Cuba has a strong tradition of banking. Its first bank began operating in 1832, and by 1959 Cuba had over 49 commercial banks with over 200 branches. The largest privately owned bank in Latin America at the time was Cuban, and two Cuban banks ranked in the top 500 globally. Additionally, a number of foreign banks were located in the Cuban market, including three U.S. banks.
After the Cuban revolution, both Cuban and foreign-owned banks were nationalized. Currently, the Cuban banking system is severely limited, unable to provide substantial credit to the private sector or offer trade finance to support international commerce. Some Cubans have acknowledged that their banking system is far from international standards and in need of reforms. Some of these needed reforms include measures to increase lending opportunities, as well as actions to separate state functions from the business functions of banks.
The Banco Central de Cuba (BCC), Cuba’s central bank, began operating on May 28, 1997. Before the creation of the BCC, the Banco Nacional de Cuba (BNC) was the central state bank. On February 23, 1998, Decree-Law 181 clarified the legal relationship between the BCC and the BNC. It stated that the BCC would operate as a traditional central bank, executing monetary policy and acting as a banking industry supervisor, while the BNC would support the economy more broadly by issuing bank guarantees, offering official export credit insurance, and managing the national debt. However, industry representatives report that the BNC does not engage in those commercial transactions in practice. Instead, it focuses on obtaining credit from foreign banks and financial institutions.
Cuba also maintains a number of financial institutions to address particular financial service needs throughout Cuba. The Banco Popular de Ahorro (People’s Savings Bank), founded in 1978, provides full individual and corporate banking services to about 40% of Cubans throughout Cuba, with the exception of Havana. The Banco Metropolitano, founded in 1996, is the principal retail bank in Havana; it primarily serves the diplomatic corps and foreign firms operating in Cuba. Another full-service retail bank, the Banco de Crédito y Comercio, founded in 1997, is reported to operate a large, automated network of ATMs and provides many of its services via remote, electronic banking services.
- Banco de Crédito y Comercio (BANDEC)
- Banco Popular de Ahorro (BPA)
- Banco Financiero Internacional (BFI)
- Banco Internacional de Comercio S.A. (BICSA)
- Banco Metropolitano S.A.
- Banco de Inversiones S.A.
- Banco Nacional de Cuba (BNC)
- Banco Exterior de Cuba (BEC)
- Havin Bank Ltd (London)
Cuba maintains no formal barriers to the entry of foreign banks. In particular, Article 10 of Cuban Decree-Law 173 theoretically allows for the establishment of non-state banks. In practice, however, this market has been largely closed to foreign providers. Currently there is only one foreign bank operating in Cuba—the Banco Industrial de Venezuela-Cuba—although industry representatives report that the bank is inactive. Additionally, there are nine foreign banks with representative offices in Cuba and two foreign non-bank financial companies. The activities of all of these foreign institutions are limited, as the financial services industry in Cuba is almost entirely state run and no private-sector capital markets exist. The foreign non-bank financial companies serve to coordinate and fund international trade activities with Europe.
Havin Bank Ltd. is a UK bank based in London but owned by the Cuban government. Many Cuban bankers gain experience in international banking at the London location. As a result of this institution and the training it provides to Cuban bankers, Cuba maintains a cadre of highly skilled professionals to run its banking system.
While increasing numbers of Cubans have savings accounts at Cuban banks, some industry representatives state that devaluation concerns associated with Cuba’s dual currency and the currency’s expected unification still induce many Cubans to avoid depository institutions. Industry representatives report that although Cuba’s ATM network is small, it is used with some frequency by Cubans to obtain government cash payouts. Industry representatives express skepticism about the sophistication of Internet banking in Cuba, citing Cuba’s relatively undeveloped telecommunications infrastructure. It has been suggested, however, that Cuba has the potential to move to more modern types of financial activities, such as electronic and mobile payment methods.
For foreign firms considering doing business in Cuba, industry representatives identify Cuba’s liquidity management system as a potential barrier. The Cuban Central Bank manages liquidity, and can affect a business’s ability to access cash for day-to-day operations by imposing short-term restrictions on access to a business’s account. This occurred during a liquidity crisis during the 2008–09 recession, leading to the freezing of an estimated $1 billion of foreign firms’ hard currency in Cuban banks in 2009. However, industry representatives report that generally businesses have access to the cash needed for operational purposes and can repatriate profits.
Effects of the Removal of U.S. Restrictions
It has been suggested that Cuba may allow foreign banks to enter the market through joint ventures with Cuban state-owned banks in the event that U.S. restrictions are removed. Reportedly, however, U.S. banks are not considering opening branches in Cuba or engaging in financing.
Growth is possible in the short term in credit card payment processing. Before the executive order issued June 1, 2015, U.S. payment processors maintained a global block on all transactions originating from Cuba for credit cards issued by U.S. banks. Following the executive order, payment processors wishing to process Cuban payments replaced the global block with individual bank blocks, which banks could request to have removed; however, few banks have made the request due to ongoing U.S. restrictions. Nonetheless, if U.S. restrictions on trade with and travel to Cuba are lifted and those activities begin to occur with higher frequency, U.S. firms and travelers will likely begin to demand financial services, and U.S. financial services firms may wish to engage in Cuba to provide them.
Currently there are a reported 10,000 point-of-sale terminals for credit cards in Cuba. However, significant investment in expanding Cuba’s terminal base will be required for its credit card network to operate effectively. Point-of-sale terminals must also connect to a network to transmit information associated with purchases, and this will require significant investment in the Internet infrastructure in Cuba.
On November 19, 2015, MasterCard and Stonegate Bank, which provides banking services for the Cuban Embassy, announced that a MasterCard issued by Stonegate would be the first U.S.-issued debit card capable of completing transactions in Cuba. On June 15, 2016, Stonegate announced the release a limited-edition MasterCard. Stonegate will issue only 1,000 cards initially. Each card will feature artwork by celebrated Cuban painter Michel Mirabal. The Cuban government will waive the usual 10% penalty on dollar exchanges for those using the Stonegate cards.
Last week, BCC vice president Irma Margarita Martinez confirmed that ATMs in Havana will now accept MasterCard cash advances, including those from Stonegate Bank, the first US bank authorized to provide this service in the island nation, and the Banco Popular de Puerto Rico. MasterCard is already being accepted at Cuban points of sale along with Visa, which have been authorized on the island for some time.
Trade finance reportedly has potential for growth in the longer term. If U.S. restrictions on credit financing are removed for all U.S. exports, U.S. financial service firms could export the full range of credit-based trade finance products. U.S. agricultural companies have repeatedly reported that the inability of U.S. firms to provide credit for U.S. exports has resulted in lost market share in Cuba. The U.S. Grains Council testified that the removal of the restrictions on financing exports to Cuba will result in larger sales of many types of U.S. goods, yet concerns about the government’s lack of creditworthiness remain. Since 2011, Cuba has restructured its debt with Chinese, Japanese, Mexican, and Russian creditors, enabling large portions of its debt to be written off and allowing Cuba to gain a longer repayment schedule on the remainder. Many of its Paris Club (bilateral) creditors have renegotiated debts, and London Club (private) creditors are preparing to negotiate. Moody’s Investors Service reports that a further loosening of U.S. restrictions may have a positive impact on the country’s credit rating.
In the longer term, investment banking may present another opportunity to U.S. financial services providers. Compared to the retail banking sector, the investment banking sector in Cuba is relatively undeveloped. However, there may be significant investment opportunities for U.S. firms in Cuba if all U.S. restrictions are removed and Cuba updates and modernizes its physical and technological infrastructure. Investment banking, likely in the form of joint ventures with Cuban banks, could expand opportunities for U.S. firms to participate in this sector.
Overall, industry observers anticipate that any developments in the financial services sector are likely to depend heavily on the willingness of the Cuban government to allow foreign banks to enter its market. More generally, it has been noted that even with the removal of the U.S. restrictions, much will have to change in Cuba for a deep commercial relationship to develop. This includes the development of general policies, such as a uniform commercial code, which would serve as a basis for broad private sector growth, increasing the demand for retail and commercial banking services.
Sources: Banco Central de Cuba (BCC), US Government, Wikipedia