First Citizens has long been considered the people’s bank, mainly because its primary shareholder is the State, but for chief executive Karen Darbasie, it goes well beyond that.
“We are here to stay. That you know for sure. It’s not like First Citizens can pull up roots and say we are de-banking the population of TT and going elsewhere. We also have as our philosophy ensuring that as wide a portion of the population has access to the banking system as possible,” Darbasie told Business Day in a recent interview at the bank’s corporate offices on Queen’s Park East.
The bank will not turn away anyone, once they satisfy basic “know your customer” requirements and aren’t putting the bank at risk, she said. It’s one of the ways the bank tries to live up to its slogan, putting people first.
The State owns about a 60 per cent shareholding in First Citizens, but through an initial public offering of just about 20 per cent of ordinary shares in 2013, followed by an additional public offering of 25 per cent in 2017, the public was able to participate in the ownership of a public asset.
“By listing the shares, rather than hold them as custodian for taxpayers of the country, (the government) allowed the taxpayers to directly own the shares.
"It really hasn’t changed our behaviour, because we have always been conscious of the fact that the...bank, whether it be directly or through the Ministry of Finance, was for the betterment of the wider public of TT. We’ve always been clear who our stakeholders are. We have shareholders and we have customers, but because the population benefits from the dividends and taxes that we pay directly through the main shareholder, we’ve always been conscious that it’s the taxpayers who really own the bank,” Darbasie said.
Because of the that, the bank has insisted that its dividend payouts benefit the shareholder, despite an increased corporate tax rate for banks, which would naturally reduce the profits attributable to shareholders.
“We wanted shareholders to benefit a little more, despite the increasing tax rate. It’s an important point, given the very diverse nature of our shareholder base. We have a lot of individuals who bought in the IPO and APO at very small volumes of shares. It’s really speaking to small investor who put out their money and showed confidence in investing in the institution,” Darbasie said.
In 2017, Finance Minister Colm Imbert announced in the budget that the corporate tax rate for banks would increase from 30 to 35 per cent, from the start of the financial year 2018.
“Tax is tax. It doesn’t affect us in terms of efficiency but it affects us in terms of returns to shareholders,” Darbasie noted.
That’s why she prefers to use profits before tax as a better indicator of the bank’s performance.
In financial year 2018, for example, the bank made a profit of $1.01 billion, 15 per cent more than the $876.4 million the year before. Profit after tax, however, was $673.7 million, just five per cent over the $642 million in 2017. Notwithstanding, the bank increased its dividend per share from $1.40 to $1.50.
The bank’s efficiency ratio – costs over revenue – has also been increasing year-on-year, meaning it is spending less to produce the same level of revenue.
"This is a very positive indication for us as an institution,” Darbasie said.
Over the coming year, the bank is focusing on two key strategies to improve that ratio even more – increasing its loan portfolio and moving towards a centralised shared services processing centre.
The bank has already started to switch its focus from investments to loans.
“This is a very important switch in the dynamic, because investments, even if they are liquid and can be sold easily, have lower returns than loans. If (the loans portfolio) is generating a higher return than (investments) it means overall as we grow, we will be generating a better return on assets, which will allow us to pay better dividends to shareholders.”
But will the increase in loans also result in increased risk of default?
“We have not varied from our credit discipline, and it's reflected in non-performing loans (NPL) ratio, which is quite small. That says we can take a bit more risk. But we have not veered from our credit policy adjudications,” she said.
First Citizens has an NPL of three per cent, which is just a touch below the country average of 3.3 per cent.
The bank is focusing on growing in the mortgage space, Darbasie said, as well as in the commercial space, specifically among the middle-sized corporations.
“We feel as the economy turns around, those are the companies that are going to experience growth and also the ones that are pushing forward very steadily into an export market, and where we will see the diversification and foreign exchange coming from.”
In terms of shared services operations procedures, Darbasie acknowledged that First Citizens was the last among the big banks to take these middle – and back – office operations out of the branches and into a more centralised location. The shared services campus will be in Aranguez, and the move is expected to happen sometime in this financial year.
“There are pros and cons of being last,” she quipped, “We can learn from the mistakes (of the others), although we are the last to benefit for having that avenue for growth without increasing expense.”
While it won’t necessarily cut costs, it won’t add to them either, Darbasie noted, but rather, would provide economies of scale that should allow for increases in revenue – and ultimately, better returns for shareholders.