Most nights, I awaken early, shaken by fear for the National Commercial Bank of Anguilla (NCBA). It boasts that it controls more than half of the banking business in Anguilla. This year, after only seven years of operating, it claims to have accumulated assets of over one billion EC dollars.
Each morning before the radio news, there is an advertisement for the bank. A perky female voice falsely claims that NCBA is the oldest indigenous bank in Anguilla. NCBA was in fact incorporated in Anguilla and commenced business only in 2016, making it the youngest bank.
Scotia Bank Anguilla was incorporated in Anguilla and commenced business as far back as the year 1989. As it is still in operation, it qualifies as the oldest indigenous Anguillian bank. It was acquired by Republic Bank of Trinidad in 2019 and changed its name, but by virtue of its incorporation in Anguilla in 1989 it qualifies as an indigenous bank and is by far the older.
National Bank of Anguilla (NBA) made the same boast of controlling more than half of the banking business in Anguilla up to the day it was taken over by the conservators in 2013 and ceased to do business. Its board of directors recklessly lent out the bank’s depositors’ money to borrowers who were rich in land but who had very little prospect of being able to pay back the loans: a mortal sin in banking business as any reputable banker will tell you.
At the time then, as now, there was little market for distressed properties, and attempts to sell the real estate of defaulting borrowers at full market value had no success. Yet, the directors continued to accept real estate as security for increasingly insecure loans, even as the bank approached bankruptcy. In my opinion, even today, only a badly advised and managed bank would make a loan backed only or mainly by real property in Anguilla.
Full disclosure, I was a founding member and the first legal adviser of National Bank of Anguilla from its formation in 1985 when I signed the Memorandum and Articles of Incorporation which I had drafted. I remained legal adviser until about 1995 when my law partner took over primary responsibility for that client. After I retired and we wound up the partnership in 1999, another law firm was retained as its adviser.
By 2013, so many of the bank’s loans were in default that the Central Bank sent in the conservators, and it was effectively shut down and ceased to function. Indeed, up until the year 2013 I was unaware that nearly 50% of the bank’s loans were in default. At that time, the NBA claimed to hold assets and obligations of over a billion EC dollars. The directors lent out almost all the money deposited with the bank, or some EC$500 million of which some 49% was in default at the time it ceased to operate. At that time, the bank was worth a billion dollars on paper. My late mother and I owned 10% of the equity in the bank. Would somebody remind me what 10% of a billion is? Of course, the shares are now entirely worthless.
We do not know the details of the bank’s default at the time the central bank closed it down. The then Chief Minister, in resisting public demands for the forensic report on the bank to be published, explained on the radio that if he were to do so his main critics would be embarrassed. All Anguillians would learn that they were among the five elite families who were principally responsible for the bank’s failure. The directors awarded them huge loans secured only by land. They should have been aware the securities would never sell, and the loans could never be paid back.
An effective central bank would not tolerate a bank with bad loans of more than 5%, far less approaching 50%. That would be a breach of the Basel Committee on Banking Supervision’s Core Principles for Effective Banking Supervision, issued in September 2012. Due to the absence of appropriate legislation in Anguilla the ECCB was unable to effectively supervise the NBA. As a result, the central bank was unable to rein in the directors of NBA prior to the take-over in 2013. That default was only remedied by a raft of new laws in 2015.
These Core Principles are the minimum standards applied to judge how sound are the prudential regulation and supervision of banks and banking systems in all the regions of the world. They are the benchmark used by the IMF and the World Bank for testing the quality of supervisory banking systems. There have been core principles for many decades. The 2012 version is merely the latest version.
The principal reason why land and houses in Anguilla are a bad security for a loan is that real estate is, by law and for all practical purposes, almost unsellable by a lender for its full market value. If distressed land is successfully sold at auction in Anguilla today, it is probably only because the auctioneer is taking the risk of being sued for not following the rules. Any purchaser of real estate at auction in Anguilla today risks having his purchase declared fraudulent and invalid. He succeeds only because Anguillian borrowers are reluctant to defend their interests, relying instead on the illiterate and superstitious victim of injustice’s frequently heard refrain when failing to seek legal redress, “I leaving he to God, I leaving he to God.”
By the Registered Land Act, a chargee (usually the lender) does not hold title to the land security, but only holds a “charge” over it. Common law mortgages have been abolished in Anguilla. A mortgage was a transfer of title to the lender, with the borrower holding a right to have the land transferred back to him after he paid off the loan. With a land mortgage, the lender could relatively easily foreclose on mortgaged property and sell it either privately or by auction. By contrast, a charge in Anguilla operates as a security only, and the lender obtains no title or right to foreclose on the borrower’s property.
In Anguilla, when the lender exercises his right of sale of a land security in the case of a default by the borrower, he is obliged by the statute to act in good faith and have regard to the interests of the chargor/borrower. This means that he must properly advertise the property to ensure that the best possible market price is obtained at the auction sale.
If a borrower challenges in court a successful auction, the bank must be able to show that it honestly attempted to obtain the true market value of the property. It cannot value it at a lower price or, even worse, as I observe from the newspaper advertisements it seems to be done today, advertise its auction with a very low reserve price, presumably merely the amount it is owed. If that occurred and the auction was challenged, such a sale would likely be held to be illegal and liable to be overturned by a court.
An additional restriction on the lender’s right to sell is that the statute does not allow it to engage in a private sale agreement with a purchaser, as he could under a mortgage. The sale must be by public auction only, by a competent auctioneer, and with the reserve price set at the true amount of the market value, unless a judge orders the amount to be reduced. I have known would-be purchasers privately offer a bank to purchase a distressed property, with the bank having to refuse the offer. The purchaser then attends the subsequent auction and wins the bid at half the price he offered privately. This was the case with Flag Luxury Properties a few years ago.
In Anguilla there was, when I practised law, no requirement for auctioneers to be professionally qualified. Nor was there any institute providing a qualification for licensing qualified land valuers. Local land valuers were then, and probably still are, unqualified and unregulated.
It was only in 2017 that the ECCB first published valuation prudential standards for licensed financial institutions under the Banking Act. It insisted that member banks of the currency region must use the services of qualified valuers such as members of the London-based Royal Institute of Chartered Surveyors (RICS). Yet, so far as I am aware, there is no RICS valuer providing services in Anguilla. There does not appear to be any regional institute of similar reputation acceptable to the ECCB.
In my experience, our local “valuers” put up a good show, producing magnificent and expensive reports for their clients’ use. The reality is that they are generally unqualified, unlicensed, unregulated, and susceptible to pressure from their client to set either a higher or a lower price, depending on who they represent, and how ethical they are.
Any successful auction of charged property in Anguilla is liable to challenge if it is alleged that the bank is not obeying its statutory duty to the borrower. A sale of charged property by a bank can be stopped by a court order if the bank is unable to prove that it satisfied its obligations towards the owner/borrower.
The Virgin Islands have the same Registered Land Act as Anguilla. See the 2012 judgment of the Court of Appeal in the Tortola case of Hilda Elizabeth Stoutt v First Bank of Puerto Rico [HCVAP 2010/0016]. In that case, the consequence of an attempt to sell was that the court declared that the bank’s claim against an elderly widow, who had been unduly influenced by her son to use her land and house to secure his commercial borrowing, was unenforceable. Applying the principles of undue influence to the bank in this case, the court held that the bank was fixed with constructive knowledge of the existence of undue influence exercised over Mrs. Stoutt in her offering up her property as security for her son’s company’s indebtedness to the bank. The bank’s manager was the elderly widow’s relative and knew that she had no interest in her son’s business. As a result, the court deprived the bank of its right to sell her property that she had put up to secure his borrowing.
The ECCB is under an international obligation to implement the Basel Core Principles in our region. It is required to ensure that the regulatory framework, that is, the standards it demands of the banks it regulates, meet the minimum standards established by the Core Principles. Prior to the passage of the 2015 Banking Act, it failed to do so, and risked being categorised as a sub-standard central bank.
The 2015 Banking Act of Anguilla, like most modern Banking Acts, is based on the Core Principles. There are 29 Core Principles. They are divided into two areas. Principles 1-13 deal with the supervisory powers, responsibilities, and functions of central banks. Principles 14-29 deal with the expectations made of banks, emphasising the importance of good corporate governance, risk management, and compliance with supervisory standards.
Any international investor who does business in Anguilla knows that our professional standards are lax. Generally, the only professions and trades that are legally regulated are food handlers, liquor licence retailers, land surveyors, physicians and nurses, lawyers, accountants, and auditors. All other professions, so far as I am aware, operate on a caveat emptor basis. Anyone may with impunity call himself an architect, engineer, land valuer, real estate agent, auctioneer, or banker. None of these professions is by law in Anguilla subject to any form of professional licensing or regulation.
The Core Principles require that the legal system ensures that banks can unobstructedly exercise their rights over real estate put up as security for a loan in the case of a loan in default. Anguilla fails this test. In practice in Anguilla, a foreign purchaser of charged property sold at auction, must apply for, and be granted, a First World War era Aliens Landholding Licence.
This requirement places an insurmountable barrier in the way of a bank selling the property of a politically well-connected borrower. That obstacle was meant to be overcome by the creation of the Eastern Caribbean Asset Management Company (ECAMC), which would purchase the loan in default and sell the charged property free of the obstruction that binds the hands of the bank.
The law was passed by the House of Assembly in Anguilla since 2015, but as with most politically risky laws, has been in hibernation since the day it was enacted. So far as I am aware, the government has succumbed to public pressure not to allow this company to operate in Anguilla. Anguillians object to their lands that they put up to secure a bank loan being sold when they default.
Since we in Anguilla do not seem capable of or interested in correcting our professional and ethical deficiencies, it is hardly surprising that external agencies will force internationally recognised standards on us. If they don’t, then our banks will continue to fail. I fear that may include the National Commercial Bank of Anguilla Ltd.
