The Role of Curaçao’s Banks on the Economy

One of the most important roles of banks in driving the economy is to intermediate between those who have financial resources and those who need financial resources. Supply and demand of financial resources compliment each other, enabling those without adequate resources to start up a company or buy a home.

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According to Leo Rigaud, the president of the Curaçao Banking Association, every loan the bank approves directly benefits our economy. “It’s the bread and butter of a bank of a bank,” Rigaud states. “The daily business of the banks is to evaluate projects, and almost every project that’s approved tends to generate more business for someone. More business means more money and a growing economy.”

Worldwide vs Curaçao banking
In 2009, banks around the world crashed. While the crisis affected most of the world, banks in Curaçao managed to stay stable. According to Rigaud, the conservatism of Curaçao’s banks is what saved them. “We were offered the same deals, maybe not as big, but the same idea. However, we decided not to invest. Perhaps it was just too complicated. Warren Buffet said, ‘If I don’t understand it, I don’t invest.’ That’s us. This allowed us to survive the whole financial crisis we saw in the rest of the world.”

However, last year this changed. Rigaud believes that the economic recession Curaçao experienced was the result of its own mistakes. “Our financial problems weren’t the result of the worldwide crisis. What happened politically on the island a few years back created a crisis, so in 2013 we had to take measures to recover. Our recession was the effect of the recovery measures in combination with the shaken confidence of the community.” After a rough year in 2013, the economic situation is showing some signs of recovery. Investors are regaining confidence and new projects are finding a way to start. This year, Curaçao is already on track to normalcy. According to Rigaud, normal is workable.

Risk in banking
After years of growth in the Curacao banking sector, the economy started to decrease and many businesses went bankrupt over the last couple of years. Banks are trained to estimate the risk of a business going bankrupt, but Rigaud emphasizes that this cannot always be predicted. “I have seen great business plans and ideas which looked profitable and promising, but the moment the economy went into recession, their target group stopped spending money. Such developments cannot be predicted.” The effects of the recession are tangible for everyone, including the banks. Investors are more cautious and providing loans to businesses entail more risks than before the recession. At the same time, taking risks can greatly benefit the economy. “It is the bank’s job to help promising projects come to fruition,” Rigaud explains. “Banks need to play an active and constructive role in trying to get these projects running, even if this means taking more risks.”

The Art of Credit
According to Rigaud, there are two arts in the credit business: the art of building the business, the commercial part – getting clients in, keeping them happy, etc. The other art is working with clients who are having difficulty. Rigaud believes that banks need to be active when dealing with clients, working with them to keep them going through tough times. This is when the role of the banks is very important. Generally banks try to help businesses work things out when they run into difficulty. “This is an art that I find very interesting,” Rigaud states. We don’t want problems like what we saw with DAE where people lost jobs, etc. We want to have a smooth ride with big projects getting started and everybody feeling good. It’s complicated, but the main thing is to keep the communication open and try to work with people to keep the business going. It’s a lot of hard work. In these difficult times, this is our focus; the most important part of the business is helping people to keep things going. By helping others, you help yourself and the community.”

Options for Curaçao businesses
Although the conditions for business loans for big companies all around the world have eased in the last years, loans for small and medium businesses are still frequently rejected. In Curaçao, there are resources for these businesses to get the help they need. Those wanting to start a small to medium business can approach the Curaçao Chamber of Commerce for help. Curacao’s Ministry of Economic Development set up a project to help young entrepreneurs with start-up capital on the condition that they invest 10 percent themselves. This capital can run up to the maximum amount of 15,000 guilders.

Curaçao Banks have also developed programs for young entrepreneurs looking for financing. Rigaud believes that someone with a good business plan is still perfectly able to get his/her loans approved. “A professional business plan and a little private capital is enough to get a bank interested,” Rigaud explains. “A bank does not typically invest in full funding to start a business; an entrepreneur must show the bank that he has some responsibility too, by putting up 30% of the start-up capital. What you see with good business people is that they are able to save a little capital of their own, even though their income is low. Banks are willing to help these people.”

Working together with the government
While banks, pension funds and insurance companies are the big three that invest in big projects, Rigaud believes that more cooperation with the government is of the utmost importance to obtain progress in working towards a healthier economy. He’s not the only one who applauds this idea. The Curacao Trade & Industry Association or the Vereniging Bedrijfsleven Curaçao (VBC) stated last year that the initiative lies with the Government because most entrepreneurs are still unwilling to invest. A report from the Ministry of Economic Development shows that the government, in cooperation with the private sector, already has plans for investment projects until 2016 for over a billion dollars. According to the VBC, these projects all stagnate due to issues within the government. Rigaud expands on this by explaining that while the financial sector is disappointed that they have not been given a role in the financing of the new hospital, the sector is more than willing to work together with investors and the government to get promising projects financed. “The government, in some cases, could be the missing link in making promising projects feasible,” Rigaud explains. “The government is willing to deliberate about this and we are now in the preliminary stages of debating these ideas. We are trying to come to a solution for projects we can make happen together.”

Final Word
Curaçao is a small island, but the structure of the banks is nearly the same as the rest of the world. When it comes to technology, Curaçao isn’t far behind either. Rigaud proudly explains that the addition to chips in the Curaçao’s credit cards is a great move forward. “I think our banks have done a great job staying abreast of international technical developments. We don’t have to be totally at the same level as the US or Europe, but we can’t afford to fall too far behind either. We are doing a good job so far and we need to continue to strive to be as forward thinking as possible.”

If you are interested in starting a small to medium business and would like to seek financial support, you can contact the Curaçao Chamber of Commerce at 461-3918 or email at businessinfo@curacao-chamber.cw