The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas is “cautiously optimistic” 2014 will herald a turnaround in its financial performance, after a 158 per cent increase in loan loss provisions pushed its ordinary shareholders into a $3.175 million net loss.

Speaking after the BISX-listed institution unveiled disappointing figures for the quarter to end-September 2013, Paul McWeeney, its managing director, said there were “signs of a turnaround” from the third quarter onwards.

Given that Bank of the Bahamas’ International’s financial year starts on July 1, that implies a recovery starting within the next three months, and Mr McWeeney pledged it would continue to tackle troubled sections of its credit portfolio.

Pointing out that the bank’s provisioning included $1.6 million in general provisions related to the tepid overall economy, not specific problem loans, he said Bank of the Bahamas International would have come close to “break even” for the 2014 first quarter had it not booked this.

Arguing that such “prudent” provisioning actions were helping to position Bank of the Bahamas International for the future, Mr McWeeney indicated it had stepped back from plans to establish a physical branch presence on Bimini.

It was instead focusing on the installation of Automated Banking Machines (ABMs) that would serve the island’s tourist market, and also eyeing what Mr McWeeney described as a “sizeable” and “pretty significant” opportunity in the international trust market.

He added that Bank of the Bahamas International was also aiming to launch its revised online banking platform, equipped with more functionality and “user friendly” features, this month.

Yet this may be of little comfort to the bank’s ordinary shareholders, especially the 35 per cent public component (Bank of the Bahamas International is 65 per cent majority owned by the Government), who in the 15 months to end-September 2013 have suffered a total $9.4 million net loss.

For the three months immediately prior to that date, Bank of the Bahamas International’s interest and other income streams were broadly flat with 2012’s performance, generating a total $12.093 million.

Yet with loan loss provisions more than doubling, from $2.418 million in the same period in 2012 to $6.226 million this time around, Bank of the Bahamas International suffered an almost $4 million reversal that drove it into a $1.944 million net loss.

A small gain on the sale of financial assets narrowed its total comprehensive loss slightly to $1.922 million, but the addition of a $1.231 million preference share payout took the total net loss suffered by the bank’s ordinary shareholders to $3.175 million.

“We do see signs of a turnaround, probably in the third quarter, but we have to go through the process of working these financial transactions out,” Mr McWeeney told Tribune Business.

“We’re cautiously optimistic of a turnaround. The signs point to that, and it’s promising.”

Mr McWeeney had warned shareholders of potentially more bad news to come when Bank of the Bahamas International published its financials for the year to end-June 2013, and his comments indicate they should also brace for a less-than-stellar second quarter this year.

However, Mr McWeeney was quick to point out that Bank of the Bahamas International was going through what every Bahamian commercial bank has experienced, at some point, post-recession when it comes to booking high loan loss provisions.

“We have to make these difficult decisions,” he emphasised. “General provisions increased $1.6 million based solely on the economic outlook.

“If we did not have to do that, we would almost have broken even, but we have to be prudent and do what’s in the best interests of the bank.”

Mr McWeeney said Bank of the Bahamas International’s provisioning levels reflected the continuing weak economic environment, inclusive of high unemployment and reduced incomes, which meant many borrowers were having difficulty servicing their loans.

Expressing optimism that an economic rebound would enable the bank to “claw back” some of its loan loss provisions, Mr McWeeney said the situation was being cushioned by the bank’s $138.849 million in net equity, including some $25.386 million in retained earnings.

He added that the decision to redeem all Bank of the Bahamas International’s $20 million worth of mortgage-backed bonds, plus start the preference share redemption process via an initial $3.5 million chunk, “bodes well for the future” by reducing associated interest expenses.

“It’s a matter of being very, very cautious,” Mr McWeeney told Tribune Business. “The bank can afford to do this given its level of capital.

“Every bank has gone through what we’ve gone through. This is happening all around us.

“It’s unfortunate that we have to go through this, but then profits we’ve earned over the last 20 years have aided us there.”

Mr McWeeney, meanwhile, indicated that Bank of the Bahamas International had stepped back - for the moment - from plans to establish a physical branch presence on Bimini.

This had been pushed by its 65 per cent Government majority shareholder as a way of supporting the island’s Genting-led tourism expansion, but Mr McWeeney said the bank was instead looking to install ABMs at the Bimini Bay Resort.

“We’re pretty close to installing ABMs in Bimini at the resort, and are looking at some other territories right now,” he told Tribune Business. “Our plan is to spread the ABM network through the archipelago in more strategic locations.”

Describing Bimini as a small population centre that was already served by Royal Bank of Canada, Mr McWeeney said Bank of the Bahamas International had to “think very carefully about how to put a physical branch in there”.

He added that the bank’s private banking and trust business, which has been chiefly focused on the domestic market, was starting to “get some good traction” on the international front.

“Due to changes in Swiss banking laws, we’ve been able to develop some inroads into that business, which is pretty promising,” Mr McWeeney said.

He explained that “particular business opportunities are coming our way”, with international banks leaving this jurisdiction bring clients who wanted to remain in the Bahamas to Bank of the Bahamas International, rather than one of their direct competitors.

“There’s one thing we’re looking at that’s pretty sizeable on the international trust side. I can’t disclose it at this time, but it’s pretty exciting for the bank. It could be pretty significant,” Mr McWeeney said.

Bank of the Bahamas International, he added, remained focused on growing non-credit, non-interest revenues to 50 per cent of its total income streams by 2017, up from the existing 15-20 per cent share.

“We’re hoping to sign a few more banks up for private label cards, mainly foreign banks in the Bahamas,” Mr McWeeney said.

“It’s wholesale business. It takes some time to negotiate, but is growing as we planned. If we sign one-two major banks a year, that’s fine. We don’t want to grow the business too quickly.

Bank of the Bahamas International has transferred its call centre from the Village Road branch to Carmichael Road, and it is aiming to launch its “tweaked” online banking platform within the next month.