The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas International yesterday expressed confidence that “the worst” of its net losses and bad loan provisions will be behind it after 2014, following a quarter in which shareholders incurred a further $4.172 million in ‘red ink’.

Paul McWeeney told Tribune Business that the bank’s second quarter financial performance was “slightly better than what we had projected”, even though it took shareholder losses for the half-year to end-2013 to $7.348 million.

Pointing out that all commercial banks had, or were going through, what the BISX-listed institution is now enduring, Mr McWeeney said a spectacular economic turnaround was needed to make a major dent in the industry’s non-performing loan crisis.

He revealed to this newspaper that Bank of the Bahamas International had “materially reduced our presence” in commercial lending, which prior to the 2008-2009 recession was one of its key pillars.

And, with the bank seeking to reduce its reliance on loan-related income through achieving a 50/50 split with fee-based revenues by 2017, Mr McWeeney said it was continuing to focus on electronic banking as “the way of the future”.

Mr McWeeney was speaking after Bank of the Bahamas International unveiled results for the three months to end-December 2013, which showed that shareholders suffered a negative $4.843 million swing into the red ‘year-over-year’.

The second quarter loss took the half-year plunge ‘into the red’ to $7.348 million, an $8.48 million swing from the prior’s $1.5 million profit. Some 65 per cent of that $7.348 million loss, or $4.776 million, belongs to the Government as 65 per cent majority shareholder through the Treasury and National Insurance Board (NIB).

“The worst will definitely be this year,” Mr McWeeney told Tribune Business of the bank’s profitability hits. “No two ways about that.

“I’m confident the worst of it will be this year. I’m confident that it won’t last beyond the calendar year, but I’m hoping it will not go past June 30 [financial year-end]. So much of it is beyond our control.

“Every bank has done this at one time or another. This is our time. We had it good for 20 years and have to take care of this. We will.”

Bank of the Bahamas International’s top and bottom lines continue to be squeezed by the non-performing segment of its credit portfolio, and the latter’s recovery is directly linked to economic recovery and job/income creation.

Interest income for the 2014 financial year’s second quarter dropped by more than $5 million year-over-year, falling 30.9 per cent to $11.522 million compared to $16.665 million the previous year.

Mr McWeeney attributed this drop to borrowers defaulting on their loans, and failing to make the necessary interest payments. “A lot of that also involves loan restructuring,” he added.

“We have to augment the [borrower’s] rate to better suit cash flow. The loan book is not growing, and that affects the top line as well.”

Bank of the Bahamas International’s loan portfolio declined slightly in size during the first half of its 2014 financial year, falling from $735.089 million to $725.816 million

As for the bottom line, the BISX-listed institution’s loan loss provisions increased by 19 per cent in the second quarter, rising from $3.975 million in the same period the year before to $4.734 million this time around.

For the half-year to end-December 2013, Bank of the Bahamas International’s loan loss provisions increased year-over-year by more than $4 million, growing 71.4 per cent to hit $10.961 million compared to $6.393 million in 2012.

“We hear so many rumblings on the street about businesses having problems, and we can’t predict how long this thing is going to last,” Mr McWeeney told Tribune Business. “You have to adjust your internal strategies to account for the worst case scenario.

“We have a lot of money provisions, and we’re confident a lot of that will come back in. But that’s based on how quickly the economy turns around.”

Collectively, the commercial banking industry’s total loan arrears totalled $1.316 billion at end-February 2014, with non-performing credit - that 90 days and more past due - accounting for $971.4 million (73.8 per cent) of that figure.

Mr McWeeney said economic recovery had to be “fairly drastic” to make a major dent in these figures, adding that it had to be far greater than the 1-2 per cent GDP growth projected for the Bahamas.

“Otherwise it’s going to be a long run,”he said. “Your internal strategies have to advance faster than the speed the economy is recovering at.”

Mr McWeeney disclosed that the recession, and resulting non-performing loan crisis, had forced Bank of the Bahamas International to refocus its business model away from a historical staple - commercial and industrial loans.

Given the increased business delinquency and failure rates, Mr McWeeney explained: “We have materially reduced our presence in the commercial arena, which was one of the major lines of business several years ago.

“Back in November 2012, we decided to reduce that and place less emphasis on that line of business going forward. We have not focused on growing it.

“We’re not even looking at it right now. We’ve got a lot of inquiries from commercial customers at other banks, but we’re not even looking at that.”

The Central Bank’s economic report for February shows why the bank has adopted this policy, as delinquent commercial loans increased by 2.3 per cent that month to $360.6 million.

Mr McWeeney said Bank of the Bahamas International was instead focusing on “the automation of retail banking” as central to its plans to increase fee-based income to 50 per cent of revenues by 2017.

“We’ve made good progress on that,” he told Tribune Business. “We’re at that position now of getting the infrastructure and capacity in to get it done.

“We feel confident that electronic banking, the automation of retail banking is the way of the future.”