Why are Canadian banks leaving the Caribbean?

Canadian banks have been doing business in the Caribbean for decades, but one by one, they’re pulling back.
The latest example is CIBC. The Canadian banking giant has agreed to sell its Caribbean operations to Bermuda-based Bank of N.T. Butterfield in a deal worth approximately US$1.8 billion.

But this isn’t just another acquisition story. According to Taking Stock analyst David Rose, it’s part of a much bigger trend.
Over the past several years, Canadian banks have been steadily reducing their exposure to the Caribbean.

Scotiabank sold most of its Eastern Caribbean operations to Republic Financial Holdings in 2019. Then in 2021, RBC exited several Eastern Caribbean markets, selling those operations to a consortium of regional banks. Now CIBC is making its move.

So what’s driving it? According to Rose, it comes down to capital.
Banks are required to hold capital against the risks they take. And for large Canadian banks, Caribbean operations often require capital that could potentially generate higher returns elsewhere.

CIBC has alongside other Canadian banks been seeking to reduce their carrying cost and their capital cost with respect to the Caribbean markets.

Rose says CIBC plans to redeploy much of the capital released from the transaction back into North America, where growth opportunities may be more attractive.
But that’s only one side of the story. The other side is what’s happening here in the Caribbean.

Regulatory requirements are increasing. Compliance costs are rising. And smaller markets are becoming harder and more expensive to serve.
Rose believes that could lead to even more consolidation across the region.

You’re likely going to see more consolidation in the Caribbean banking sector. You’re probably going to see two or three major players in some of the Eastern Caribbean markets because of how small they are.

So what does this mean if you’re a CIBC customer? For now, probably not much.
The CIBC Caribbean brand is expected to remain in place during a transition period. Customers should continue banking as usual while the deal works its way through regulatory approvals.

But over time, the branding will change and the bank’s strategy could change too.
Butterfield is best known for its presence in offshore financial centres like Bermuda and the Cayman Islands, where it focuses heavily on wealth management and high-net-worth clients.

Whether that eventually changes the focus of the Caribbean business remains to be seen.
But one thing is becoming increasingly clear. The era of large Canadian banks dominating Caribbean banking appears to be fading. And a new era of consolidation may just be getting started.

And that’s The Bottom Line.
So what do you think? Is it a good thing that more Caribbean-owned institutions are taking control of the region’s banking sector, or are we losing something when these global banks leave?