Belize seeks urgent US intervention to avert banking crisis

Belize’s banking sector has been grappling with the domino effects of the decision taken by Bank of America and Commerzebank, two leading banks, to sever correspondent banking relations with both offshore and domestic banks in Belize.

Immediately, Belize banks had to find alternate arrangements to ensure that trade would not suddenly come to a screeching halt, but even those alternate arrangements now seem to be threatened, and latest information to the press is that credit card settlements could be in jeopardy, which would not just affect Belizeans conducting purchases at home and abroad, but also tourists trying to settle their transactions while in the country.

Prime Minister and Minister of Finance Dean Barrow told journalists this week that there is “…no doubt at all that we are absolutely facing what is an existential threat; and I am determined—as are the individual banks in this country—to ensure that we do everything that we possibly can and that we continue to go at this thing from every conceivable angle until we can find a lasting solution.”

He said that he has met with the US Ambassador to Belize to discuss the issue and through Belize’s Ambassador to the US he has been trying to arrange meetings with officials from the US State Department, the US Treasury, and the regulatory agencies – the US Office of the Controller of Currency and the Federal Deposit Insurance Corporation (FDIC). He plans to also seek interventions from the World Bank and the International Monetary Fund (IMF).

When Belize Bank, the country’s largest domestic bank, lost its correspondent banking relations with Bank of America last April and had to put in place alternative arrangements to serve customers, Belizeans were told that the impact only extended to transactions such as wire transfers, but that credit card settlements were not threatened. But less than a year later, things have apparently changed.

The wave of cutoffs of correspondent banking relations first began among the offshore banks in Belize, which have all been impacted, and then it made its way into the domestic banking sector, and particularly the local banks with international banking enterprises, with Belize Bank International being the first to take a hit.

Those banks have since worked out alternate correspondent banking relations with banks outside the US or with smaller community banks in the US, but even those banks, fearing repercussions brought by US authorities, are trying to shed their newly established relationships.

Barrow told the media this week that “…in the case of credit card settlements, it’s a community bank that had agreed to do that for Belize Bank and for Heritage [Bank], after the correspondent banking relationship was cut off by Bank of America. That bank has now indicated that by the middle of next month, it is looking to discontinue even that sort of less comprehensive relationship; so even the question of the credit card settlements is now in some jeopardy.”

“This is a problem that the international policy makers such as the US, the EU, the IMF, the World Bank are slow to acknowledge and act on; thus like us, a lot of other countries have visited Washington to spread awareness and seek an expeditious resolution,” Central Bank Governor, Glenford Ysaguirre, told Amandala today.

“It is potentially a crisis. In fact I don’t want to overstate things but if we don’t find a solution one way or another it is going to be a huge crisis,” Barrow told the media this week, when he announced his intent to visit Washington to discuss the situation with key officials there.

Barrow said that when he raised the issue with US President Barack Obama, the president had expressed his willingness to try and have the US help Belize find a solution, but so far, nothing has happened.

Barrow said that, “…government now is going to step up the official effort to try to get some kind of progress out of US regulators, out of the US public sector and out of the US tier one banks.”

“After losing Bank of America, three of those banks were able to make arrangements with a smaller US bank to handle the net settlement of their credit card activities with Visa, Master Card and other electronic payment companies,” Ysaguirre explained.

“For example, our local banks are affiliates of these credit card companies and are thus authorized to issue credit cards to their customers and offer point of sale (pos) services to merchants to accept credit card payments under the Visa and Master Card logo.

“However, they must maintain an account in the US to receive their net inflows or settle the net outflows, whatever the case may be, with Visa or MC. It is these three banks that the PM referred to that may lose those credit card settlement accounts,” Ysaguirre further stated.

Ysaguirre told us that the Central Bank of Belize (CBB) is doing its best to work with and assist banks in Belize to cope with the situation.

“We have some options we are exploring to mitigate further impact if necessary, but I do not wish to discuss them at this juncture,” he indicated.

The Governor assured that, “The Government, the CBB and the Belizean banking community are working assiduously and very proactively to address this issue on all fronts—politically, diplomatically and operationally.”

While it has been said that Belize is the hardest hit, Ysaguirre told us, “Just last week, I received information from a CARICOM colleague that said [that] Barclays London intends to sever ties with all Jamaica.”

He added that, “Perhaps, due to the size of our market [in Belize] and because most of our banks had only [Bank of America] the impact has been pronounced for us. But, I can say that money transfer businesses in the Caribbean—which is a larger part of their economy than ours—are just as hard hit by de-risking.”

Barrow, who is chairing CARICOM from January to June 2016, said that the question of correspondent banking relationships would feature very prominently on the agenda for the Heads of Government meeting due to be held in Placencia, Stann Creek, Belize, next month.