There are five commercial banks on the island, all of which offer similar options to businesses in need of short and long term financing.
Typical credit solutions offered by commercial banks include:
Overdrafts are financial safety nets that provide businesses with funds in excess of current account balances for a short period of time. Overdrafts are commonly used by businesses to fund fluctuating working capital requirements and to meet short term funding needs. Overdraft limits are based on client needs and the respective bank’s risk appetite. In general, overdrafts are reviewed annually and may be collateralised. Interest rates on overdrafts vary depending on circumstance; however, rates usually range from prime + 2% to prime + 4%. Exceptional clients may be able to negotiate lower rates depending on factors such as the strength of their security, credit worthiness and banker/client relationship.
Terms loans are one of the most popular funding solutions. Term loans range in tenor from 3-5 years (at the short end) to 10-15 years (at the longer end). The tenors of loans for foreign controlled entities are usually shorter than those for locally owned institutions. In general, secured loans have lower interest rates than unsecured loans. Also, rates on collateralized term loans are generally lower than those on typical overdraft facilities. The final interest rate charged is a function of collateral, cash flow forecasts, credit worthiness, leverage, etc.
Commercial and Residential Mortgages
Mortgages are often used to fund capital expenditure (capex) projects and to purchase real assets. Oftentimes the lender will hold a first or second charge over the property as security. The loan size and repayment terms will be influenced by the value of the property amongst other factors. Commercial mortgages generally provide 60%-70% of the funds needed for capex. Mortgage tenors are usually for at least 10 years.
The following chart illustrates the average lending rate charged by commercial banks on loans to prime customers over the past ten years ).
Source: Trading Economics, Central Bank of Barbados, PwC Research
Offshore Banks and Merchant Banking
Almost all of the large commercial banks operating in Barbados have an offshore affiliate that can assist foreign investors and companies in securing financing.
Local merchant banking services are also available for large transactions. These banks can facilitate financing on a regional basis. In general, merchant banking services are geared towards entities that require significant amounts of long term capital. Funds may be raised via syndicated loans or the issuance of bonds, rather than through traditional term loans or mortgages. Local asset managers and institutions seeking attractive interest rates are often the largest purchasers of these issues.
Below is a list of the commercial banks with operations in Barbados. Investors are encouraged to visit their websites for more detailed information on the financing options that they offer.
The Royal Bank of Canada
RBC is Canada’s largest bank in terms of assets. RBC has been a major player in the Barbados banking industry for over 50 years. In 2008, RBC acquired the assets of RBTT Bank (Barbados) Limited. RBTT was re-branded in early 2012.
The Bank of Nova Scotia (Scotiabank)
Canada’s second largest bank also has a long history of operating in Barbados as well as throughout the Caribbean and Latin America.
CIBC FirstCaribbean International Bank
Headquartered in Barbados, with a wide regional network, FirstCaribbean International Bank was formed in 2002 following the merger of CIBC West Indies Holdings (a subsidiary of the Canadian Imperial Bank of Commerce) and Barclays Bank PLC Caribbean (a subsidiary of the UK based Barclays Bank PLC). In 2006, CIBC acquired all of Barclays’ shares in the new entity becoming the majority shareholder, with approximately 92% of outstanding shares. In 2011 the bank was rebranded to CIBC FirstCaribbean International Bank.
Barbados National Bank
Barbados National Bank was formed as a commercial bank in 1978 by the Government of Barbados. In 2003, Republic Bank Limited, whose headquarters are in Trinidad, became the majority shareholder of the firm and presently owns about 65% of outstanding shares.
The Bank of Butterfield
Butterfield Bank which is headquartered in Bermuda, began local operations in 2004. In mid 2012, First Citizens Bank of Trinidad and Tobago announced its intention to purchase Butterfield’s local operations, subject to regulatory approval. Butterfield is the smallest commercial bank operating in Barbados. Source: Central Bank of Barbados Economic Review – June 2010