Following recent announcements by at least three foreign financial players to set up or expand Cuba funds, two major Canadian banks are planning to open offices in Havana, the Financial Times reported.
Joining 14 international banks and financial companies with representative offices in Cuba, Bank of Nova Scotia has filed an application with the Central Bank of Cuba to open an office, while Royal Bank of Canada is pondering a similar move, bank executives told the Financial Times’ Canada correspondent. Scotiabank plans mainly to expand its trade finance business in Cuba.
Many foreign banks have shied away from Cuba due to a history of selective default, the relatively small size of the market, and the threat of U.S. sanctions. The country has had to rely on financial services from a comparatively small number of top-rated international banks.
“From time to time, there are boomlets of investor interest,” says one foreign financial executive in Havana who declined to go on the record. “They are often driven by usually ill-founded expectations of a U.S.-Cuba relaxation, or — usually ill-founded — expectations of magical conversion of Cuba to capitalism.”
However, the recent interest has been stronger than usual.
“Now, it is stronger than most times,” he added. “There is probably $2 billion with its tongue hanging out, straining to invest in the island.”
As part of ongoing economic reforms and efforts to diversify its tourism industry, the government is expected to approve four golf course resorts with connected real estate worth more than $1 billion, in addition to upcoming marina projects. Also, Cuba continues hotel construction at a fast pace.
The Canadian banks’ moves come after the recent opening of a representative office in Cuba by BPCE International et Outre-Mer (BPCE-IOM), the international arm of an alliance of French credit unions and thrifts. Also, one established financial fund in Cuba — Ceiba Investments Ltd. — is planning to go public on the Toronto Stock Exchange to expand its commercial real estate investments on the island, and investors are trying to start at least two new private funds, for a variety of purposes. The Netherlands-based Cuba Financial Fund, initiated by Romar Group, is trying to raise a first round of investments, while Hong Kong entrepreneur Jeremy Tang has already completed a first round for Hemingway Capital.
The increased financial-sector interest in Cuba comes four years after U.S. pressure prompted a subsidiary of Dutch bank ING to shutter its offices in Cuba, and at least seven other banks to stop providing any Cuba-related services. The two Canadian newcomers — and particularly RBC — are cautiously building their Cuba business around U.S. sanctions, according to an observer close to both cases.
The mainstay business for the two Canadian banks will likely be primary trade financing. A half-dozen foreign banks and funds are involved in a lucrative secondary market for discounted bills of exchange; this market, estimated at $250 million a year, has consistently generated profits in excess of 15 percent. Also, foreign banks and export credit agencies have provided structured finance for infrastructure projects such as airport construction, or for sugar and nickel industry imports.
