The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

COMMONWEALTH Bank believes it will incur an almost-$5 million licence fee increase for the 2014 full-year, but still expects to notch “a notable achievement” by coming close to matching last year’s $54.506 million bottom line.

Ian Jennings, the BISX-listed institution’s president, said that while its Value-Added Tax (VAT) burden was still unknown, based on estimates for the previous 15 per cent model, this could add another $3-$4 million to the bank’s tax/expenses base.

Together with the newly-imposed commercial bank Business Licence fee, equivalent to 3 per cent of gross revenues, Mr Jennings effectively implied that Commonwealth Bank could see an $8-$10 million tax burden increase within just two years.

The bank’s Business Licence fees were up $3.1 million for the first nine months of 2014, and Mr Jennings said it anticipated “almost $5 million for the full year”.

“It’s a big increase one-time,” he told Tribune Business. “Looking at regional [banking] taxation levels, the Bahamas may not be significantly high, but it’s a huge one-time increase, so this year [in the Budget] we will hopefully stay the way we are.”

And, with Bahamian commercial banks set to be treated as VAT ‘exempt’ on their savings and loan products, the industry will only be able to recover tax payments on their ‘inputs’ in proportion to other aspects of their business.

“In 2015 we could be looking at $3 million in taxes through VAT, so over a couple of years it’s fairly significant,” Mr Jennings added.

The Government, and many Bahamians, have frequently argued that commercial banks were previously under-taxed, with many recalling the pre-recession days when the Canadian-owned institutions enjoyed nine-figure profits.

Such an era is over, at least for now, but the Government targeted the commercial banking industry for increased revenues in the 2013-2014 Budget, levying the ‘3 per cent of gross revenues’ Business Licence fee in addition to the already-existing asset-based levy.

Commonwealth Bank’s profits for the first nine months of 2014 were down by just over 3 per cent year-over-year, from $39.6 million to $38.4 million.

While the $3.1 million Business Licence fee was cited as the main factor, Mr Jennings said the bank’s performance had to be measured against a backdrop of a “pretty stagnant economy” and the “same old trends” of high unemployment and non-performing loans.

“We managed to keep control of our non-performing loans, which are I guess has been one of the keys to our success this year,” Mr Jennings said. “We’re managing to keep that number down. It’s never easy.”

He added that they were “way below the national average”, standing at 3.84 per cent of Commonwealth Bank’s total loan portfolio compared to 17.16 per cent for the industry.

Mr Jennings said the bank had benefited from having relatively small loan weightings in the two hardest hit areas, commercial credit and mortgages, with its exposure to the latter around $250 million out of a $1.041 billion portfolio.

Commonwealth Bank’s 180-day ‘charge-off’ policy against bad loans has also helped, and Mr Jennings added: “The new accounts we are putting on are sort of offsetting the run-offs of old accounts.”

While consumer lending remains its core business, Mr Jennings said the bank was seeing many “very extended” customers, with competition in the space becoming increasingly fierce.

“We’re still looking forward to a challenging fourth quarter,” he told Tribune Business. “We’re hoping for a continues level of performance.

“Based on what we’re looking at, it seems we’ll finish a little below last year or thereabouts. If you look at the environment, that’s a notable achievement, and we’re still paying dividends to our shareholders.”

Predicting further afield was more difficult, with Mr Jennings saying 2015’s outcome might well depend on whether the impact from Baha Mar and lower global oil prices offset the negative effects associated with VAT.

“It’s sort of a mixed bag on which is going to play out strongest and soonest,” the Commonwealth Bank chief told Tribune Business.

“We’re approaching 2015 the same way as 2014, adopting a flexible approach so that we can react if it’s more positive or more negative than expected.

“We really need to see some investment money hitting the economy..... We continue to be positive but cautious at the same time.”

Mr Jennings added that Commonwealth Bank completed the conversion of its Suncard credit cards from a proprietary platform over to the Suncard MasterCard platform.

‘We’re seeing some positive results from that, increases in charges,” he said. “I can’t tell you a percentage, but it has increased.”

Commonwealth Bank was now seeking to boost the “value proposition” related to its Suncard MasterCard, ensuring that clients have a card they can use abroad in addition to the one for domestic consumption.