TORONTO (Reuters) - Canadian banks say the worst of the financial hits they have taken on their Caribbean operations should be behind them as an improving U.S. economy and lower oil prices help support the region’s recovery.
Even if Caribbean economies continue to struggle with weak tourism spending, Canadian bank executives say the work they have done this year to control costs and provide for bad loans should give them a buffer.
“The bulk of the pain is likely behind us on the Caribbean, especially if the U.S. economy does start picking up,” Sean McGuckin, chief financial officer at Bank of Nova Scotia (BNS.TO), told Reuters.
Canadian banks are among the region’s most influential, with roots in some cases going back more than a century. Bank of Nova Scotia opened its first Caribbean branch in 1889.
They have consequently felt the pain of the sharp drop in tourism that followed the financial crisis, squeezing local economies and government finances.
Scotiabank warned last month it would book a C$451 million ($392 million) charge, partly because of soured bets in its Caribbean hospitality portfolio.
In May, Canadian Imperial Bank of Commerce (CM.TO) booked C$543 million of charges related to the Caribbean.
But CIBC’s chief risk officer said last week that even though the bank’s Caribbean portfolio faces challenges, adequate provisions have been made for losses.
CIBC’s David Williamson, who took over responsibility for the FirstCaribbean operation in September, said the bank was weighing how to strengthen the unit given the shift in prospects since 2008.
“There are opportunities for growth in that market for sure. But it’s a tougher market right now. It doesn’t mean you can’t grow,” he told Reuters.
Royal Bank of Canada, the country’s largest lender, said it expects its remaining Caribbean operations to be profitable next year after moving to sell its Jamaican unit and shut an international wealth-management business.
Chief Financial Officer Janice Fukakusa said Royal had lacked scale in the businesses it exited, and cleaning up the other operations has ensured they’re ready for any upturn.
“We’re guardedly positive about the outlook,” she told Reuters. “We don’t think we have a lot more cleanup to do.”
Brian Klock, an analyst at Keefe, Bruyette & Woods, warned, however, that given the capital discipline of Canadian banks, investors shouldn’t be surprised to see further writedowns and exits if the Caribbean economy fails to recover.
Editing by Peter Galloway