Allowing banks from abroad to operate from Bermuda could do more harm than good, Bermuda Commercial Bank (BCB) managing director Audette Exel warned yesterday.

Ms Exel issued the warning at a Lions Club luncheon in the wake of reports that a United Bermuda Party task force looking at banking has been told that non-resident banks are operating here clandestinely and that business is being lost due to the inefficiency of local institutions.

It has been suggested that foreign banks operating in Bermuda would generate fee income, create jobs, offer more choice and increase the Island's profile, Ms Exel said.

But she added fee income "is likely to be small'' as exempted companies pay $10,000 yearly while BCB pays a $150,000 banking fee. Bank of Bermuda and Bank of Butterfield pay banking fees of $1 million each.

And suggesting that international banks would create employment is a "misnomer''. Foreign banks would likely bring minimal staff here and use non Bermuda-based back offices for transactions. The cost of setting up treasury and clearing rooms in Bermuda is "substantial,'' she said.

On competition, Bermuda banks would be at a disadvantage as many international banks have much larger capital bases to utilise when offering services.

Competing with the world's largest banks could affect the number of employees Bermuda's three banks will have, she said.

Ms Exel also said non-Bermudian banks could hurt the Island's reputation, she said.

"Bermuda's reputation is unparalleled and unequalled because it has controlled capital flow,'' she said. "We have made sure that the business we write is pristine. When introducing other players you have to take into account possible risks. A large player can be here today, make a mess, and be gone tomorrow.

"(Bermuda is) a truly magnificent jurisdiction, unique in the offshore world, I say that as a lawyer who has used all the main offshore jurisdictions.'' On BCB's ownership structure, Ms Exel said that the bank has averaged a 75 percent increase in profits annually since May 1993, when Barclays Bank sold its 32 percent stake in BCB to First Curacao International Bank, owned by oil magnate John Deuss.

On the bank's joint-venture with BCB Merrill Lynch Asset Management Ltd., she said proper joint ventures do not "hand over the crown jewels'', they instead have institutions from abroad work with Bermuda entities for the benefit of Bermuda.

And on the proposed First Citizen's Bank, she said she had not met with the principals of the enterprise or seen a business plan.