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Caribbean Islands Services
Banking, Financial Services, and Currency
Financial institutions expanded rapidly as a result of the oilbased liquidity that the financial system experienced in the 1970s.
This was especially true of nonbanking intermediaries, such as
finance houses, which underwent the fastest growth. In the late
1980s, the islands' financial network included the Central Bank,
various government development organizations, commercial banks,
finance companies, mortgage and trust companies, insurance
companies, a stock exchange, and other business services. Although
legislation granted the Central Bank generous control over the
financial system, bank intervention was generally restrained.
Increasing regulation over nonbanking financial institutions was
instituted in the mid-1980s, however, as several poorly managed
finance companies collapsed and were subsequently rescued by the
Central Bank. The sector as a whole contracted after the country's
assets peaked in 1982. Government policies generally favored tight
monetary policies to restrain inflation and help stabilize national
and international accounts during the post-boom adjustment period.
The Central Bank was established in 1964 and was authorized to
issue currency, regulate credit, buy and sell securities and
discount notes, and underwrite government loans. Although the
Central Bank contained about 30 percent of the nation's assets in
1985, its share was declining as international reserves were being
depleted. The government also owned and managed numerous
development finance institutions, most notably the IDC, the
Agricultural Development Bank (ADB), and the Mortgage Finance
Company (MFC). These organizations controlled about 4 percent of
national finances. The IDC, established in 1959, was the most
important development finance organization and was one of the top
lenders to industry. The portfolio of IDC lending generally
reflected government industrialization strategies and also
contained purely government projects. The ADB was the most
important lender to agriculture, especially to the livestock
subsector. Although the MFC was the key lender to the construction
industry, in 1985 the government created the Home Mortgage Bank to
serve as a major institution in the construction industry.
The country had 8 commercial banks with 117 branches, almost
all of which were controlled by Trinidadian and Tobagonian
nationals as prescribed by law. The process of localization of the
islands' banks began in the 1970s, which eventually placed a large
share of Canadian and British banks in the hands of nationals. The
islands' largest bank was the Republic Bank, formerly the British
Barclays Bank. Commercial banks contained 56 percent of the
nation's assets in 1985. Twenty-seven percent of commercial bank
loans went to individuals, primarily for automobiles, followed by
government, particularly public bodies, with 15 percent,
manufacturing 13 percent, distributive trade 12 percent,
construction 8 percent, and the balance to various other services
and productive activities. Interest rates for deposits and loans
averaged 8 and 12 percent, respectively, in the mid-1980s, roughly
comparable with industrial nations and low compared with most
developing countries. Reserve ratios were freely utilized to
control the money supply and credit; in 1985 the cash reserve ratio
was 17 percent, and the liquidity reserve ratio reached upwards of
22 percent. In 1986 the government introduced the Deposit Insurance
Fund, which protected and insured savings up to about US$14,000.
Nonbanking financial institutions, encompassing finance houses,
trust and mortgage companies, insurance companies, and other
business services, have proliferated since the 1970s. These
institutions contained over 10 percent of the country's assets in
1985, trailing the commercial banks and the Central Bank. In the
mid-1980s, there were twenty-two finance companies with some
seventy-six branches. After the 1984 collapse of International
Trust and the faltering of other nonbanking institutions because of
cash flow problems, the Central Bank increased regulation of these
services. As of December 1985, there were fifty-nine insurance
companies registered on the islands, although some of these were
also faltering. There were eight trust and mortgage finance
companies, devoted mostly to real estate. Unlike other Commonwealth
Caribbean countries, financial services in Trinidad and Tobago were
operated predominantly by citizens of that nation, and laws
specified strict limitations on the extent of the participation of
foreigners.
Trinidad and Tobago also operated a small stock exchange, which
was established in 1981. In 1985 nearly 50 million shares of stocks
were sold, involving over 11,000 transactions at a market value of
US$62 million. The exchange's composite index was declining in the
1980s because of the falling value of most stocks and discouraging
economic indicators. The exchange was limited by extensive
government involvement in the economy and the large number of
family-run businesses, which limited the number of companies whose
shares were publicly traded. In addition, few firms sought the sale
of stocks as a viable way to raise capital, instead opting for
commercial bank loans.
In 1964 the Trinidad and Tobago dollar replaced the British
West Indian dollar as the national currency. Eastern Caribbean
dollars--the common currency of members of the Organisation of
Eastern Caribbean States (OECS--see Glossary) and pegged to the
United States dollar at EC$2.70 equals US$1.00--and other
currencies also circulated. From 1972 to 1976, the Trinidad and
Tobago dollar was floated against the British pound sterling; after
1976, however, the Trinidad and Tobago dollar was pegged to the
United States dollar. The first major depreciation of the Trinidad
and Tobago dollar since June 1976 occurred in December 1985, when
the country's currency was devalued 50 percent against the United
States dollar. As a result of the devaluation, the exchange rate
moved from US$1.00 to TT$2.40 to US$1.00 to TT$3.60. This reduced
international reserves but was expected to increase export
competitiveness. Government foreign exchange controls existed,
particularly for foreign travel by nationals.
Data as of November 1987
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