Banking Sector – Is the Future Brightening?
David Oxburgh, Chair of the Guernsey International Business Association
Guernsey’s banks remain a vital part of the island’s finance sector, with total deposits of over £90 billion being reported in the most recent statistics published on 30th September 2018.
The 23 banks in Guernsey, which employ over 1,600 island residents, are either branches or subsidiaries of the UK or international banking groups and form the backbone of our local finance sector.
The industry is hugely different now to what it was when I started working in the City more than 30 years ago, but it’s the last decade since the financial crisis where the change has been most marked.
The extremely low-interest-rate environment for much of the period since the financial crisis has necessitated considerable changes in the business models of banks, both here and internationally. Indeed although we’ve had negative interest rates in several currencies for a number of years now, I still struggle with the concept that both banks and their customers are charged interest for holding deposits in currencies such as euros and Swiss Francs, rather than receiving interest on their deposit.
When banks started being charged for holding deposits in certain currencies, it certainly made me wonder whether banking was the business to be in, but as I’ve said, business models have been changed and the industry locally has been fairly resilient through the prolonged low-interest rate environment.
Now that sterling interest rates have increased a little, some of my colleagues in the sector are starting to look slightly less gloomy than usual! However, deposit-taking for many remains a largely unprofitable activity and for this reason, some of the local banks have been increasing their minimum balance requirements or services fees, or are requiring some profitable business, such as assets to manage, to support the provision of banking services.
These conditions, of course, have had a knock on effect to other parts of the sector and are resulting in some fiduciary providers reviewing their models for banking and investment management providers.
When reviewing the Guernsey Financial Services Commission’s (GFSC) statistics for banking it is interesting to note that whilst many of the asset categories are relatively stable, there has been a steady increase in the amount of residential property lending provided by Guernsey banks in recent years with £6.3 billion of such lending in September 2018 compared with £4.4 billion in September 2014.
As in many parts of Guernsey’s finance sector, there is an increasing focus on developing and improving digital channels and on innovating more generally. In my mind, that’s encouraging as Guernsey’s finance sector, and in turn, the island’s economy and the government’s tax take, does best when we’re innovating. Our relatively small size and the close working together of industry, government, the regulator and the promotional agency should allow us to be agile and capitalise on opportunities as they come along.
The financial sector policy framework published in the Autumn set out an approach to creating leadership for Guernsey’s finance sector built on a range of global specialisms. The five key action areas are:
– Green and sustainable finance
– Family office and private wealth services
– Fintech: electronic AML and distributed ledger technology
– Funds: global distribution and product development
– Wealth management, investment and brokerage services
The first area of focus has been on green and sustainable finance. We’re just getting started, and already Guernsey has the world’s first regulated green fund regime, the International Stock Exchange has launched TISE Green, and the regulator is consulting on green insurance. It’s clearly early days but initial signs are encouraging, so I’m hoping the co-ordinated and targeted approach on the five areas I’ve outlined will help deliver the intended growth and sustainable long term future for the finance sector, of which the banking sub-sector is such an integral part.
Taking this together with the stability we offer as a jurisdiction at this time of uncertainty and change I believe the future for Guernsey’s banks and its finance sector as a whole is positive – and more so than it has been for some time now.