6 September 2024
Amid recent sales of Caribbean operations by Canadian banks, RBC Financial (Caribbean) Ltd.’s move to reduce its capital by US$200mn is drawing attention.
Though registered in Trinidad and Tobago, RBC Financial is a wholly owned subsidiary of RBC Holdings (Barbados), whose ultimate parent company is the Royal Bank of Canada (RBC).
Consequently, the decision to reduce capital by such a significant amount is fuelling speculation that RBC is positioning for an exit of the Caribbean market following the sale of its operations in Jamaica, Suriname and the Eastern Caribbean over recent years, beginning in 2014.
In its consolidated financial statements for 2023, RBC Financial (Caribbean) reported a stated capital of US$1.77bn for the year ending 31 October 2023.
A reduction of US$200mn equates to an 11.2% decrease from the capital reported as of that date.
In a notice to creditors dated 25 July 2024, RBC Financial detailed that during a board meeting on 25 June 2024, it was proposed that the sole shareholder pass a resolution to reduce the company’s stated capital.
On 12 July 2024, RBC Financial’s sole shareholder approved a reduction in the bank’s stated capital by US$200mn “for the purpose of making a distribution to the holders of the ordinary shares of RBC Financial on record on the date the capital reduction occurred”.
Some analysts are interpreting the move and the notice to creditors as a means by which the sum of money could be returned to RBC Financial (Caribbean) Ltd.’s parent company in Canada.
RBC Financial’s notice to creditors emphasised that the announcement of a capital reduction was merely a formality required by the Companies Act of Barbados. The institution assured that all creditors will be paid.
“This capital reduction does not affect the operations of RBCFCL [RBC Financial Caribbean] and we remain committed to maintaining strong relations with our clients, employees and communities across the Caribbean,” stressed the bank in its notice. However, scepticism remains as memories of RBC’s historical withdrawal from the Caribbean in 1987 linger.
“Our regulatory capital ratio at year end stood at 27.30%, which is well above regulatory thresholds,” said RBC Financial Caribbean CEO, Darryl White in his January 2024 report.
Speculation is mounting that RBC Financial may be over-capitalised and plans to return US$200mn to Toronto for better utilisation, given perceived risks in Caribbean lending. The Central Bank of Trinidad and Tobago (CBTT) indicated that capital reductions can be due to reasons like returning surplus capital, simplifying capital structure, or corporate restructuring.
“Financial institutions may reduce stated capital for a number of reasons. Some reasons include returning surplus capital back to shareholders, simplifying their capital structure to become more efficient, reducing or eliminating paid-up or unpaid shares, cleaning up its balance sheet, and corporate restructuring,” said the Financial Institutions Supervision Department of the CBTT.
The central bank made it clear that it would not usually get involved in cases where capital reductions do not negatively impact operations of financial entities.
“In this instance, the company has stated its reason as being for the purpose of making a distribution to its shareholders. In general, the Central Bank would not take issue with a reduction of stated capital where the financial institution is not impacted negatively,” said the CBTT.
Responding directly to a question from local media in Trinidad and Tobago about whether the reduction in capital foreshadows its departure from the Caribbean, RBC Financial’s Senior Manager, Corporate Communications, Andrew Knowles, asserted that while they appreciated the interest, the bank is “unable to provide any comments at this time”.
In March 2008, shareholders of RBTT Financial Holdings voted in favour of the proposed US$2.2bn amalgamation of RBTT with a Caribbean subsidiary of RBC marking the start of the Canadian bank’s Trinidad and Tobago operation as we know it today.
Since then, RBC has sold its operation in Jamaica in 2014 to Sagicor Group Jamaica. In 2015, RBC completed the sale of RBC Royal Bank (Suriname) N.V. to Republic Bank Ltd (RBL). In 2021, RBC secured regulatory approval for the sale of its Eastern Caribbean banking operations to a consortium of regional banks comprised of 1st National Bank of St Lucia, Antigua Commercial Bank, Bank of Dominica, Bank of Montserrat, and The Bank of Nevis.
This included its branches in Antigua and Barbuda, Dominica, Grenada, Montserrat, St Kitts and Nevis, St Lucia, and St Vincent and the Grenadines, effectively marking its exit from the sub-region, save for Barbados.
Against the background of recent divestments by Scotiabank and CIBC, two other Canadian banks in the region, the Caribbean will no doubt keenly observe RBC over the coming months.
