Bermuda's banking sector could open to more players including foreign ventures. The jury is out however on whether or not expansion would be in the Island's best interest.

The Bermuda Monetary Authority (BMA) - as the licensing authority for the Island's financial services sector - indicated in its annual report, released to the public this week, that it has not ruled out the sector's expansion. The BMA also indicated there were banking licence applications currently being considered.

In addition, Finance Minister Eugene Cox (pictured) has given the possibility a thumbs up, according to the BMA's report.

Any new additions to the market would enter an arena that has until recently seen little movement but the BMA's superintendent of banking, trust, and investment Munro Sutherland said yesterday that there was "modest receptiveness" to applications from "institutions of really high quality" whether local or foreign.

Last October former deposit company Capital G was granted its banking licence but the development marked the first time in more than 100 years that a wholly Bermuda company had been given bank status. And it was the first time in more than 40 years that a bank licence had been issued, with Bermuda Commercial Bank coming on the scene in 1959.

But the heads of the Island's oldest and largest banks - the Bank of Bermuda and the Bank of Butterfield - were not sure that more was necessarily better.

Bank of Bermuda CEO Henry Smith indicated yesterday that opening up the Island's banking sector "would certainly change the overall competitive dynamics".

He said: "We live on a small island, and we do have concerns about the ability of Bermuda's infrastructure to support many additional competitors."

But Mr. Smith added that competition was healthy and that the bank felt it could successfully compete in a broader market.

"If the expansion is well managed and allows only potential entrants of the highest quality, it should be a positive step in the ongoing development of Bermuda's local banking industry.

"We are also confident that Bank of Bermuda can successfully compete. We have been preparing our business for this eventuality by continuing to make our operations more efficient so we can compete with low cost/high volume competitors.

"Most importantly, we are focused on satisfying our customers by delivering superior customer service, access to a range of competitive products and services and offering the convenience that is so important to today's consumer," Mr. Smith said.

Incoming bank president Alan Thompson, having taken up the reins of the Bank of Butterfield at the end of January, told The Royal Gazette last week that he did not see a "huge need" for more banks in the current market.

Mr. Thompson added that his basic premise for saying that is that consumer and corporate markets are already being well served.

"In my mind you would want to open it (the sector) up for two reasons: the first is if our public and customer base is being underserved and if the diversity of product or quality of product is not there. The second reason would be if pricing was too high," he said.

Mr. Thompson continued: "I look at ourselves and our competitors and think that our set of products is competitive and is up to international standards.

"As far as diversity, the market is being well served whether it be Internet products, the breadth of loan products, asset management and investment products. Based on that I cannot say that the market and our customers are being underserved.

"And from a pricing perspective, it is a competitive environment and we are very aware of what our competition is charging on loans and paying on deposits."

Despite these assertions that the market already has a competitive playing field, Government has indicated more players could be given the green light.

The BMA's report stated: "The Minister has indicated that Government is satisfied that some modest expansion in the size of the banking sector, through the issue of new licences to a small number of highly reputable institutions would be consistent with the economic and financial policy of Government."

And the BMA revealed: "The Authority has received a number of expressions of interest in the possibility of obtaining a banking licence and has had preliminary discussions with several institutions.

"The Authority has also received two formal applications that remain under consideration," it said.

When asked if only local institutions would be considered for bank licences, Mr. Sutherland said: "We are looking more widely. And it is expected that a number of applications would be from overseas.

"The way is open for institutions (including foreign) of sufficient standing and stature."

Mr. Sutherland added that the Bank Act did allow for the licensing of foreign institutions, and the BMA boss added that the intent was not to get into offshore banking but to license bodies that "would have an impression on the local market, by delivering services locally."

Mr. Thompson said however that the consumer may not win out with more choice: "I am not sure that more banks would actually help the consumer. In fact I think you could make the opposite argument.

"And the reason I say that is in this day a lot of banking products take a significant amount of investment, primarily in technology. And to receive an acceptable return on that investment you have to generate a certain amount of revenue. And the revenue is driven by the number of customers and the price.

"My concern would be that given that the potential customer segment, and I am talking about Bermuda-based products as opposed to offshore, if you cut the pie smaller, and it is already small, there may not be sufficient revenue generated to provide sufficient return on investment.

"There is some risk of that. Ultimately, I don't see a huge need (for expansion)."