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A Royal Bank of Canada (RBC) sign is seen in downtown Toronto in this March 3, 2011 file photo.

MARK BLINCH/REUTERS

Bloomberg reported Wednesday morning that RBC's head in the Caribbean, Suresh Sookoo, will retire at the end of October. Kirk Dudtschak, currently president of Caribbean banking, will take over.

And what a portfolio he inherits. It is easily the ugliest performing part of RBC. Why it is still part of RBC is another question, one that has no easy answer. Perhaps it's as simple as what one senior RBC executive once said, which is that the bank doesn't like to admit its mistakes and leaving retail banking in the region entirely would be doing just that. It would be acknowledging that the $2.2-billion (U.S.) the bank laid out in 2008 to buy RBTT Financial Group to bulk up in the region maybe was not the best idea, and had not significantly done what RBC said it would, i.e. to advance "our strategy to continue to grow our banking operations outside Canada."

At this point, the operation is tiny relative to the overall bank, in all but its ability to cause problems. The bank claims one million clients in the region, or about one sixteenth of its overall client base.

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RBC retreated a bit by selling its Jamaican operations not so long ago, but remains "committed to our core markets" in the region, chief executive officer David McKay said on the bank's most recent earnings conference call. That's in spite of what he called "a very challenging credit environment."

Consider this fact: provisions on impaired loans totalled $54-million, up from $27-million. That's $53-million more than provisions recorded in RBC's capital markets division, which is a whole lot bigger. Provisions for all of Canadian banking (which is at least 16 times bigger by revenue) were $230-million.

The Gross Impaired Loan ratio in the Caribbean has been running about 10 per cent. In Canada it's one third of one per cent.

The good news, if there is any, is that the bank has been increasing prices and that's helping revenue growth. But there are probably branch networks in mid-sized cities in Canada that generate as much revenue, so how much is that going to help?

But how much better are things going to get? Judging by the bank's own economic outlook for the region, not very much.

Unemployment rates are in double digits in much of the region and GDP growth is in the low single digits, well behind other emerging markets in Asia and Latin America. The economy is "tepid," with tourism dependant economies growing three-quarters of a percentage point last year, according to the International Monetary Fund's most recent economic outlook for the region. "Construction activity seems to have bottomed out, but tourist arrivals and spending have continued to underperform in most countries. Ongoing financial sector stress is further weighing on growth in some areas."

Mr. Dudtschak is not going to have an easy time of it. But the weather's nice.

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