Feb. 13, 2009 — Canada-based Scotiabank has been named one of the 10 most stable financial institutions in the world — and that's without bailout money. And while the parent companies of the other two major banks in the territory, First Bank and Banco Popular, have received bailout funds from the U.S. government, their banks in the Virgin Islands are in relatively better shape than many U.S. financial institutions.
Scotiabank's recent good news was reported in Barron's and the Financial Post.
"Bank of Nova Scotia has emerged during the credit crisis as one of the top 10 most stable banks in the world, according to a global ranking of the financial sector," reported the Financial Post.
The ranking was developed by Oliver Wyman, a management consulting firm, according to company spokesman John Campbell. Published in their "State of the Financial Services Industry" report, the list included other such financial institutions as Chubb, Aflac, Berkshire Hathaway and Wells Fargo.
As a Canadian bank, the Bank of Nova Scotia didn't get involved with risky loans that brought many U.S. banks begging for government assistance. Safe loan practices and frugality are responsible for Scotia's good position, according to Lawrence Aqui, vice president and country manager for ScotiaBank in the Virgin Islands.
Aqui responded to questions via e-mail.
"We are a tight-fisted, conservative, old-fashioned bank with a flat, less bureaucratic structure than most major international banks," Aqui said. "That means we are very nimble when changes have to be implemented. Scotiabank is free of the woes afflicting our U.S. counterparts. We don't need any government aid to survive, and won't have to take huge write-downs on exotic instruments gone bad."
The U.S. Treasury has given almost $1 billion to Banco Popular's parent company in early December and First BanCorp, parent of First Bank, received $400 million last month, leaving Scotiabank as the only major bank in the territory to not need bailout money and for which, as a foreign institution, it was ineligible.
"We have been around for 175 years," Aqui said. "We business-case every investment — every single penny we spend. The conservatism of our culture is embedded in the heart and soul of every single Scotiabanker."
Scotia has made some modifications over the past year, he said.
"There has been some tightening of credit criteria, but nothing too significant," Aqui said. "We still lend every day based on an individual's credit score, down payment, and total debt servicing ratio."
However, getting a loan now with Scotia is not much harder at all, and the bank is still applying the same criteria it did before the crisis, Aqui said.
"We are just less flexible on exceptions outside of our acceptable ranges," Aqui said.
Other banks here were on the same page with Scotiabank.
Banco Popular's Virgin Islands commercial loans manager, Ian Smith, also said via e-mail that lending now is business as usual for his bank.
"Banco Popular de Puerto Rico has not made changes to its lending practices as we have always maintained a strong underwriting of our credits which transcends economic upswing or downturn in economic activity," Smith said. "It is not harder to get a commercial, mortgage, auto, or personal loans now than it was a year ago. In fact, the number of applications and number of loans being granted are similar to a year ago."
Banco Popular has not realized a decrease in consumer lending and anticipates consumers will be more attracted to consolidation loans to reduce monthly expenses in anticipation of the recession impact, said Oren Bowry, manager of Banco Popular's V.I. Region Operations, in an e-mail.
Even with the infusion of bailout money for the parent companies of Banco Popular and for First Bank, the territory's banking industry is better off than many of its mainland counterparts.
Banking officials attributed the financial institutions' relative health here to a couple of circumstances, including relatively stable property values and across-the-board conservative lending practices.
That's becuase of property values' stability here and the banks lending to the value of the loan and making more conventional mortgages, according to Linda Pukenas, marketing and public relations manager for First Bank.
"There were some really wild kinds of mortgages offered in the States," Pukenas said. "It was like a rodeo — there were so many different loan options. People were getting loans that weren’t conventional-type products. On the mainland, there was a lot of sub-prime lending – and appreciation was unstable the prices just shot up. When people went to sell their homes, they were upside-down – they owed more than what they could sell the house for."
As a result, people walked away from their houses and you also had people that lost jobs and couldn't pay for their houses, Pukenas explained.
"We are not seeing that [in the Virgin Islands]," Pukenas said. "Some of things that really worked in our favor were gradual appreciation on the prices of our homes. The value has held for the most part and we didn't have any sub-prime lending."
While the lending news isn't entirely dismal, some banking officials feel that the impact of the economic crisis is yet to be fully experienced in the territory.
"In the Virgin Islands we have not begun to experience the impact of the U.S. economic recession; however we do expect some delayed impact especially relative to our deposits and income generated from the tourism industry," Bowry, said. "While tourism visits have not declined, tourism expenditures have — tourists, particularly from the US, are much more conservative in their spending."
Friday's passage by the U.S. House of Representatives of the almost $800 billion economic stimulus package is also a source of hope for the territory's financial institutions.
"We are hopeful the funds within the stimulus package that are earmarked for infrastructure development will infuse new jobs and new credit opportunities," Bowry said.
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