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T & T Ready for PPP’s Success Model

Gregory Hill ANSA Merchant Bank believes that the private-public partnership (PPP) model of project development has significant merit in advancing the goals of national development. Gregory Hill, managing director of ANSA Merchant Bank holds the success of the PPP model in the development of the Barbados Water Authority (BWA) building as proof positive of the ability of both private institutions and the public sector to work together to deliver projects that come in on time and on budget.

In a wide ranging interview with the Business Guardian, Hill discusses ANSA Merchant Bank’s involvement in the project and its presence in Barbados, how its been coping in the domestic environment and the main challenges confronting the local banking industry today.

ANSA Merchant Bank has a long history of doing business in Barbados. Through its sister company, Consolidated Finance Company Limited (CFC) the bank has been involved in providing financial products to the Barbadian public for many years. Its involvement in a private-public partnership of this kind therefore was a natural follow on from its involvement in providing project financing in Barbados.

Commenting on this Hill said: “We’ve been involved in many projects in Barbados. We’ve always found creative and innovative ways to work with the Barbados government and other enterprises to finance projects to aid in their national development and to deepen their capital markets.”

Referring specifically to the BWA project, Hill stated that many thought this project would never happen.

He said: “The BWA building project had been on the cards for over 25 years. Prior attempts to get it done proved unsuccessful. The completion of this project on time and on budget was really a landmark achievement that validates the PPP model and we’ve been able to deliver a world class facility to the Barbadian government because of our ability to execute and because of our understanding of how to make PPP work in the Caribbean context.”

Hill added that under this partnership arrangement, the costs associated with construction, and financing risks were shared with the bank, the developer (Innotech Aquaserve Limited) and the BWA. “Given the sharing of risks in the project, all parties were motivated to ensure the efficient execution of the project.” Hill added.

The project consisted of 88,000 square feet of building space at a construction cost of BBD$ 44.7 million (TTD $149.7 million). Beyond the project, Hill noted that the bank has been active in promoting Barbados as a place worthy of serious investment consideration.

He said: “For two years in a row we’ve held an investor forum in Trinidad to keep Barbados in touch with the local investing community. We gathered together major institutional investors in one room and held open discussions on the economic developments taking place in Barbados. Both the minister of finance and central bank governor of Barbados were in attendance as well. We do this to really demonstrate our commitment to Barbados and its economic development initiatives.”

Hill added that the PPP model is apt for deployment in Trinidad given the declines in energy prices and the ability for state and financial institutions to work together to develop projects and share risks.

He said: “There are a lot of lessons we can take from our Barbados experience and carry over to the T&T context. Given declines in fiscal revenue, the government is charged with the task of finding creative ways to finance projects, and this is where PPP can play a role in advancing development initiatives.”

Hill also noted that the bank has been one of the more active players locally advocating the use of PPP in project development. He said: “We were invited to speak at a PPP seminar held for governments by the multilateral agencies recently and we were the only private sector institution that was invited to come and share our experience in doing PPP projects.”

He added that locally, the bank is currently exploring a few PPP projects at the moment.

He said: “In Trinidad we’re currently looking at a few PPP projects. We’re looking at one in the health sector, we’re also looking at some in the housing sector as well given the fact that we’ve worked with the government in the past to provide financing for the Housing Development Corporation (HDC).”

Hill highlighted that one of the keys to success of any PPP arrangement was discipline by all parties involved to see projects through to completion – on time and within budget.

He said: “In PPP arrangements there is a sharing of risk and rewards and as such there must be a certain level of governance and controls that all parties involved have to be disciplined enough to adhere to. The market traditionally has not been accustomed to that level of discipline. PPP requires a lot more work and a lot more controls to successfully accomplish than traditional project financing.”

Shifting to the bank’s 2016 performance thus far, Hill stated that given the prevailing economic environment the bank is performing commendably.

He said: “We expected some contraction in our volume of retail financing because of the size of our portfolio in equipment and vehicle financing and given the economic slowdown our volume is not as significant as it was last year, though not too far off from it at the same time.”

Hill added that the bank has also been focused on maintaining tight controls in its loan provision criteria as well.

He said: “We have also taken the decision to be a little bit more conservative in our lending criteria in 2016. So we’re managing the situation from our perspective and doing the required levels of due diligence as well.”

From the investment side of the business Hill pointed out that volatility in the international markets has affected the bank’s portfolio of investments.

“Like everyone else, we’ve experienced the fluctuations taking place in the international markets, and managing through that is an ongoing exercise. Our numbers for 2016 are lagging a bit but we have an excellent investments team that has managed to produce decent returns relative to the volatility in the market and relative to some other investment products available.”

Hill however highlighted the fact that the insurance and corporate areas of the bank have performed well in the current economic climate.

He said: “We continue to have robust results in our trading, corporate banking, investment banking and insurance segments of the business. This is one of the benefits of having as many diversified business lines as our bank does.”

In 2016, the bank set itself the mandate of being a major player in the wealth management business.

On this ambition Hill said: “2016 is the year we decided to throw our hat into the mix in terms of wealth management. The bank has a long history of prosperity and managing money and we get from a lot of our clients the request to share some of that experience at the retail level. So we’re soon going to be rolling out a facility for high-networth individuals were we will structure investment portfolios for them and give them advice based on their investment horizons, risk tolerance and the various sectors that they may want exposure to.”

Of pressing concern to the local banking establishment is the implementation of the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted in the U.S. in 2010, seeks to obtain information on accounts held by U.S. taxpayers in other countries.  It requires U.S. financial institutions to withhold a portion of payments made to foreign financial institutions (FFIs) that do not agree to identify and report information on U.S. account holders.

Commenting on the FATCA issue Hill said: “It’s important for the banks to maintain their corresponding banking relationships (CBR’s) with foreign financial institutions. If as a region the Caribbean is unable to fulfill the requirements that exist globally for foreign accounts as well as for anti-money laundering, we could be blacklisted as a region. At least 16 banks across five Caribbean countries are reported to have lost all or some of their CBR’s as of May 2016. So being FATCA compliant really is a serious matter for the banking and financial system on the whole.”

Hill added that restrictions in CBR’s will have an impact on the movement of capital across the financial spectrum. “If we (T&T) are blacklisted, the free flow of hard currency in and out the country to meet clients demands will be significantly affected.”

Hill offered the perspective that failure for local banks to maintain CBR’s will afford foreign banks the opportunity to “re-colonize” smaller territories such as the Caribbean.

He said: “If the local banking community is unable to maintain these relationships, it presents an opportunity for large foreign banks to come in and crowd out the local banking community. You can look at it as a form of recolonization of the smaller territories via the financial system.”

Taken from: Trinidad Business Guardian
Date: Thursday 28th July, 2016