The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Banking sources and the political Opposition yesterday described Tribune Business’s revelations on Bank of the Bahamas as “incredibly damning”, as the institution joined forces with the Government and regulatory to present a ‘united front’ in solving its problems.

K P Turnquest, the FNM’s newly-elected deputy leader, told this newspaper that the Central Bank appeared to have “dropped the ball a little bit”, after it was revealed that the regulator had been aware of Bank of the Bahamas’ troubled commercial loan portfolio for at least two years.

Arguing that the Central Bank should have “blown the whistle earlier”, Mr Turnquest said Tribune Business’s disclosures showed the BISX-listed institution had also been “operating in a manner inconsistent with best practices”.

And, calling for the bank’s promised organisational restructuring to include both a new Board of Directors and managing director, he blasted:

“Somebody has to be held accountable.”

Tribune Business revealed yesterday how the Central Bank first raised the alarm over Bank of the Bahamas’ “very weak” commercial loan portfolio almost two years ago, slamming “all facets of its credit risk management processes” as “unsatisfactory”.

Wendy Craigg, the Central Bank governor, highlighted the flaws that would lead to the BISX-listed institution’s recent $100 million, taxpayer-funded ‘rescue’, in a December 13, 2012, letter to its still-chairman, Richard Demeritte, and its then-Board of Directors.

The confidential letter disclosed that a November 12-20, 2012, examination by Central Bank inspectors found “that a large measure of the basic tenets of industry sound credit practices are either missing, not evident, or compromised within” Bank of the Bahamas’ credit processes.

Paul McWeeney, Bank of the Bahamas’ managing director, declined to comment when contacted by Tribune Business yesterday, referring this newspaper to the joint statement released last night.

The statement contained quotes from Mrs Craigg, Bank of the Bahamas chairman, Richard Demeritte, and Michael Halkitis, minister of state for finance, effectively pledging full government and regulatory support for efforts to restore the bank to full health and profitability.

Seemingly downplaying her December 2012 letter, Mrs Craigg said: “Writing to and engaging with our licensees is a regular part of our supervisory process, and constitutes one of the tools through which we seek to ensure compliance with best practices, and thus to promote stability in our financial system.

“Bank of the Bahamas is now in compliance with domestic and international requirements for capital and liquidity. The Central Bank will continue monitoring Bank of the Bahamas, as it does with all other commercial banks.”

Mr Halkitis said the Government, Central Bank and Bank of the Bahamas had “worked tirelessly to implement a solution” for the latter.

All three made much of the $100 million Bahamas Resolve ‘bad loans for bonds’ swap rescue, plus the impending management and structural shake-up at Bank of the Bahamas, expressing confidence that it will return to profitability.

None of the issues raised in the Governor’s December 2012 letter were tackled directly in the statement, although this newspaper understands there is a view that other correspondence between bank and regulator would put the matter in a different context.

However, other senior banking executives and Mr Turnquest remained distinctly unimpressed.

One senior banker, speaking on condition of anonymity, told this newspaper of its revelations: “That’s damning. This is damning stuff.”

Mr Turnquest concurred, telling Tribune Business: “I think that is an incredibly damning report, and supports everything my colleague, Mr [Daron] Cash has been saying for the last two years.

“I am concerned with respect to Central Bank oversight and their slowness in reacting to the developments. Obviously they had concerns, and they should have been acted upon, in my humble opinion.

“The Central Bank dropped the ball a little bit, and should have blown the whistle on this matter earlier.”

Mr Turnquest questioned whether this had contributed to any worsening of Bank of the Bahamas’ problem loan situation over the past two years.

He suggested Mrs Craigg’s letter showed the Government, and Bank of the Bahamas itself, had been less than forthcoming about the BISX-listed institution’s true financial condition.

“They have been operating in a manner inconsistent with best practices,” Mr Turnquest said. “That is very unfortunate, and not only caused the Bahamian people to lose confidence in the bank, but lost value for shareholders and the Bahamian people.”

He added that Mrs Craigg’s letter also raised further questions about Bank of the Bahamas’ exposure to so-called Politically Exposed Persons (PEPs), and the institution’s seeming “unwillingness” to realise security/collateral for troubled commercial loans.

“At the end of the day, we’re going to have to get a full understanding of what’s gone on at this bank, and the Bahamian people must get full value for money, as we collect whatever is outstanding on their behalf,” Mr Turnquest said.

He again questioned who is in charge of Bahamas Resolve, the vehicle charged with doing this, how it will be structured and whether it will enjoy any more success than Bank of the Bahamas’ own collections department.

“That is the concern; whether this Bahamas Resolve company will be able to recover substantially all of the assets from these borrowers,” Mr Turnquest said. “It is all about shareholder value and securing the depositors.”