Nigel BAPTISTE, Managing Director of REPUBLIC BANK

There is no sector that can do for Trinidad and Tobago what the oil and gas sector does. What the country ought to do is expand the range of services provided.

Nigel BAPTISTE Managing Director REPUBLIC BANK

Build an attractive industry in Trinidad

October 1, 2018

Nigel Baptiste, managing director of Republic Bank, talks to TOGY about constraints in financing upstream projects, how to boost competitiveness and expand the economy, opportunities and challenges for Guyana’s nascent energy industry and the bank’s growth strategy. With 16 subsidiaries, Republic Bank is one of the largest banks in the Caribbean.

• On upstream financing: “Not everybody can finance the upstream sector. If an institution wants to finance the upstream sector, it must do so as a consortium. It all depends on the ability to offer competitive financing. Even if, for instance, there is a big Trinidadian firm with a great concession and proven reserves, and it is going to generate what it needs from that, I would still advise the company to borrow money outside Trinidad, as it would be more expensive to do so locally.”

• On government subsidies: “Trinidad is not a competitive environment for manufacturing. We may appear competitive, but that is because a lot of the core imports are subsidised. The government ought to erase the subsidies for electricity prices to make Trinidad more competitive. The same goes for the subsidies for the oil and gas sector.”

• On economic diversification: “There is no sector that can do for Trinidad and Tobago what the oil and gas sector does. What the country ought to do is expand the range of services provided. We ought to make Trinidad attractive for people who are involved in distribution and manufacturing. We must look outside of the country to generate some amount of foreign exchange.”

Most TOGY interviews are published exclusively on our business intelligence platform, TOGYiN, but you can find the full interview with Nigel Baptiste below.

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To what extent are banks averse to risk?
The banks in Trinidad were all capitalised and many of us in Trinidad have very good NPRs [net profit ratios] because of the historic vibrancy of the Trinidadian economy. However, no bank in Trinidad and Tobago can lend to any individual borrower by borrowing more than 25% of their assets. Therefore, there will always be a ceiling regarding how much we can borrow. We ought to keep this in mind when we talk about some of our upstream projects, as the size of those will always exceed the 25% cap.
Nonetheless, Trinidad’s corporate sector has been very buoyant, so there is a lot of cash circulating. That cash has worked to be an advantage to our clients, because both their borrowing and servicing needs have decreased. However, the flip side of this is that the foreign exchange ought to be greater because people do not necessarily want to save their cash in TT dollars. This has resulted in a paradoxical situation. Even though many companies are TT rich, they do not want to save their money in TT dollars.

What accounts for the small size of local E&P players?

It is the fact that the resources of the country are owned by the government, which licenses fields for exploration. Firm groups simply bid. Although there have been some smaller E&P players in Trinidad, local companies have limited capital, so many of them cannot take on big projects.
Not everybody can finance the upstream sector. If an institution wants to finance the upstream sector, it must do so as a consortium. It all depends on the ability to offer competitive financing. Even if, for instance, there is a big Trinidadian firm with a great concession and proven reserves, and it is going to generate what it needs from that, I would still advise the company to borrow money outside Trinidad, as it would be more expensive to do so locally.

What is your perspective on calls for Trinidad and Tobago to diversify its economy?
My perspective is that Trinidad is not a competitive environment for manufacturing. We may appear competitive, but that is because a lot of the core imports are subsidised. The government ought to erase the subsidies for electricity prices to make Trinidad more competitive. The same goes for the subsidies for the oil and gas sector.
Regarding the need to diversify the economy, there is no sector that can do for Trinidad and Tobago what the oil and gas sector does. What the country ought to do is expand the range of services provided. We ought to make Trinidad attractive for people who are involved in distribution and manufacturing. We must look outside of the country to generate some amount of foreign exchange.
We also need export incentives. At the moment, Trinidad does not do its rebate within the local system. We have an automatic credit because one challenge that some of our builders have is the need to get back their VAT on imports, and the people selling locally will be able to offset the input and the output VAT. Therefore, if one is exporting, then one has to pay the VAT and then collect it back from the government.
We have to try to provide companies with incentives to export. The government may have to give up on some of the tax proceeds, but in the long run, it will benefit from having additional foreign exchange being generated for the country. We need to keep this in mind when we talk about diversification. It needs to be export oriented.

What are your thoughts on Guyana as an emerging market for the energy industry?
Guyana’s government is being bombarded by visitors with policy suggestions and ideas. I hope the Guyanese government is spending time to properly plan the country’s economic future. At the moment, Exxon is really driving a lot of what is actually going to happen. As an example, a lot of locally owned shops are currently positioning themselves to service Exxon.
Nonetheless, not many of these emerging entities are truly Guyanese and that is a problem. Although Guyana is developing a local content policy, I do not know to what extent it will be enforced. Exxon has tried to provide training for locals, but so far, it seems quite token. A lot of Trinidadian businesses have been trying to establish joint venture arrangements with Guyanese companies. Some local companies have welcomed this, while others have resisted it.
All in all, it is still early days for Guyana, and the population has not yet reaped the benefits of exploration. However, I truly hope the government has been spending its time to plan effectively, to find ways to ensure that the local population benefits from the discovery of oil. The biggest challenge is going to be the lack of experience and knowledge. It will be easy to be taken advantage of, and easy for corruption to take place. That is what the government and people need to guard against.

What is Republic Bank’s growth strategy for 2019-2020?
We are looking to acquire operations in territories that generate hard currencies. We have found that our niche may be export oriented. We have been particularly looking at the northern Caribbean and Africa. We have many projects taking place at the same time. Overall, we are currently exploring new markets and having conversations with multiple people.
Nonetheless, we are also looking to be more efficient in technological terms. We have been developing a major IT consolidation programme that will serve as a base for all our subsidiaries.
We are also looking to see how we can broaden the range of financial services we offer. We are now purely focused on banking and other financial services. Therefore, we are looking at improving our efficiency. We plan to keep broadening the financial services we offer in the existing markets, as well as expand to new markets.

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