NCB seeking to seal the deal on Bank purchase

After several unsuccessful attempts in its bid to move towards divestment, the National Commercial Bank (NCB) is seeking to conclude the necessary negotiations with an undisclosed regional bank for the purchase by that bank of majority share holdings in the NCB.{{more}}

Minister of Finance, Prime Minister Dr. Ralph Gonsalves, made this disclosure at the Thursday, August 5, sitting of Parliament.

Upon sealing the deal, Gonsalves said the next phase will be divestment to nationals and people of the OECS.

Parliament was told that the Government of St.Vincent and the Grenadines intends to hold a substantial amount of the shares.

The Prime Minister said a matter of interest to him is the quantity of shares the state would have to hold to maintain a certain amount of leverage. Gonsalves said, in conversations with St. Lucian based financial experts, he was advised that the ideal figure ranges from 22 to 27 per cent.

“To go for divestment of a portion of the shares and to strengthen the capital base of the bank…we are meant to strengthen the bank, not to weaken the bank,” said Gonsalves.

He mentioned the challenges that the global recession created for the state owned bank, over a period dating back to September 2008.

According to Gonsalves, around that same time, he instructed the bank to look for a strategic partner. One financial institution that came to the table with a memorandum of understanding was the Republic Bank, but in the end, the parties involved did not arrive at an amicable conclusion.

But Parliament was told that prior to that, as early as the incumbent Unity Labour Party’s (ULP) first term in office, the bank had been exploring the idea of establishing a strategic partnership with a larger bank.

First Citizens Bank, as well as an international bank from Canada, which operates in the Caribbean, had expressed interest, but the talks did not materialize.

Gonsalves said the global recession created a greater urgency for the NCB to move towards divestment.

He said he predicted that among the bank’s challenges there would be a liquidity problem stemming from the worldwide financial fallout.

“You have the liquidity problems because you are going to have the downturn in the economy because of the global financial meltdown: not as much tourism remittances from abroad, business activity down, there’ll be less liquidity in the bank,” said Gonsalves.

The Prime Minister explained that there are benefits to the NCB in upstreaming into a larger regional bank.

These include: access to a larger pool of core resources, including funding and support for other corporate activities; human resource development; training; risk management capabilities; finance fund management; marketing; operation systems and procedures; and policy development.

“It will be able to expand the scope for growth in the core business and diversification into other sectors of financial services,” said Gonsalves.

He said at the moment, the NCB, as a small indigenous bank, has limitations. For example, if a request is made for loan of EC$12 million, the individual will encounter difficulty in getting it, said Gonsalves.

“You have to go to a bigger bank or the bank would have to be in a syndicated group to have a syndicated loan, because there are ratios as to how much you can lend to any one borrower. They are fixed in law,” said Gonsalves.

The prime minister said the deposits at NCB are in the region of EC$600 million, and this is small when compared to larger banks that operate in the region.