independent study to determine whether the Island's consumers would benefit by opening up to foreign banks, or whether protectionism should remain in place.

Bermuda Commercial Bank Managing Director Peter Roberts told the Chartered Institute of Bankers yesterday the study was being done by professors Ted Gardener and Phil Molyneux of the Institute of European Finance at the University of Wales. He said the study was being done because there was currently a lack of evidence brought to bear on arguments for or against continued protectionism of Bermuda's three banks. The study's preliminary results indicate that efficiency may best be achieved through the adoption of best practices, he said. The issue is of particular importance to Bermuda Commercial Bank as it is not in the retail banking market, but instead concentrates on offering fee-based services to institutions and high net worth individuals. "I came to Bermuda from the oil industry when the debate on letting foreign banks come into Bermuda was at one of its cyclical peaks,'' Mr. Roberts said. "My bank believed strongly at that time, as it does now, that a liberal policy of licence availability to foreign banks would be bad both for Bermuda Commercial Bank and for Bermuda itself. However, I recognised also, that the opposing point of view had some pedigree.'' So far the study has made only a few preliminary observations he said, and these are that Bermuda's banks and their relationship with the Island are unique among offshore centres. "Extrapolation from other offshore centres' experience, and comparison to what other countries have done, or plan to do, may not be relevant to Bermuda,'' he said. "The way forward must be a Bermuda-specific solution to a Bermuda-specific issue, based on the facts.'' Part of the professors' study shows Bermuda banks are "not unduly profitable'' by international standards when returns on assets and equity are compared.

Bermuda's three banks have an average return on equity of 10.89 percent and a return on assets of 0.65 percent in 1996. Meanwhile, the nine banks the three are compared with in the survey have returns on equity ranging from 11.21 to 42.94 percent, and returns on assets ranging from 0.42 to 6.37 percent.

Another measure of performance, the cost to income ratio, shows the three Bermuda banks were "somewhat higher than is desirable'' in terms of how much they spent to achieve income. The three banks averaged 78.7 percent cost to income in 1996 compared to an average of 60 percent reported by European banks in 1993 and 1994. The professors cited the high cost of operating a bank in Bermuda as a disincentive to foreign banks setting up on the Island, Mr.

Roberts said. The professors also have noted that Bermuda fits in with Guernsey, Jersey, and the Isle of man as one of only four functional offshore centres where the financial services business is an essential component of the economy. The study makes the preliminary suggestion that banks can improve their profitability more through adopting better practices rather than through acquisitions or growth to achieve economies of scale. "The picture that emerges from our study of the Bermuda banking industry reinforces the traditional view of the Bermuda banks being in the community and of the community to a degree not found anywhere else in the offshore banking world,'' he said. "It supports, also, the view that the international competition is fierce and fast moving and that much has to be done to not only sustain but to enhance our competitive advantage.'' Mr. Roberts noted Bermuda's three banks were all in the process of becoming more efficient with the Bermuda Commercial Bank already five years into the process. "It is worth noting that we are in a different point of the development cycle to our two sister banks on the Island,'' he said. "We undertook a radical downsizing and product refocussing exercise five years ago and a major rights issue three years ago,'' he said.

"Although much smaller than Bank of Bermuda and Bank of Butterfield, I note that we are already past the point where economies of scale can be expected to drop into our lap. Our returns on assets and on equity and our dividends are all rising and our cost to income ratio is falling, but more remains to be done.'' PHOTO CONTAINING COSTS -- BCB managing director Peter Roberts