Barita mulling commercial bank
Published:Wednesday | January 22, 2025 | 12:07 AMNeville Graham/ - Business Reporter
Barita cleared another hurdle on Monday when it when it got shareholder approval for a new scheme of arrangement that will see its reorganisation and formation into a financial holding company to be known as Barita Financial Group Limited, a new entity that will become the parent company for Barita Investments Limited.
As part of the transformation of the group, its leadership said Monday that they plan to set up a commercial bank, which would also become a subsidiary of Barita Financial.
Such a move requires a commercial banking licence from the Bank of Jamaica, BOJ, the regulator of the banking sector.
Barita Financial Group CEO-designate Dane Brodber, told shareholders that Cornerstone Trust & Merchant Bank was for the time being the one deposit-taking institution in the proposed Barita Financial Group, which plans to “eventually gain commercial banking status”.
“Obviously, it’s subject to regulatory approval. As we contemplate plans, it’s among the things that we’re thinking about,” Brodber told the Financial Gleaner after the vote on Monday.
“We can’t say anything specific in terms of the way to implement it. We are some way off at this time,” he said.
The early consideration is to transform CTMB into a commercial bank, for which there is precedent. At least one other financial conglomerate has done it before, JMMB Group Limited, which transformed Capital & Credit Merchant Limited into JMMB Bank Jamaica, subsequent to its acquisition of Capital & Credit Financial Group Limited.
“The capabilities of a merchant bank is a subset of that of a commercial bank, so among the things we’re thinking is to make the services available to our customers,” Brodber said.
As to whether, the application had yet been made to the central bank: “We’re in the process as we contemplate how we can deliver” banking services, he said.
CTMB is currently Jamaica’s only merchant banking operation with assets of $8.3 billion and a loan portfolio estimated at about $4 billion at last disclosure of industry data by the central bank.
Its transformation would erase the merchant banking market altogether, while adding a ninth player in the commercial banking market but slimming the DTIs to 10 operations.
Comparatively, CTMB today is less than a third of the smallest commercial bank, that is, Citibank Jamaica, which at September 2024 held assets of over $27 billion.
Jamaica’s banking system currently comprises 11 deposit-taking institutions, or DTIs – eight commercial banks, two building societies, and one merchant bank.
The commercial banking sector is valued at $2.5-trillion in assets and $1.3 trillion in loans. The sector is the giant of the banking system, with all 11 institutions valued at $2.7 trillion.
Barita is the latest of several financial institutions that have restructured to conform with changes to the banking laws, specifically the Banking Services Act of 2014, which requires financial groups that own banking operations to reorganise and place their regulated entities under a new holding company.
Under Barita’s restructuring programme, Barita Investments Limited will be delisted while Barita Financial Group Limited will list on the stock market.
“After the reorganisation, you will continue to be a shareholder in Barita in the same way you were before, and Barita will continue its operation as it did before, including being listed on the Jamaica Stock Exchange,” said Chairman Mark Myers said at the meeting.
Elaborating on the need for the reorganisation CEO designate Dane, Brodber said it will facilitate consolidated supervision by the Bank of Jamaica. It will allow the central bank to understand the combined financial resources and risks of a group of financial services entities, which may not necessarily be as evident when looking at them individually.
“What that means is greater regulatory oversight to ensure the protection of stakeholders. Given that the Cornerstone Group includes a DTI in the form of Cornerstone Trust and Merchant Bank Limited, and a securities dealer licensed by the Financial Services Commission in the form of Barita Investments Limited, it is required to reorganise itself so that both CTMB and Barita are held by a financial holding company,” Brodber explained.
He said apart from legal compliance as a basic requirement, the Cornerstone Group anticipates that once the reorganization to which the BOJ has issued its non-objection is completed, operational benefits will flow.
“We expect an increase in operation efficiency as we streamline operations and unify best practices across subsidiaries, which will lead to an enhanced ability to pursue attractive strategic opportunities for future acquisitions,” Brodber said.
Referencing entities within the Cornerstone Group, namely Barita Investments, Barita Unit Trust Management Company and Cornerstone Trust and Merchant Bank, Barita Investments CEO Ramon Small-Ferguson added that the new structure will simplify the lines of ownership and comply with the law while reflecting the total assets of Barita Financial Group and parent company Cornerstone Financial Holdings.
CTMB is currently held by Cornerstone United Holdings Jamaica Limited but under the reorganisation, it will become a subsidiary of Barita Financial, as will Barita Investments and Barita Unit Trust.
The most recent estimate of the size of Barita Financial Group was dated June 2023, when the assets were valued at $129 billion. Comparatively, Barita Investments’ assets were then valued at $124 billion.
More recently, the size of Barita Investments assets was reported at $142 billion at year ending September 2024, up from $128 billion, while its annual earnings ticked up to $3.81 billion, from $3.41 billion the previous year.
At Monday’s meeting, 82 per cent of the vote was in favour of the scheme, satisfying the Companies Act, which requires holders of at least 75 per cent of the shares in issue to approve the reorganisation plan, whether by ballot or by proxy vote.
The voting was marshalled by the Jamaica Central Securities Depository.
The scheme requires final approval from the Supreme Court.