Belize has a population of 232,000, five commercial
banks and a handful of credit unions.

Few Belizean farmers hoping to improve the quality of their citrus harvest bother to apply for a loan at one of the country’s five commercial banks. Lending rates average 15%-16% in Belize and are considerably lower than in other parts of Central America.

The trouble is that the bank will require collateral, and since Belize has no reliable system of land records, few farmers have deeds. As a result, few farmers can borrow.

“Titling is a total mess here, as it is in many former British colonies,” says Hugo Souza, the Inter-American Development Bank’s country representative in Belize. “A lot of farmers in the south can’t access credit because they don’t have titles to their land. Our land management program is aimed at developing the capital markets.” The IDB has approved $7 million in loans for the government to survey and document land ownership in order to help develop the country’s financial system.

The financial markets face other deficiencies as well. Belize’s financial services industry is small and fragmented so its costs are high, but the banks fight over what little business the country offers. Although Belize has a population of only 232,000 it supports five commercial banks, a handful of credit unions and a government finance agency, which all compete. Furthermore, Belize has an underdeveloped savings culture with few people depositing paychecks and maintaining long-term savings.

“There are 50,000 bankable people in Belize,” says Claude Marcel, country manager for Bank of Nova Scotia in Belize. He states: “You’ve got to be competitive. [But] where are the incentives? With five private-sector banks competing for a small market, there isn’t much to fight over. The cost of living here is high and the savings base is low. Half my customers maintain balances below $100.”

Scotiabank and Barclays are the only foreign banks operating in Belize. Barclays is merging its entire Caribbean operation with the Canadian Imperial Bank of Commerce (CIBC) to form a new institution, FirstCaribbean International Bank, partly owned by Barclays and CIBC.

“We compete against credit unions and even insurance companies,” say Ricardo Pelayo, head of the international department at Atlantic Bank, owned partly by local investors and partly by a subsidiary of Banco Atlantida in Honduras. “They have certainly been growing in the past 15 years. Under the Financial Services Commission Act, which promotes and regulates the financial services industry, the Central Bank has the right to request information from credit unions but they do not fall under the same regulatory guidelines as banks. This gives them a competitive edge.”

Banks face competition from a mature network of credit unions offering cheaper loans and higher interest rates on savings accounts. The Central Bank of Belize, the country’s banking regulator, classifies banks and credit unions separately. Banks fall under higher tax brackets and tighter capital reserves requirements. Marcel says the local banks maintain loose lending criteria and can afford to make bad loans, while Scotiabank and Barclays are subject to stringent international banking standards.

“It’s a very competitive system especially for deposits,” says Pelayo. “But one problem affecting the entire system is the lack of foreign exchange on the market. It is estimated that between $2 million and $3 million dollars are drained from the market each week and later sold on the black market, never entering the national banking system.” Foreign exchange enters the country through tourist activity and falls into the black market where it is further circulated until leaving the country to purchase imports.

Keith Arnold, governor of the central bank of Belize, says, “The Central Bank intervenes in the foreign exchange market by diverting exchange to the private sector by selling sugar export receipts.” Only those companies engaged in export-earning activities are eligible to buy sugar receipts from the Central Bank.

Pelayo says that in spite of the foreign exchange shortage, companies have not defaulted on foreign currency payments but the entire foreign exchange system is often slowed. Banks keep waiting lists and companies may have to wait two or three days before converting currency. “We’ve heard of businessmen accessing the parallel market at high premiums,” he says. While the banks sell dollars at BZ$2, black market prices range from BZ$2.05 to BZ$2.15. The exchange rate in Belize is fixed at BZ$2 to US$ 1.

Belize’s Other Banks
There are plenty of dollars circulating around Belize’s other banking system, the offshore financial services industry. Although run from many of the same offices in Belize City as conventional banks, the two systems operate separately. Belize entered the world of offshore finance much later than its Caribbean counterparts but is quickly catching up as one of the most popular offshore destinations for international financiers looking for anonymity and tax havens.

“Offshore banking has become a dirty word,” says the Central Bank’s Arnold. “We have been very keen to maintain our reputation.” A sullied reputation for offshore financing would equate to a bad reputation for the country’s entire financial system, which Belize cannot afford.

The governor adds that the usefulness of offshore banking has its limits. “There are not enough value-added benefits to offshore banking, it just provides some capital to the private sector in the form of charges and legal fees,” he says. The government collects maintenance fees for offshore accounts, but as long as the resources originate from, and are held, outside Belize it brings few direct benefits to the country.

Belize passed offshore legislation in 1996 establishing a two-tier offshore financial services industry. An “A” Class offshore bank, such as Atlantic Bank, is licensed for unrestricted business with all non-Belizeans. “B” Class offshore banks are granted a limited operating license by the Central Bank.

Offshore banking has come under attack, from US and European governments, and the OECD. They are demanding greater transparency and information sharing between offshore jurisdictions and international regulatory agencies. “We are being accused of engaging in harmful taxation competition,” says Arnold. “But we’re unyielding on this issue and the Caribbean countries involved in tax-free banking are uniting to combat international pressure to dictate our laws. We agree that tax evasion is illegal, but not tax avoidance.” Perhaps, but the difference between tax evasion and avoidance can be hard to define. What one country considers as evasion, Belize may consider as avoidance.

Weeding Out Crime
Belize has since signed a mutual legal assistance treaty with the US, although it is still pending ratification by the US Senate, and Arnold believes ratification is still 18 months away. He says the central bank has been active and effective in weeding out criminal elements and identifying money laundering activity. He also insists that Belize will reject any application to establish an account or international business company if any criminal activity is suspect.

The State Department places Belize on a “concern” list of countries for money laundering activities. International business company (IBC) registry is Belize’s largest area of concern for fraudulent activity according to the State Department. Since establishing the classfication in 1995, Belize has registered over 16,000 companies and according to the Financial Action Task Force, the OECD’s anti-money laundering arm, Belize has deficiencies in identifying beneficial owners and ascertaining information regarding international business companies used in determining criminal activity.

“Under IBC regulations, we can’t reveal the identity unless fraud can be proven,” says Atlantic Bank’s Pelayo. “Belize has signed and ratified an exchange of information act with the US. This allows regulatory agencies to access information for the process of regulation and investigation. Clients find this uncomfortable but it doesn’t work that way. There’s a ‘no fishing’ clause and information is only shared when fraudulent activity is proven.” LF