A recent KPMG survey of the banking industry shows optimism about continued growth in the Caribbean.
KPMG Partner and Regional Director of Corporate Finance Simon Townend shared the results of the firm’s annual banking survey at the 11th annual Caribbean Hotel & Tourism Investment Conference in Curacao in May.
With an exposure of more than US$2.6 billion regional, indigenous and international lending institutions, including ScotiaBank, Butterfield, FirstCaribbean International Bank and Royal Bank of Canada, have once again reaffirmed their commitment to the Caribbean region, states a press release.
Citing the strength of European currencies, the stability of US interest rates and improved airlift, banks remain optimistic about the continued growth in the region.
‘The results of the annual KPMG banking survey once again support the positive outlook for tourism growth in the region,’ said Mr. Townend. ‘With the financial commitment of more than US$2.6 billion in the Caribbean, lenders are sending a clear message to developers that, with the right fundamentals, they are willing to continue to finance multi-million dollar projects in the region. While the Cricket World Cup did not necessarily yield the short-term financial benefits originally anticipated, it is felt that there will be a very positive long-term benefit directly associated with the significant increase in international exposure of the region and the improved infrastructure of the participating islands.’
There is a new influx of capital from private equity and mezzanine lenders, particularly to larger projects, attracted by the now proven resilience of the regional tourism product and the prospects of strong yields relative to home markets.
KPMG Partner Kris Beighton, who worked closely with KPMG’s regional offices on the banking survey, was one of the more than 400 delegates to the conference.
He noted that while there was a clear willingness to invest, the flattening of the US housing market is on the radar screen for lenders but it was suggested that this would not have a major impact on the short to mid-term prospects for the Caribbean and while there are a number of high-end condo-hotel developments underway in the region, banks are expressing some caution in this sector. The banks also want to see projects that represent sustainable tourism initiatives.
Statistics highlighted in the survey show that the premium to the base lending rate (LIBOR most commonly used) ranges from two per cent to four per cent, in 2007. Similarly debt service coverage ratio requirements are in the 1x to 2.5x range. LTV ratios were reported at 50 percent to 75 percent this year in comparison with 55 percent to 70 percent in 2006.
Lenders surveyed also noted condo-hotels, mixed-use properties, disposable income levels in the U.S. and the growth of the yachting business and yacht ownership to be key opportunities for the region. Conversely, they noted, quality of service, a lack of skilled labour, reliance on the US economy, crime and seasonality of the product to be key weaknesses. There was some concern still at the fact that the condo-hotel product in the region was still untested in terms of litigation, however banks were generally more comfortable with the product.
The softening of the US housing market, hurricanes, terrorism, labour shortages, increased preference for cruising, the re-emergence of Mexico, the increased cost of debt and the opening of the Cuban market were all noted as potential threats for the Cayman Islands and other Caribbean island tourism development.
To request a copy of the report or for further information please contact Kris Beighton, on 914 4392 or email [email protected].
Who they are
KPMG, a Cayman Islands partnership, is the Cayman Islands firm of KPMG International, a Swiss cooperative. The firm has 11 partners and a full staff compliment of 170. KPMG, through its predecessor firms, was one of the first international accounting firms to establish an office in the Cayman Islands in 1966. Spanning three centuries, the organisation’s history can be traced through the names of its principal founding members – whose initials form the name “KPMG.” (Klynveld Peat Marwick Goerdeler).