Republic Bank sits atop the Banking Industry in Guyana. Can it stay there?
October 2007 | By Rawle Lucas
Size Matters
The recent name change to that of Republic Bank gives the National Bank for Industry and Commerce (NBIC) a new identity. While customers are getting used to the new name, the bank continues to assert itself in the banking arena of Guyana. Recognizable or not by its new acronym RB, the Republic Bank remains the most dominant bank in the banking industry in Guyana when measured by size of assets, size of deposits and market valuation. This industry giant, the majority of whose shares are held by the Republic Bank of Trinidad & Tobago, owned 37 percent of the assets held by all banks operating in Guyana in 2005.
With control of over one-third of the assets of the industry, the Republic Bank outpaces its nearest locally owned rival, the GBTI, which accounted for 20 percent of the assets in the banking industry in 2005. The vastness of the Republic Bank becomes clearer when one realizes that it would take all three of the locally owned banks, GBTI, Demerara Bank and Citizens Bank, to match or surpass the total assets and deposits of this long-standing icon of the financial landscape of Guyana. The market power inherent in its asset and deposit size was reflected in a market value of G$7.8 billion dollars at the beginning of the year, twice that of GBTI and nearly four times the market value of Citizens and Demerara Banks combined.
Impact of Corporate Strategy
No doubt the successful integration of the operations of the Guyana National Cooperative Bank (GNCB) in 2003 aided the growth in size and strength of the Republic Bank. The acquisition of GNCB pushed the share of assets of Republic Bank from 26 percent in 2002 to 39 percent in 2003. The corporate merger strategy also helped to boost deposits from 29 percent in 2002 to 43 percent in 2003. The growth strategy also resulted in the successful expansion of a critical income-generating asset, loans and advances, from 26 percent to 32 percent and made it harder for any one of the locally owned banks to challenge it for supremacy. Since its merger, the Republic Bank, despite a slight decline in its share of assets and deposits, has maintained its distance from its rivals in the local banking industry. By 2005, the Republic Bank owned 39 percent of deposits and 33 percent of loans and advances, a stark contrast to its nearest locally owned rival, GBTI, which owned 19 and 15 percent respectively. The remaining two smaller locally owned banks, Demerara and Citizens, held a combined 20 and 25 percent of deposits and income-generating assets between them.
Conservative Posture
Despite its front-runner status, the Republic Bank has opted to pursue a more conservative approach to managing customer deposits. Republic Bank has 68 percent of customer deposits in income-generating assets, the lowest among all the banks referred to in this article. In contrast, Citizens Bank has 86 percent, the largest share of customer deposits working for its shareholders. Demerara Bank, another of the locally owned banks has 78 percent of customer deposits at work while GBTI, the largest of the locally owned banks, has 71 percent of customer deposits in income-generating assets. The conservative posture of Republic Bank is not helping its financial performance. The unwillingness of Republic Bank to take greater risks has resulted in comparatively lower profit margins and lower returns on assets. The banking giant reported return on assets of about 1 percent in 2005 compared to 2 percent for Citizens Bank, the smallest of the commercial banks. As a result, it was no surprise to see the stock price of Republic Bank decline by 15 percent from $26 at the start of this year to $22 in September while that of Citizens Bank remained unchanged.
Financial Flexibility
But Republic Bank has nothing to fear just yet. It has the financial flexibility to increase its income-generating assets. Unlike Citizens Bank that has a mere 2 percent of unused customer deposits available for use, Republic Bank is estimated to have at least 20 percent of its customer deposits that it can tap into for future income generation. GBTI has an estimated 17 percent of unused customer deposits while Demerara Bank has about 10 percent. This means that Republic Bank is in a position to withstand a mild decline in customer deposits without damaging its income-generating ability. The availability of customer deposits is predicated on the assumption that the required reserves will remain unchanged at 12 percent, even though this should not matter since the reserve requirement constrains all banks equally.
Permission required © 2006 Rawle Lucas