Trinidad and Tobago is most often associated with a vibrant energy sector – and with good reason. The energy sector dominates the local economy, accounting for approximately 42 percent of the country’s GDP. Furthermore, almost half of total government revenue comes from energy, with the sector generating more than 80 percent of export earnings. The recent tumble in commodity prices, particularly energy prices, has severely affected the sector’s performance, and subsequently overall economic activity. Over the past years however, the financial sector has grown in importance and has become one of the strongest and most developed in the Caribbean region.

The financial system in Trinidad and Tobago plays a pivotal role in terms of economic development, accounting for approximately 12 percent of GDP. The banking sector in the country is well developed, primarily due to the its well established energy and petrochemical industry and strong manufacturing base. At present there are eight commercial banks operating in the sector with a wide network of 123 branches, and four of those banks are listed on the Trinidad and Tobago Stock Exchange.

Trinidad and Tobago has come a long way over the past decade and can be considered as the financial hub of the Caribbean region

Expanding sector
Commercial banks in particular accounted for close to 50 percent of the assets in the financial sector in 2013, while insurance companies were a distant second with 16 percent. Provisional data for 2014 shows that the financial services sector expanded at a rate of 3.3 percent, and grew by an average of 2.8 percent over the past five years, outperforming overall real GDP growth which averaged 0.4 percent for the same period. The domestic banking sector remains strong and well capitalised. As of September 2014, the ratio of regulatory capital to risk-weighted assets stood at just over 25 percent, well above the regulatory requirement of eight percent.

Accommodative monetary policy by the Central Bank of Trinidad and Tobago over the past few years has resulted in low interest rates, which have impacted upon income growth and the profitability of the domestic banking sector. In September 2014, the central bank started to increase interest rates in anticipation of higher rates in the US as a proactive move to prevent capital outflows.

With interest rates still relatively low, notwithstanding the cumulative 50 basis points repo rate hike in 2014, credit demand continued to expand. Consumer credit grew by eight percent by the end of 2014, with loans for new motor vehicles and credit cards contributing significantly to the rise in consumer lending. There was also a marked improvement in business lending, which expanded 3.5 percent in 2014, led by loans to the distribution sector. Lending for real estate mortgages continued its robust performance, registering growth of 11 percent in 2014.

There have been considerable improvements in the domestic financial landscape in Trinidad and Tobago and confidence in the sector is returning after years of being in the doldrums in the fallout of the CL Financial debacle, which devastated investor confidence.

In 2014, however, profitability of commercial banks took a hit as a result of higher operating costs. Return-on-equity declined from around 18 percent in September 2011 to almost 13 percent in September 2014, while return-on-assets fell to two percent from just under three percent. On the bright side, credit quality continued to steadily improve. Non-performing loans as a percent of total loans declined to 4.5 percent by September 2014 from a peak of seven percent in 2011.

Oversubscribed IPO
First Citizens, in 2013, successfully launched Trinidad and Tobago’s largest initial public offering (IPO) of shares, which was oversubscribed more than three times. What is more, the sale encouraged new investors to the local stock exchange, with more than a 100 percent increase in the number of accounts opened at the Trinidad and Tobago Stock Exchange. Since the listing on the exchange, traded volume has also increased significantly, partly due to the new listing. This was a major improvement to the very thin volumes experienced in the prior years. First Citizens Bank has several accolades under its name and has transitioned to Trinidad and Tobago’s second largest commercial bank in terms of total assets and is now one of the highest-rated indigenous financial institutions in the English-speaking Caribbean.

Trinidad and Tobago has come a long way over the past decade and can be considered as the financial hub of the Caribbean region, as plans continue to develop the country as an international financial centre. In this context, financial institutions are poised to perform well in the coming years. Additionally, the country has a strong regulatory framework for financial institutions, which seeks to protect investors and to follow international standards. First Citizens Bank continues to work alongside key stakeholders to assist and give support in the development of the financial sector, not just in Trinidad and Tobago, but in the Caribbean as a whole.