Central Bank: Client Loss Not Like We Thought
Growing tax compliance demands have not impacted the Bahamian financial services industry as badly as anticipated, the Central Bank is arguing, despite the sector’s continued contraction.
The regulator, in its 2017 survey of the sector’s economic contribution, said there were signs that international banks and trust companies were “retaining a higher percentage of clients” than initially thought despite growing international regulatory pressures.
“Banking and securities firms further streamlined or reduced their operational footprint in response to international regulatory and competitive challenges,” the Central Bank said, pegging the industry’s share of Bahamian gross domestic product (GDP) at between 10-15 per cent.
“That said, anecdotal evidence suggests some settling towards growth in new markets in North America and a less-tapered-than-anticipated retreat of clientele from markets where tax compliance has become more regularised.”
It reiterated this theme later in its report, adding: “The industry is showing some signs of settling, with growth opportunities more emergent in Latin America. Meanwhile, the sector’s operating footprint continued to be constrained by the regularisation of tax compliance for clients from OECD jurisdictions, including those favoured by the Swiss banking model.
“There is nevertheless some indication that financial institutions are retaining a higher percentage of such clients than projected after the regularisation process. In this regard, fundamental conditions, including the sound regulatory regime and abundant pool of professionals supporting the industry, continue to promote the Bahamas as a choice jurisdiction, adding value for clients in varied dimensions.”
The Bahamas is currently grappling with numerous tax-related initiatives as it seeks to comply with the Organisation for Economic Co-Operation and Development’s (OECD) Common Reporting Standard (CRS) for automatic tax information exchange and Base Erosion and Profit Shifting (BEPS) initiative, both of which ares designed to combat tax avoidance and evasion.
Then there is the European Union’s (EU) demands for ‘economic substance’ and an end to so-called ‘ring fencing’, demands that the Bahamas must meet to its satisfaction by year-end 2018.
While the impact of such demands may have been less than expected to-date, the Central Bank’s survey again revealed a financial services industry that is not growing and continues a slow, steady decline in terms of overall contribution to Bahamian GDP.
The total number of Bahamas-licensed banks and trust companies fell by six to 242 in 2017, with assets in the international financial services industry – “which have been on a down trend since 2015” – falling again by 2.6 per cent to $171.1 billion. Domestic assets grew by 2.1 per cent to $10.2 billion, largely due to increased government bond holdings and surplus balances with the Central Bank.
Total industry employment fell by 3 per cent or 127 jobs in 2017, extending 2016’s 2.5 per cent contraction, due to branch closures, outsourcing and the automation of banking operations.
“Specifically, the number of Bahamian employees contracted by 117 (2.9 per cent) to 3,862; and non-Bahamians by 10 (3.6 per cent) to 267. The corresponding shares of Bahamians and non-Bahamian employees in the sector remained unchanged at 93.5 per cent and 6.5 per cent, respectively,” the Central Bank said.
“Total expenditure in the banking sector decreased by 2.6 per cent to an estimated $710.4 million in 2017, a reversal from a marginal increase of 0.7 per cent in the previous year, due mainly to the reduction in employment levels.
“Total operational costs, which comprise 97.8 per cent of total spending, decreased by 1.9 per cent to $694.9 million after a 2.2 per cent gain last year. The salary component (46.7 per cent of the total) edged-down by 0.8 per cent to $324.4 million, compared to a 3.3 per cent rise in the previous year, as higher redundancy costs almost outweighed lower base salary outlays.”
Government fees fell by 2.5 per cent to $67.2 million as a result of lower costs on taxable activities, while ‘other’ administrative spending fell by 2.7 per cent to $300.6 million as a result of the same branch closures and outsourcing.
“Total capital expenditure, which includes outlays for renovations, construction and other fixed assets, contracted by 28.3 per cent to $15.6 million, following a 32.5 per cent reduction in the previous year, mainly reflecting a decline in the purchase of office equipment and furniture,” the Central Bank said.
