The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

More than 46 per cent of Bank of the Bahamas’ $510 million loan portfolio is now impaired, with ‘bad’ credit extended to business customers exceeding the sum that remains current.

The BISX-listed institution’s long-suffering shareholders yesterday told Tribune Business that its latest travails, disclosed in the annual results for the year to end-June 2016, “boggle the mind”.

The financials, signed off by its Board of Directors on December 13 after they obtained a three-month extension to publication from BISX and the Securities Commission, provide further insights into the depth of its woes and the extent to which the Government (via the Bahamian taxpayer) continues to prop it up and prevent its collapse.

Among the highlights are:

• The 10.5 per cent year-over-year decline in Bank of the Bahamas’ net loan portfolio, from $569.411 million to $509.884 million, resulted in the proportion of non-accrual loans (those that are non-performing/impaired) jumping by almost five percentage points.

Non-accrual loans rose from 41.27 per cent of the total portfolio to 46.07 per cent at end-June 2016, even though the total sum involved - $234.886 million - was largely flat with the 2015 numbers.

However, the figures again show that unless more non-performing loans are removed from Bank of the Bahamas’ balance sheet, its prospects of recovery and a return to sustained profitability remain slim.

Impaired commercial loans, worth $92.869 million at year-end 2016, exceed $70.98 million in ‘good credit’ extended to business borrowers by almost $22 million.

The annual financials also reveal that Bank of the Bahamas has “termed out” some $38 million worth of overdrafts, which means that it has capitalised these short-term debts to convert them into long-term liabilities.

“During June 2016, the bank termed out certain non-performing overdrafts to non-performing mortgage, commercial or consumer loans amounting to $38 million,” the statements said.

• Deposits by the Government and its agencies accounted for 52.8 per cent, or more than half, Bank of the Bahamas’ total deposits at the June 30, 2016, year-end.

The Christie administration’s deposits at the BISX-listed institution jumped by 27.6 per cent or more than $87.4 million year-over-year, hitting $403.932 million compared to $316.503 million in 2015.

This provides further evidence of just how heavily the Government is propping up Bank of the Bahamas, directing its agencies to deposit monies with it, and requiring new public sector hires to open accounts there.

Bank of the Bahamas’ total deposits also grew year-over-year during its 2016 financial year, expanding by $67 million or 9.6 per cent to $764.353 million (they subsequently declined after year-end).

This shows that without the Government increasing its deposits, Bank of the Bahamas’ would have suffered a full-year decline in this indicator, as private clients again withdrew more than they put in.

• Bank of the Bahamas was non-compliant with four of its five key regulatory capital ratios at end-June 2016, the annual financials revealing that the Central Bank of the Bahamas has made “certain supervisory interventions” with it.

The nature of these “interventions” was not revealed, but on September 30, 2016, the Central Bank increased one of its key regulatory capital ratios beyond the norm specifically for Bank of the Bahamas.

“The Central Bank is aware of these regulatory deficiencies, and has imposed certain supervisory interventions on the bank. The bank continues to report to the Central Bank on its progress,” Bank of the Bahamas’ annual financial statements state.

“Effective September 30, 2016, the Central Bank increased the minimum capital requirement for the ratio on Total Capital to Total Risk Weighted Assets to 18 per cent for the bank. “

The standard for this ratio is 17 per cent, meaning that Bank of the Bahamas must now hit a standard that is one percentage point higher than the industry norm. Its $40 million rights issue, which was “entirely” taken up by the Public Treasury, was intended to bring all the bank’s capital ratios into line with the Central Bank’s requirements - at least for the moment.

• Bank of the Bahamas’ external auditors, KPMG, in their first year on the job did not qualify their audit opinion, seemingly on the basis of the Government’s continued financial support.

However, it did flag up its ‘going concern’ note and the BISX-listed institution’s problems in meeting the Central Bank’s regulatory capital requirements.

“The bank has experienced continuing operating losses for the last several years, and was also non-compliant with certain of its externally imposed regulatory capital requirements as at June 30, 2016, and 2015,” KPMG noted.

“Management does not expect that the continued operating losses or regulatory capital deficiencies will impact the bank’s continuing ability to operate as a going concern.”

Acknowledging the bank’s $94.004 million accumulated deficit at end-June 2016, KPMG referred to both its Board-approved ‘strategic plan’ and the Government’s continued support as the basis for its ‘non-qualification’, although it appeared uncertain as to how long the latter will last.

“Management has developed a strategic plan intended to improve the operations and financial viability of the bank, and does not expect that the continued operating losses or regulatory capital deficiencies will impact the bank’s continuing ability to operate as a going concern,” the annual financial statements said.

“The Government, as majority shareholder, has confirmed that it remains firmly committed to supporting the continuing operations of the bank, including the implementation of the strategic plan approved by the Board to address these deficiencies, and will ensure that adequate resources are provided to enable the bank to satisfy its financial obligations and its regulatory capital requirements for at least the next twelve months and, in fact, for the foreseeable future.”

Bank of the Bahamas has yet to release, or discuss, its “strategic plan” with the 3,000 minority investors who now hold just over 20 per cent of its equity.

While its $23.407 million net loss was in line with the unaudited estimate contained in its $40 million rights offering prospectus, shareholders were quick to vent their concerns yesterday.

Mike Lightbourn, the outspoken president of Coldwell Banker Lightbourn Realty, told Tribune Business of the bank’s performance: “It boggles the mind.

“What it is, is a farce. It’s a disgrace and a joke. Anywhere else in the world, the bloody bank would be closed.”

Dionisio D’Aguilar, the FNM candidate for Montagu, told Tribune Business that the Government had “no choice” but to stand behind Bank of the Bahamas, given that the consequences for the economy and its depositor would be far worse should it fail.

“It’s a government bail-out to the tune of millions of dollars a year,” he told Tribune Business, adding that the 46 per cent of loans that were impaired was “a pretty poor reflection on what management did”.

“Their loan policies were pretty slack,” Mr D’Aguilar added. “It would be interesting to see how many were of a political nature. It didn’t go to me. I didn’t get a penny.”

The Bank of the Bahamas financial statements also disclose that the Bahamian taxpayer is now ‘on the hook’ for the $45.2 million worth of loans transferred to Bahamas Resolve, the Government’s special purpose vehicle (SPV).

Should Bahamas Resolve fail to recover the loans it has received, and finance the interest payments due on the $100 million in government bonds used to fill the hole on Bank of the Bahamas’ balance sheet, the taxpayer will be called into action yet again.

“As a part of the transaction, the bank received an irrevocable Letter of Support from the Government,” the annual financials said.

“The Letter of Support pledged the Government’s support of the SPV to enable it to satisfy its obligations under the notes, and confirms that, in the event of default by the SPV, the bank can seek to recover outstanding balances from the Government.”

An accrued interest receivable of $708,333 was owing to Bank of the Bahamas from Bahamas Resolve at end-June 2016, with the bank now having the ability to redeem all - or part - of the $100 million in bonds.

The Bahamas Resolve ‘bail out’ thus represents a transfer of liabilities from Bank of the Bahamas’ shareholders to the Bahamian taxpayer.