By NEIL HARTNELL, Tribune Business Editor, From Tribune242

The Bahamian international financial services industry is 72 times larger than this country’s gross domestic product (GDP), an International Monetary Fund (IMF) study has estimated.

An IMF working paper, examining how closely interlinked Caribbean financial services industries are, described the Bahamas as the “fourth largest offshore financial centre” in the world after the Cayman Islands, Hong Kong and Singapore.

And, putting the size of the Bahamian international financial services industry in context, the study said that while Singapore’s financial sector was 1.5 times’ larger than this nation’s, the island state’s economy was 52 times’ greater.

Noting that commercial banking industry assets were equivalent to 150 per cent of Bahamian GDP, the IMF paper also illustrated just how this nation acts as a global intermediation centre for investment flows.

Drawing on 2010 data, the study showed the Bahamas attracts multi-billion dollar inflows from the likes of the US, Switzerland, Japan and Brazil, then redirects this capital to its final destination in the most efficient, tax-minmised manner.

“The Bahamas and Barbados have significant offshore banking sectors, equivalent to 72 times and 11 times their respective economies, far outstripping the size of the onshore sector,” the IMF study found.

“The Bahamas is the largest sovereign offshore financial centre (OFC) in the region, and the fourth largest in the world after the Cayman Islands (a territory of the United Kingdom), Hong Kong SAR and Singapore.

“Offshore banks account for 98 percent of the Bahamas’ US$598 billion financial sector, or 7,220 per cent of the Bahamian GDP. To put this in perspective, Singapore’s financial system is only 1.5 times the size of the financial sector of the Bahamas, while its economy and population are 32 times and 15 times larger, respectively.”

The IMF study added that European and US banks were concentrating most of their Caribbean offshore claims in the Bahamas or Barbados, with this nation having one of the largest insurance sectors in the region.

“The size of the onshore banking sector varies quite significantly across countries,” the study added. “The Bahamas has the largest onshore banking system, equivalent to 150 per cent of its GDP, while Jamaica is at the other extreme, with a banking sector equivalent to just under 50 per cent of its GDP.”

The working paper gave CIBC FirstCaribbean International Bank (Bahamas) and Scotiabank (Bahamas) a 38 per cent and 28 per cent share, respectively, of the Bahamian commercial banking market based on total assets.

Somewhat surprisingly, the IMF study ignored Royal Bank of Canada (RBC), whose Bahamian balance sheet is equivalent in total asset size to its Canadian counterparts.

But, with CIBC FirstCaribbean and Scotiabank combined enjoying a 66 per cent or two-thirds market share of the Bahamian commercial banking market, adding RBC into the mix would likely take the total Canadian share to between 80-90 per cent.

“In terms of market share (measured as per cent of total assets of the banking sector), Scotiabank dominates the banking sector in Antigua and Barbuda (23 per cent), the Bahamas (28 per cent), Grenada (23 per cent), and Jamaica (32 per cent),” the IMF working paper said.

“The other two Canadian banks – CIBC and RBC – also hold significant market shares in several Caribbean countries.”

The paper concluded that interconnections within the Bahamian banking industry had increased over the past decade, due to its international financial centre (IFC) status as well as its strong links with foreign financial institutions in other nations.

“In the Bahamas, most funds are originated in Brazil, Italy, Japan, Switzerland, and the US, while Ireland, Luxembourg, the UK and the US are the main fund providers to Barbados,” the IMF working paper said. “The Bahamas and Bermuda are more collectors of funds for the clusters of off-shore centers

“Despite relatively high interconnectedness, the contagion risks to the onshore banking system may be limited, given the strong regulation separating onshore banking activities from offshore sectors.

“With respect to the offshore financial sectors in the Bahamas and Barbados, these are insulated from the onshore banking system, thus limiting the risk of contagion.

According to the IMF paper, the Bahamas in 2010 attracted $1.706 billion in capital inflows from Brazil; $2.409 billion from Italy; some $1.959 billion from Japan; $1.342 billion from Luxembourg; $1.957 billion from Switzerland; and $2.009 billion from the US.

And capital outflows from the Bahamas totalled $1.27 billion to Argentina; $4.174 billion to Brazil; $388 million to Guatemala; $108 million to Ireland; $777 million to Liechtenstein; and $653 million to the US.

Elsewhere, only Suriname’s stock exchange has fewer cross-border listings than the Bahamas International Securities Exchange (BISX), with just CIBC FirstCaribbean falling into this category.

On the statistics side, the IMF working paper showed the Bahamas commercial banking sector has the highest ratio of regulatory capital to rik weighted assets in the Caribbean, at 26.7 per cent.

And only Belize has a higher percentage of non-performing loans than the Bahamas, with this nation’s 1.7 per cent average banking industry return on assets (RoA) better only than Barbados.