The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Finance Corporation of the Bahamas (FINCO) saw its profits slump 91.4 per cent for the year ending October 31, 2014, primarily due to a more than four-fold increase in loan loss provisioning to $35.595 million.

Royal Bank of Canada’s (RBC) BISX-listed mortgage lending arm saw a year in which its operating income rose by 7.3 per cent transformed by the ongoing Bahamian housing market crisis.

The increase in loan loss impairments, from $7.468 million in 2013 to $35.595 million, will again have been driven by the increasing difficulties many homeowners have in meeting their loan obligations, plus the declining collateral values that the banks have as security.

And, apart from the increased provisioning, FINCO’s non-interest expenses also jumped by 28.2 per cent or more than $3 million - from $11.523 million in the prior year to $14.776 million this time around.

This more than offset the over $3 million increase in FINCO’s operating income to $52.974 million year-over-year, as the mortgage lender benefited from greater margins - a rise in interest income, and reduction in interest expense.

FINCO’s shareholders, 22 per cent of whom are Bahamian investors, had already been forewarned of the bad news after their company announced it would not be paying a dividend. The key now is whether 2014’s loan loss provisioning is a one-off event, or start of a trend.

The mortgage lender, though, remains well-positioned to cope with the continued housing market fall-out due to its strong balance sheet and capital base, plus the support of its Royal Bank of Canada (RBC) parent.

Out of net equity totalling $149.701 million at end-October 2014, some $141.316 million - the vast majority - represents retained earnings from a profitable past.

And FINCO is by no means alone. CIBC FirstCaribbean International Bank (Bahamas) has confirmed a $148 million net loss for its financial year to end-October 31, driven by its own $75 million worth of extra loan loss provisioning plus the writedown of $115 million in goodwill stemming from the regional merger with Barclays in 2002.

As for FINCO’s 78 per cent majority shareholder, RBC enjoyed a better year even though its net income dropped 12 per cent - from $42.319 million the year before to $37.243 million in 2014.

RBC’s results followed a similar pattern to FINCO’s, in that a 5.8 per cent growth in total income to $127.030 million was more than offset by increases in loan loss provisions and non-interest expenses.

Loan loss provisions grew by almost 52 per cent to hit $14.664 million, while non-interest expenses were also up by 10.4 per cent at $75.123 million.