The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed bank yesterday said it was effectively looking for its majority Government shareholder to underwrite its branch expansion to Bimini and Abaco, and expects to have a presence in the former “within six months”.

Paul McWeeney, Bank of the Bahamas International’s managing director, told Tribune Business that it was hoping the Government could 
“offset” some of the losses it was likely to incur in the initial expansion stages by putting business its way.

Prime Minister Perry Christie went public recently in urging Bank of the Bahamas International to expand its branch network to the two islands and serve the population increase expected to result from multi-million dollar tourism investments.

Mr McWeeney yesterday confirmed the institution would “absolutely” accede to the Prime Minister’s request. It has little choice, especially with the Government (via the Treasury and National Insurance Board) having increased its majority stake from 51 per cent to 65 per cent, via the injection of $31.5 million in new capital into Bank of the Bahamas International.

“One of the challenges we have is the Government doesn’t do any banking with us,” Mr McWeeney told Tribune Business.

“As you can appreciate, with our expansion into the Family Islands, the break even point may not be there initially. We hope to get offset business from the Government to compensate, or increased business revenue in other areas. We’re working on these two fronts.”

Despite being Bank of the Bahamas International’s majority shareholder, the Government does all its banking through Royal Bank of Canada’s (RBC) Bahamian subsidiary.

Mr McWeeney said Bank of the Bahamas International was aiming to gain some government operating accounts “to improve revenue sources and reduce interest expense”.

The BISX-listed institution appears to effectively asking the Government to subsidise its Family Island branch growth, a development that is likely to raise eyebrows in some quarters, especially among the 35 per cent minority investors given the collective $6.217 million net loss they suffered in the 2013 financial year.

The move has also caught the attention of FNM chairman Darron Cash, who in a statement issued last week - prior to the release of Bank of the Bahamas International’s results - questioned whether it was prudent to embark on this expansion given the bank’s weak financial performance.

Confirming that the Prime Minister had told Bank of the Bahamas International’s Board he wanted it to expand its Family Island branch network some months ago, Mr McWeeney said “most of the groundwork” for establishing the Bimini operation had already been completed.

The bank will start with three personnel and an Automated Banking Machine (ABM) providing services to Biminites and their visitors 24/7, and “look to see how to scale it depending on business”.

“We hope to be there within six months,” Mr McWeeney said of Bimini, adding that the bank was finalising the investment required.

Abaco will follow later, with Mr McWeeney saying: “Again, we have to follow the direction of our majority shareholder.”

Elsewhere, the Bank of the Bahamas International managing director confirmed to Tribune Business that the final $5 million tranche of its $20 million in mortgage-backed bonds had been redeemed since the June 30 year-end.

Suggesting that the move would help provide a further “buffer” against loan loss provisions, Mr McWeeney said the bank would adopt a variety of strategies to ensure its $30-$35 million worth of preference share capital came into compliance with the Basle III Capital Accord.

Mr McWeeney said the liquidity provided by the Government’s $31.5 million capital injection, apart from redeeming the mortgage-backed bonds, was also helping to redeem preference share issues - especially as there were few qualifying credit opportunities.

Bank of the Bahamas International will redeem $3.4 million worth of Class E preference shares by year-end, as they will no longer qualify as Tier 1 capital come 2023.

However, Mr McWeeney said the bank may not redeem all its outstanding preference shares, and might elect in certain circumstances to make them Tier 1- compliant - as Commonwealth Bank has already done.

“The approach we’re taking is underpinned by capital adequacy,” Mr McWeeney told Tribune Business. “The redemption of preference shares lowers equity, but the bank still has to maintain risk-weighted capital ratios.

“The strategy depends on how we manage that. What’s appropriate for the bank will determine which we use. We see a combination of these strategies. The bank wants to get this weakness in the credit portfolio behind it.”

Mr McWeeney told Tribune Business that Bank of the Bahamas International’s strategy to diversify its income streams continued apace, as it seeks to reduce reliance on the traditional credit portfolio and balance this with fee-based income via electronic banking.

He said credit was now “maybe 80 per cent” of Bank of Bahamas International’s revenue, and reaffirmed the goal of getting this to a 50/50 split with fee-based income.

Mr McWeeney said Bank of the Bahamas International’s e-commerce platform was “seeing some decent growth” in terms of new business customers signing up, while 10,000 of its 20,000 prepaid cards were active and “used quite a bit”.

He also disclosed that Bank of the Bahamas International was seeking “strategic alliances locally and internationally”, although did not go into detail.

“We have to continue to explore ways to grow and become more competitive,” he added. “Right now, we don’t have the scale and global footprint to be able to leverage our resources, like a Royal Bank or Scotiabank.”