Cayman Q2 Report Highlights Impact Of Downturn

by Phillip Morton, Investors Offshore.com

18 November 2009

The Cayman Islands has announced statistics for economic activity as at Q2 2009, revealing further deterioration as a result of the global financial downturn.

Central Government Fiscal Operations

The overall fiscal deficit widened to KYD80.8m (USD98.5m) in the first half of 2009 as compared to KYD1.6m for the same period a year ago, as total expenditure grew by 10.4% and revenues fell by 13.7%

Direct revenues, which totaled KYD260.9m, fell by KYD32.1m (10.9%) below receipts in the preceding year; indirect revenue amounted to KYD22.9m, down 35.9%. Except for fines, all revenue sources declined, most notably taxes from international trade and transactions (minus 15.7%) and taxes on domestic property (minus 50.9%).

Capital expenditure and net lending rose sharply by 24.7% over the period June 2008 through to June 2009. There was also a 1.8% increase in current expenditure precipitated by strong growth in personnel costs, interest payments, subsidies, and transfer payments.

Personnel costs increased to KYD123.4m, higher by 8.3% compared to a year ago, despite a 3.8% reduction in the number of personnel in the civil service to 3,756 as at end June 2009.

New Company Registration

At Q1 2009, total new company registrations were at 3,679, a record 46.2% decline compared Q1 2008.

Financial Services

The Cayman Islands financial services sector continued to bear the brunt of the global financial shock in the first half of 2009. Total mutual fund licensees, listings on the stock exchange for mutual funds, specialist debt and international equity, new company registrations, and bank and trust company licenses were on a downward trend. However, growth still occurred in the captive insurance market, trust licenses, Eurobonds and stock exchange listings.

Banks and Trusts

Efficiency-driven global consolidations continued to negatively impact bank and trust company licenses in the Cayman Islands. This declined to 269 as at June 2009, a 3.9% reduction from the June 2008 figure. Licenses to trust companies rose marginally by 1.5%.

Europe and the USA are the main participants in Cayman’s banking industry, accounting for 29.4% and 27.5% respectively of banking licensees. The rest are allocated as follows: South America – 16.4%; Asia and Australia – 10.0%; Caribbean and Central America – 7.8%; Canada and Mexico – 5.2%; and Middle East and Africa – 3.7%.

The combined net foreign assets of the Cayman Islands Monetary Authority and the domestic commercial banking sector improved by 9.6% year-on-year at Q2 2009. Total net domestic assets comprising total net domestic credit granted by the commercial banking sector grew by 24.7% to reach KYD3 trillion in June 2009. Loans allocated to both public and private sectors increased by 47.5% (KYD130.9m) and 21.7% (KYD463.1m) respectively, reflecting the possible impact of record-low lending rates.

Insurance Companies

The number of Cayman Islands insurance company businesses grew by 15 year-on-year at Q2. Healthcare continued to dominate the insurance licensees. North America comprises the prime geographical source for captive insurance companies, accounting for 89.7% of the total. Premiums for captive insurance reached USD7.99bn at the end of June 2009, an increase of about USD350m from June 2008.

Mutual Funds and Stock Exchange

As the global financial market remained fragile, the total number of mutual funds contracted by 2.1%, or 212, from June 2008, although statistics recovered somewhat in Q2 2009. Meanwhile, the Cayman Islands Stock Exchange total stock listings fell sharply from 1,586 in June 2008 to 1,330 in June 2009, a 16.1% reduction. Following the global downward trend, mutual funds listings experienced the largest decline of 248 (or 30.3%). Indeed, the number and aggregate capitalization of mutual funds fell below the number of specialist debts for the first time since 2001. Specialist debts are securities which are, as determined from time to time by the Exchange, by their nature usually purchased and traded by a limited number of investors who are particularly knowledgeable in investment matters and which are credit-linked securities or are asset-backed securities or are limited in recourse to a specific asset or assets of the issuer. Finally, the Eurobond proved resilient to the global financial crisis, adding 41.3% (or 19) in stock listings and 41.1% (or USKYD9.3bn) in total nominal value.

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