Cibc Chief: Banks ‘Convenient Targets’ For Tax, Politicians

CIBC FirstCaribbean’s regional chief yesterday said commercial banks were “convenient targets” for increased taxes and scapegoating by politicians, warning that this slowed their bottom line recovery.

Rik Parkhill, speaking ahead of its Bahamian subsidiary’s annual general meeting (AGM) last night, warned that the asset-based nature of the sector’s tax structure also had the potential to slow its rebound.

Bahamian commercial banks have had to contend with a sharply increased tax burden in recent years, just as losses related to higher bad loan provisioning, reduced collateral values and a slower-than-expected economic recovery increased.

The Government, seeing the sector as a rich revenue source amid its own fiscal travails, imposed a 3 per cent Business Licence fee-type tax on the sector’s gross income in the 2013-2014 Budget, while maintaining the existing asset-based fee structure.

The multi-million dollar impact from this was first felt in increased commercial bank expenses in 2014 and Mr Parkhill, while acknowledging the Treasury’s needs, said it would impact net income growth.

Still, Mr Parkhill said the increased tax burden would not throw CIBC off track on its return to increased profitability, with its Bahamian subsidiary’s profits for the three months to end-January 2015 up 66.7 per cent year-over-year at $15.3 million.

“The path to profitability is pretty well entrenched at this time,” Mr Parkhill said. “An increased tax burden makes the ascent speed more difficult, particularly in how some of the taxes are structured around assets, not profitability.”

The Bahamas’ current tax structure takes its payment from commercial banks’ top-line revenues, and Mr Parkhill, while understanding the Government’s fiscal situation, said the increased burden was imposed just as CIBC suffered two years of consecutive losses in this nation.

“We were a convenient political target,” he added, referring to both the increased taxes and recent criticisms of the commercial banking industry by senior Bahamian politicians.

Prime Minister Perry Christie recently lashed out at the sector for creating “modern day economic slaves” through “cajoling” customers into taking out high-interest consumer loans that were repaid via salary deductions.

Mr Parkhill, though, pointed out that commercial banks had an obligation to safeguard their depositors’ funds while simultaneously generating the necessary returns on its loan portfolio.

Failure to achieve either objective, the return/availability of depositor funds and profitability, would “shake confidence” in the bank.

Mr Parkhill, meanwhile, said CIBC FirstCaribbean had “met all our milestones with Foreign Account Tax Compliance Act (FATCA) compliance”, but added that the exercise had been “costly”.

So-called ‘Model 1’ jurisdictions such as the Bahamas must start reporting all accounts and financial entities with US beneficial ownership, and their incomes, to the Internal Revenue Service (IRS) and US Treasury by September 1, 2015.

Marie Rodland-Allen, CIBC FirstCaribbean’s Bahamian managing director, confirmed that the institution was “on target” for FATCA readiness, and working closely with its Canadian and regional parents.

“This is not something the Bahamas operation can do on its own,” she said. “We are well on our way to being FATCA compliant, and the team is fully engaged.”

Mr Parkhill added that the level of commercial banking regulation was only likely to increase, and was being driven by both international and extra-territorial initiatives plus regional supervisors.

“It shows no sign of abating, and there are certainly some legitimate reasons why the regulators are demanding better compliance and more stringent compliance, but there tends to be a regulatory pendulum,” the CIBC FirstCaribbean regional chief said.

“We’re at one side right now, and I think it’s going to increase. The skill…. we’re going to have to bring to this to make our expenditure as efficient as possible, and get the greatest bang for our buck in terms of compliance spend.”

Mr Parkhill said that while CIBC FirstCaribbean would “certainly be more choosy” in terms of the investors and projects it financed, there was “no intention of abandoning the tourism and hospitality industry”.

“We haven’t abandoned the hospitality or tourism industry and lending to that part of the economy,” he confirmed. “It’s such a mainstay of the Caribbean, and you can’t be a Caribbean bank if you do not participate in that.”