mortgage rates are usually three percentabove the local prime rate.
Whereas average income earners in the US can access residentialmortgages between 6.5 and 7.25 percent, the avergae Caymanain,especially young, first-time home buyers are hard pressed to afforda mortgage at 12 and 13 percent.
Readers will recall that last year, local banks, in a cartel-likemove, increased interest rates on short and long term funds, inresponse to a hike in short term in the United States. This prompteda private members motion by Mr. McKeeva Bush, calling on governmnetto meet with the banks to discuss cushioning the impact of theincrease on their customers.
This followed an earlier motion brought by Mr. John Jeffersonrequesting that
Government should take steps to meet with the commercial banksoffering mortgage financing in order to negotiate preferred interestrates for Caymanian owner-occupied homes.
In the local business sector, however, frustration with the bankscontinues and involves more than just interest rates. The majorityof the top positions in the sector are not held by Caymanians,and qualified Caymanians returning home find a glass ceiling blockingtheir attempts to reach middle and upper management level in manyof these institutions.
One can point to the sector's award of scholarships and contributionto community projects as evidence of their corporate care. Whencompared to scholarships offered by the six big accounitng firms,however, it would seem that more could certainly be expected fromthe banks.
It has also been argued that Government should look to allowingall Class B banks - who want - to lend locally, thereby makingmore money available to sustain and diversify the local economy.
The new Government has promised that in its efforts to increaserevenue, there will be no additional taxes on consumers. In thesame vein, it has indicated that it will look to the financialsector for help.
Currently, the annual licence fee for Category A banks is $80,000and $15,000 for those in Category B. As one financial analystputs it, figures like the latter represent a mere fraction ofthe annual residential rental paid to expatriate managers of someof these very banks.
In other territories with or without offshore financial centres,banks are taxed based on a percentage of their profits.
Perhaps the time has come, for Government to consider a revisionof the level of revenue raised from the banking sector. The communityis certainly looking for a greater contribution in return forthe personal and corporate safe haven they now enjoy.