As indicated by the World Economic Forum’s “Global Competitiveness Report 2014-15”, Trinidad and Tobago has a number of attributes that are conducive to the development of financial services. Although the country was the 89th-most-competitive out of 144 assessed globally, T&T was ranked 38th for its macroeconomic environment, 52nd for infrastructure and financial market development, 69th for business sophistication and 77th for higher education and training.
Accounting for about 16% of GDP, the broadly defined financial services sector of T&T (including insurance and real estate services) is the second-largest part of the economy after the petroleum industry, which generates about 38% of value added.
Within the sector, there are a number of strong segments. The leading insurance companies in T&T operate across the Caribbean have benefits of scale. The T&T International Financial Centre has facilitated the establishment of back- and middle-office service centres in the country by leading Canadian banks. The eight banks active in T&T are well capitalised and backed by either the state or by large multinational groups. Furthermore, the regulatory environment is benign.
An additional strength of the sector is that it includes four specialist government-backed institutions, which focus on particular policy objectives for the finance sector. Three – T&T Mortgage Finance Company (TTMF), Home Mortgage Bank (HMB) and the Agricultural Development Bank of T&T (ADB) – have been identified by the central bank as systemically important. The fourth is Export-Import Bank of T&T (EXIMBANK).
TTMF is an agency that originates mortgages for first-time homebuyers. The agency is 51% owned by the National Insurance Board of T&T (NIBTT), the central institution of the social security system, and 49% by the government. TTMF operates through its head office in Port of Spain and has branches in Arima, Chaguanas, San Fernando and Tobago.
Loans at a variable rate of 2% are available for customers with a monthly income of TT$10,000 ($1542) or less, and where the value of the property is TT$850,000 ($131,100) or less. Loans at a variable rate of 5% for the first five years are available where the monthly income of the head of the household is TT$30,000 ($4626) or less, and where the value of the property does not exceed TT$1.2m ($185,000).
TTMF also provides mortgage insurance cover in conjunction with Cuna Caribbean Insurance that guarantees the repayment of the loan in the event that a mortgagor dies. In 2013 TTMF offered 6% fixed-rate loans. Over the course of that year, total assets rose from TT$3.5bn ($539.7m) to TT$3.7bn ($570.5m). These figures included an increase in the mortgage portfolio from TT$3bn ($462.6m) to TT$3.2bn ($493.4m). TTMF funds its activities mainly through the issuance of long-term bonds and through the sale of mortgages into the secondary market.
HMB was set up in October 1986 in response to a report from the International Finance Corporation (IFC), which had identified an acute shortage of affordable middle-income housing. The IFC also noted that mortgage-lending volumes were considerably below potential demand. The solution proposed was the creation of an organised secondary market for mortgages. HMB became the key institution in T&T’s secondary mortgage market.
HMB’s mission also includes “the mobilisation of savings for investment in housing, support [for] the development of a system of real property and housing finance”, and the promotion of “the growth of the capital market”. HMB buys mortgages from TTMF and from private sector banks. It also originates loans itself, which account for around 40% of the total loan book.
As a loan originator, HMB covers the full range of mortgage loan value, with an internal approval limit of TT$5m ($771,000). Mortgages are provided through the head office in Port of Spain, although HMB is due to be opening an additional office in Chaguanas.
Rawle Ramlogan, the CEO of HMB, told OBG that the institution has several competitive advantages. It has a clear focus on mortgages, lending for home acquisition, land purchase, construction, equity financing and multi-family residences. HMB also provides reverse mortgages. Loans up to TT$5m ($771,000) are approved in-house, which means the approval turn-around time is faster than at other banks. Furthermore, there are no upfront fees and no penalties for early prepayment.
In 2014, HMB's mortgage portfolio grew by TT$386m ($59.5m); TT$123m ($19m) originated in the primary market and the difference was purchased on the secondary market. At the end of the year, total assets amounted to TT$2.3bn ($354.7m). These included TT$514m ($79.3m) in loans and advances and TT$1.7bn ($262.1m) in investment securities, including TT$1bn ($154.2m) in equities and TT$645m ($99.5m) in fixed-income securities issued by the government and state-owned companies. Funding liabilities amounted to TT$1.1bn ($169.6m), while capital items amounted to TT$474m ($73.1m). The company’s net income, which has experienced a 6% yearly decline after having grown steadily since 2010, totalled TT$76m ($11.7m).
HMB funds its activities through four channels. First, it can issue unlimited amounts of taxable bonds. These are registered with the T&T Securities and Exchange Commission (TTSEC), the financial markets regulator, and qualify as suitable assets for the statutory deposits and statutory funds of insurance companies. The bonds are generally long dated and are attractive to pension plans. HMB can also issue up to TT$600m ($92.5m) in tax-free bonds. They are attractive to corporate clients and general insurance companies. Since 1999, HMB has issued guaranteed mortgage investment certificates. These are secured collateralised mortgage obligations, which can be structured – in terms of interest and repayment specificities – to meet the exact requirements of the investors. Guaranteed mortgage investment certificates give the investing public the chance to hold mortgage-backed assets without committing to individual mortgages over the long term.
Finally, since December 2001 HMB has managed the Mortgage Participation Fund (MPF), a mutual fund, backed by mortgages and registered with TTSEC. It is run along the lines of a money-market fund, with interest accruing on a daily basis. Inflows into the MPF are met by transfer of mortgages from HMB’s balance sheet. Data from Valuehorizon shows that the assets under MPF management were TT$500m ($77.1m) at the end of March 2014. The variable rate of return (reviewed monthly and equal to 1.35% at the time of writing) is guaranteed by HMB, which keeps the spread between that rate and the rate paid by the mortgage borrowers. Total mortgages serviced by HMB, including those that have been transferred to MPF, amount to around TT$1bn ($154.2m), according to Ramlogan.
HMB’s 2013 annual report noted that PwC had been appointed to examine the possibility of a restructuring of ownership and operations of TTMF and HMB. Media reports since 2011 have alluded to the potential merger of the two organisations and their listing on the T&T Stock Exchange by way of an initial public offering. Whether such a transaction will take place, and on what terms, will ultimately be determined by the NIBTT, which is the controlling shareholder of both TTMF and HMB.
The ADB is a classic agricultural development institution. It provides loans on soft terms to primary producers and agribusiness operations. Wendy Samsundar Beharry, the ADB’s corporate manager of business development, told OBG that the institution’s definition of agribusiness generally extends to all the business activities involved in “taking food from the farm to the plate”. Loans can be for working capital or for capital investment (i.e., in land and/or equipment). The ADB will generally lend up to 80% of the project cost. At present funding comes from retained earnings and from the government, which owns 97% of the bank and is moving to 100% ownership. A combination of sector challenges and a change in government strategies have shifted the ADB’s focus to traditional farmers over the years, resulting in a decline in lending to new entrants from 2010 to 2014.
The country’s only official export credit agency, EXIMBANK, was formed in 1997 out of the T&T Export Credit Insurance Company, which had been established in 1973. EXIMBANK funds its operations through lines of credit from commercial banks as well as through retained earnings. Claims that are due and payable by EXIMBANK are guaranteed by the government, which owns the agency.
EXIMBANK offers a total of four products: post-shipment financing (factoring of invoices for goods or services provided to export customers); pre-shipment financing (a short-term facility to fund inventory prior to export); demand loans (finance for equipment upgrades and/or renovation of premises); and export credit insurance (cover against default by foreign buyers of goods or services). EXIMBANK’s unaudited accounts showed total assets and capital items of TT$402m ($62m) and TT$192m ($29.6m), respectively, at the end of June 2014. Profit after tax for the year to June 30, 2014 amounted to TT$987,000 ($152,195).
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