Government ministries in at least two countries have flagged concerns over Bank of Nova Scotia's decision to sell its banking operations in several Caribbean nations to Republic Financial Holdings Ltd., raising questions as to whether the US$123 million deal will be able to pass all of the necessary regulatory hurdles in its current form.

Under the deal, announced in late November, Trinidad & Tobago-based Republic Financial will acquire Scotiabank's banking operations Guyana, St. Maarten and seven Eastern Caribbean territories. The agreement is subject to regulatory and other customary approvals and conditions.

While the deal is mainly one of expansion — seven of the nine countries involved are new to Republic Financial — government officials from both Guyana and Antigua and Barbuda have publicly criticized the agreement and suggested that they may reject the deal or force alterations to it.

However, Republic Financial CEO Nigel Baptiste told S&P Global Market Intelligence that he's confident the deal will move forward as-is once regulators dig into the full merger plan.

"The only surprising aspect of the statements is the speed with which they were issued since we have not yet presented the business propositions to the relevant authorities," he said. "We do believe that we can address the concerns without altering the deal."

In Guyana, authorities' issues mainly revolve around market concentration. Republic Bank (Guyana) Ltd. already holds 35.4% of Guyana's banking system assets and 36.8% of its deposits; the deal with Scotiabank would push both of those figures to 51%.

"This raises concerns about an over-concentration of banking services, market domination and the 'too big to fail' risks," the finance ministry said in a statement. It also pointed to concerns surrounding potential job losses and correspondent banking options.

In Antigua and Barbuda, Prime Minister Gaston Browne claimed that Scotiabank failed to follow regulatory protocol in striking the deal and is urging the bank to offer local players the chance to bid on the assets first.

"[Scotiabank's] decision to sell the operations in Antigua and Barbuda, without the requisite consultation and agreement of the regulators and the Government of Antigua and Barbuda, is unacceptable," Browne, who is also Antigua's finance minister, wrote in a letter to Scotiabank's country manager.

Antigua pushes for local sale

In stressing that his government will have to approve any divestment, the Antiguan prime minister said he would "strongly commend that such divestment should be offered first to local banks as the priority." A consortium of local banks has already expressed an interest in buying the assets, he said.

Republic Financial's Baptiste, however, said the prime minister's assertion that the companies missed a step in not consulting regulators prior to the announcement is misguided. "I don't want to be too critical, but I don't believe that is correct," he said.

As for Browne's wish that Scotiabank open bidding on the Antiguan assets to local banks, Baptiste argued that "the value proposition of a regional bank — that can facilitate trade relationships across the various territories within which we operate; the governance structure that we propose for our [Eastern Caribbean] holdings, and the job security for all Scotia staff on the islands — will be stronger than that associated with a collection of local banks taking over a competitor."

Market concentration in Guyana and Grenada

Baptiste is also confident that Guyanan authorities' market concentration concerns will be addressed once they dig into the balance sheet.

"In the case of Guyana, we believe that their concerns re concentration will be assuaged when the breakdown of the deposit and loan concentrations is examined," he said, noting that Scotiabank's operations in the country are focused mainly on the retail and residential sectors while Republic Financial has a broader book of business with larger exposures to the government and business sectors.

"We believe that a breakdown of the concentrations by sector will yield a different perspective to an analysis based on aggregate numbers," Baptiste said.

And while Guyana has raised the red flag, in Grenada, where the deal would see Republic Financial bolster its market share to roughly 45% of both total assets and deposits, Prime Minister Keith Mitchell largely dismissed competition concerns and welcomed Republic Financial's expansion, as it means a Caribbean institution would be "playing an even bigger role" in the country's banking system.

"I always believe in a lot of competition, and while we see less competition, the fact is we still have diversity in the banking sector," Mitchell said according to local news reports, noting that Grenada Co-operative Bank Ltd., which has a roughly 30% deposit market share on the island, will still serve as a rival.

Future Caribbean expansion

Republic Financial's Baptiste noted that the Scotiabank deal, which comes on the heals of its bid to acquire Cayman National Bank Ltd., is part of an ongoing strategy to diversify the company's income streams and strengthen the currencies in which it operates.

"The Cayman National transaction and this Scotia agreement present us with various paths towards fulfilling that," he said.

The CEO added that the bank has "some interest" in expanding into other geographies across the Caribbean, including Bermuda, the Bahamas, Jamaica, the U.S. Virgin Islands and Turks & Caicos.

"We have been actively exploring, with the assistance of various advisers, opportunities in the Northern Caribbean as well as deepening our footprint in some familiar markets," he said.

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