RBC's sale of Jamaica operations reflects bleak vision of local economy

The Royal Bank of Canada's decision to exit Jamaica via the sale of its local operations to Sagicor Bank last month reflects a bleak vision of the Jamaican economy's future growth prospects, says Aubyn Hill, CEO of Jamaica-based consultancy Corporate Strategies.

RBC has been accumulating losses in Jamaica for around five years, but the bank has deep pockets and generally takes a long-term view, so its decision not to hold firm in Jamaica indicates a perception that Jamaica's long-term future does not look bright.

Jamaica has a "punishing and crippling debt burden which will take two or more generations to clear," explains Hill. This, in combination with a "dearth of local and foreign investment in the economy" will have convinced RBC that Jamaica's prospects are "too risky, too bleak and too potentially unprofitable" to stay the course.

Where RBC has seen unsustainability, however, Sagicor has clearly seen opportunity.

Given the negligent growth rate of Jamaica's economy, it makes sense that M&A is seen as the preferable route to rapid growth, as opposed to organic expansion.

The acquisition fits neatly into Sagicor's publicly stated policy that it aims to become the third-largest bank in Jamaica in 10 years, says Hill, adding that the bank's dominance in the insurance sector, with about 500,000 customers, also gives credence to the acquisition.

Sagicor Group announced the agreement to acquire RBC Royal Bank Jamaica for an estimated 9bn Jamaican dollars (US$83.9mn) at the end of January.

The deal is still subject to regulatory approval and is expected to be finalized "in the coming months," according to a Sagicor press release.

"This transaction allows us the opportunity to have a substantial distribution network and to provide value added services to our clients through more branches and ATM locations island wide," the bank said at the time.

Sagicor received its commercial banking license in 2008 as the then Pan Caribbean Bank.