Banking and Funds Roundtable
Hosted by:
Our panel discussed the fallout from 2008, FATCA and the necessity of new technology for the sector.
How far have Bermuda banks travelled since the financial crisis of 2008?
Michael Collins: From Butterfield’s perspective, we’ve recovered quite nicely since the financial crisis. We obviously had some balance sheet issues at the time, but we’ve been able to achieve consistent double-digit return on equity. Our focus has been on trying to grow, be more efficient, and reduce our costs in an environment with no growth at this point, so really it’s just cleaning up the shop and doing all the heavy lifting, as opposed to the heady days of the mid-2000s.
We have recovered well and the key is really to continue with consistent quarter-to-quarter earnings. Banks are never going to go back to 18 to 25 percent return on equity. It’s a totally different regulatory environment now and we don’t want to take those sorts of risks going forward. So low to mid, double-digit return on equity, and consistency, is what we’re shooting for.
Craig Swan: We see the banking sector as resilient. From a regulatory perspective, all of the licensees are meeting their capital and liquidity standards and are well placed to meet Basel III requirements when the Island transitions to the new standard starting in early 2015. Although the sector is still focusing a great deal of attention on their non- performing loan portfolios, the special asset units that were set up are having a major impact and the sector is reporting increased profitability.
Ian Truran: We’re operating in a ‘new norm’ in which liquidity and capital are key. We are all looking more closely at asset quality and our balance sheets and asking: how can we diversify, clean up our balance sheets and make sure we’re prepared for the next wave.
Peter Horton: At BCB we were in a slightly different place to everyone else back in 2008. We didn’t really have exposure to the mortgage or real estate market, we didn’t particularly have exposure to any of the interesting bond instruments that you see elsewhere in the world. That
said, falling interest rates really impacted BCB so we did have to refocus our activities.
As with the other banks, what we’ve really been keen to focus on and maintain is not just the underlying earnings, but actually keeping a much closer eye on what we’re doing, how we’re managing our capital and liquidity. Post-2008 all the banks are very conscious about the need to have liquidity and capital managed correctly.
Craig Bridgewater: Since 2008 there has been huge focus on asset quality and the recovery of loan and mortgage assets—making sure that you are working through the tough times, getting the balance sheets clean and working with customers to make develop win-win solutions.
After that you have to look at future regulatory demands—capital adequacy ratios, liquidity requirements—it’s going to be key challenge for the banks to meet and maintain these requirements while also remaining profitable.
Chris Maiato: The big challenge moving forward is the growth agenda for banks. They’ve spent the last few years cleaning up the balance sheets, reducing their exposures, and de-risking, at the same time focusing on optimising cost structures and improving efficiencies to improve overall returns with modest top line growth.
The challenge is that while there is always room for operational improvements, the benefits have largely been realised. Interest rates have not moved much and the market is competitive, so how do the banks begin to grow the revenue—will it be through geographical expansion and strategic acquisitions, and/or new products and services, or a complete revamping of the business model?
Collins: Regulation is a global challenge. We’re in Bermuda, Cayman, Guernsey and the UK so we have four different regulators and it’s a
53 Bermuda Finance | 2014
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