The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas chairman has admitted that political considerations influenced lending decisions under previous Boards, amid warnings that a turnaround is impossible until fundamental corporate governance flaws are fixed.

Richard Demeritte made the stunning admission at Friday’s annual general meeting (AGM) of Bank of the Bahamas shareholders, while asserting that his Board had made “no bad loan decisions”.

He conceded that there was “no question” some lending decisions had been influenced by politics in the past, when pressured by Dionisio D’Aguilar over the BISX-listed institution’s corporate governance issues.

The Superwash president, a Bank of the Bahamas shareholder, told the AGM that a turnaround in the institution’s financial performance depended heavily on corporate governance and Board reforms that removed politics from day-to-day decision-making.

Emphasising that he was not attacking them personally, Mr D’Aguilar said no member of BOB’s present Board came from a banking background.

As a result, he suggested that the Board of Directors lacked experience to tackle what was “a banking crisis”, given the more than $100 million in losses racked up by Bank of the Bahamas over its past three financial years.

Mr D’Aguilar also warned that the bank’s reforms to-date had failed to tackle perceptions that the directors were all government appointees, installed merely to do the present administration’s bidding, such as making loans to its family, friends and political supporters.

He argued that Bank of the Bahamas needed to dispel such impressions if it was to restore marketplace confidence and enhance its credibility.

“I think everyone in this room feels it’s essential this bank turns around, returns to profitability and does not become a burden to the economy,” Mr D’Aguilar said at the AGM. “This bank cannot fail.”

Turning to the absence of banking experience among Bank of the Bahamas’ current Board, all of whom were approved to serve for another one year term during the meeting, he added: “It’s a banking crisis.

“You really need some directors with banking experience. Because this bank is (majority) owned by the Government, the perception is that the directors are appointed because of their allegiance to it.

“The perception is there that they [the directors] are mandated to make loans to the politically connected, and it’s not been addressed in changing governance.

Bank of the Bahamas on Friday unveiled plans to allow its 3,000 minority shareholders, who collectively own 35 per cent of its equity (49 per cent of voting rights), to elect two directors to represent their interests to the Board.

However, the Government will still control the Board by virtue of its majority holdings, and have the power to appoint both the chairman and a majority of directors.

Implying that the changes were inadequate, Mr D’Aguilar said: “As we think of how to change the governance of the bank, this is not like BEC, the Water & Sewerage Corporation or Bahamasair.

“It’s very critical to our economy to get this right. It’s very important to choose experienced directors not influenced by the majority shareholder, and who do not make decisions that are politically connected.

“That perception is there. You hear the noise in the market that loans are politically connected..... You need to sit around the table with the political masters and think how to address this issue.”

Mr D’Aguilar’s comments were met with applause from some of his fellow shareholders, and prompted a robust defence of Bank of the Bahamas’ current Board and management by Mr Demeritte.

“I want to make it perfectly clear there is no interference by the Government in the Bank of the Bahamas whatsoever,” the chairman responded. “I can tell you that.

“People will believe what they want. We have a small community of 300,000 people. The Government has never interfered in my time.”

He continued: “The Board on which I serve as chairman, we’re doing a cleaning-up job. We’ve made no bad loans during our term. The Board is not aware of that [politically-motivated lending], and that’s a fact.”

Mr D’Aguilar, refusing to let up, countered: “You have to agree a structure is in place to allow that to happen. The chairman is appointed by the Prime Minister of the Bahamas.

“It’s very, very important that the directors of this bank have no political affiliation whatsoever. You have to admit it [politically-motivated lending] probably happened in the past.”

To which Mr Demeritte made an admission that is likely to be seized on by Bank of the Bahamas’ critics and observers, replying: ‘No question!”

Mr D’Aguilar concluded his arguments by then saying: “It’s the [governance] structure that’s the problem.”

Mr Demeritte’s response is the first time anyone connected with Bank of the Bahamas has admitted that its lending decisions have been influenced by political considerations, although he was careful to exempt himself and his current Board from this.

Whenever this issue has been raised in the past, Bank of the Bahamas and its senior executives have either denied the claims or swatted them away.

Mr Demeritte’s confirmation will likely provide the bank’s critics with further ammunition, and also increase pressure for the Government to exit via the sale of its 65 per cent majority stake.

Both Trinidad’s Republic Bank, and National Commercial Bank of Jamaica (NCB), have assessed Bank of the Bahamas as a possible acquisition target, but are thought to have been deterred by its weak financial position and what is required to recapitalise it.

Several banking industry sources have suggested that the Government has attempted to re-ignite their interest by “sweetening” the potential deal, although Tribune Business has been unable to confirm this.