The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank of the Bahamas has been urged to “step in and take control” of Bank of the Bahamas, after shareholders lost almost $100 million in two years.

K P Turnquest, the Opposition’s deputy leader, told Tribune Business that “if there ever was a case” for intervention by the banking sector regulator, it was the BISX-listed institution’s continued travails.

He was speaking after Bank of the Bahamas finally revealed that its shareholders suffered a collective $30.397 million net loss for the year to end-June 2015, taking total losses for the past two years to $99.144 million.

The Government, as 65 per cent majority shareholder, together with Bank of the Bahamas’ management and Board, will likely point to the fact that net losses were cut by more than half - 55.8 per cent - year-over-year as a sign of progress.

They will also likely urge the 35 per cent minority investors, and the Bahamian public, to draw encouragement from the 91.4 per cent reduction in year-over-year losses for the 2016 first quarter.

Bank of the Bahamas’ red ink dropped from $4.198 million in 2014 to $359,365 for the three months to end-September 2015 (see other article on Page 1B), but this is not yet evidence of a consistent, improving trend towards profitability.

And the bank’s results for the full year to end-June 2015 raise questions as to exactly how much progress has been made. Among the ‘highlights’ are:

• Almost $200 million, or nearly 35 per cent, of Bank of the Bahamas’ $569.411 million loan portfolio is non-performing or more than 90 days past due.

The bank continues to be plagued by a weak, deteriorating loan credit book, with mortgage loans accounting for 55 per cent ($109.134 million) of its total $198.358 million in ‘bad’ loans.

• Even though more than $1 out of every $3 lent by Bank of the Bahamas is non-performing, the annual financials give no indication that there will be another ‘Bahamas Resolve-type’ transaction, where more than $45 million in ‘bad’ credit was taken off the bank’s book.

Non-performing loans, as a percentage of Bank of the Bahamas’ total portfolio, did drop slightly year-over-year - from 38.52 per cent to 34.84 per cent. They also fell in gross figures, declining from $254.43 million to $198.358 million.

However, much of the decline was due to the $45 million removed by the Bahamas Resolve transaction, which occurred after the 2014 year-end.

• The extent to which the Christie administration is supporting (propping up) Bank of the Bahamas is disclosed by the fact that some $316.503 million, or just over 45 per cent, of its total $697.383 million in deposits come from either the Government or its agencies/corporations.

The $316.503 million figure is almost $110 million, or 52.9 per cent, higher than the $206.944 million in Government and related agency deposits held by Bank of the Bahamas at year-end 2014.

Without this elevated support, Bank of the Bahamas’ deposit base would have shrunk by around $82 million in the year to end-June 2015.

• Although the Bahamas Resolve transaction brought Bank of the Bahamas back into line with the Central Bank’s mandatory capital ratios, this was only a ‘temporary fix’.

At end-June 2015, the BISX-listed institution is back in non-compliance with two of them. These are Tier 1 Capital as a percentage of total risk weighted assets, where Bank of the Bahamas is at 11.06 per cent compared to the 12.8 per cent minimum.

And its Tier 1 capital as a percentage of total capital stood at 62.47 per cent, well below the Central Bank’s stipulated minimum of 75 per cent.

• All Bahamians, not just shareholders and depositors, have been harmed by the Bank of the Bahamas situation.

This is because the National Insurance Board (NIB), the nation’s social security system in which we all have a stake, holds 28.21 per cent of Bank of the Bahamas’ ordinary shares.

Based on this, NIB has suffered a collective $27.97 million loss on its Bank of the Bahamas stake over the past two years. In 2014, this drove a 65.9 per cent year-over-year decline in NIB’s ‘bottom line’, which fell from $33.7 million in 2013 to just $11.5 million.

• Two consecutive years of excessive net losses, due mainly to its poor quality loan portfolio and related provisions, have seen Bank of the Bahamas rack up a $70.598 million accumulated deficit.

This represents its total historical net losses, and is a figure that has already wiped out the $54.622 million in provisions and accrued interest that Bank of the Bahamas was able ‘write back in’ from the Bahamas Resolve transaction.

• Without the $100 million in promissory notes (Government bonds) that were received in return for the ‘bad’ loans transferred to Bahamas Resolve, Bank of the Bahamas would be insolvent, with liabilities exceeding assets by more than $100 million.

Despite all of the above, the 2015 financial statements, audited by Ernst & Young (Bahamas), were prepared on the basis that Bank of the Bahamas remains “a going concern” based on the support of its majority shareholder.

Referring to the bank’s non-compliance with the two key capital ratios, the financial statements say: “The Central Bank is aware of these regulatory capital deficiencies, and the bank does not expect that these regulatory capital deficiencies will impact the bank’s ability to continue as a going concern.

“The Government of the Bahamas, as majority shareholder, 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.”

Apart from the Central Bank’s seemingly passive stance, watching on while its capital requirements are consistently flouted, many Bank of the Bahamas minority investors and observers are likely to question the reference to “a strategic plan”.

This, if it exists, has never been disclosed despite the Bahamian taxpayer’s heavy involvement in Bank of the Bahamas, and the bank’s status as a listed, publicly traded company.

Paul McWeeney, Bank of the Bahamas’ former managing director, pledged after its last annual general meeting that such a plan would be made public. He later, though, retreated from that position, saying its release would need full Board approval.

Mr Turnquest, who is also the FNM’s finance spokesman, told Tribune Business: “The question has to be asked: At what point does the Central Bank step in to take control of this bank?”

“I don’t know how the regulations work in terms of when the Central Bank steps in, but it seems that if there is a case for them to step in, it has to be this situation.

“This is an institution that threatens to harm the financial reputation of the Bahamas, cause harm to many Bahamians, and it seems as if we’re going on hoping something is going to drop,” he added.

“I certainly think this [Central Bank control] would be the appropriate thing to do at this point. The Board of Directors has remained the same, and expecting different results from the same people; how does that work?

“Everyone wants to stay in place and hope some miracle comes along and saves us. Everyone wants to be nice, but to realise the bigger picture we have to move some pieces.”

Bank of the Bahamas’ commercial banking rivals will also find it hard to stomach the fact that it has consistently violated the Central Bank’s capital requirements, which they have all adhered to, and not been held to account.

And this while Bank of the Bahamas has been the only institution to require a Government ‘bail out’, something none of its competitors have needed.

“We understand it’s a Government-owned entity,” one senior banker, speaking on condition of anonymity, told Tribune Business. “The Central Bank has been timid and weak with respect to Bank of the Bahamas.”

The banker revealed he had been expecting a net loss closer to $100 million, with the Government simply unable - due to its strained fiscal position - to inject more equity capital into the bank.

“The Government is standing behind it but not funding it,” the banker said of Bank of the Bahamas. “Short of closing it down and laying the people off, I don’t know what they can do.

“They don’t have the wherewithal to reduce its network and lay people off. They’re stuck between a rock and a hard place.”

Mr Turnquest, meanwhile, hit out at the Government’s use of some $4.17 million in taxpayer funds to make four separate payments to Bank of the Bahamas’ preference shareholders over the past two years.

The Government has taken over responsibility from the bank for making these payments, but the FNM’s deputy leader said they represented an egregious ‘wealth transfer’ from poor Bahamians to wealthy investors.

“We’re again talking about taxpayer dollars,” Mr Turnquest told Tribune Business. “We’re talking about taking money from the poorest of us to the richest of us, the preference shareholders of Bank of the Bahamas.

“I understand the desire not to default, but it seems we’re not being serious about restructuring Bank of the Bahamas so that it does not burden poor Bahamians.

“It’s upside down. Sometimes an investment works out, and sometimes you lose. Should it be that the average Bahamian bails out rich shareholders, whether pension funds or not?”

For the year to end-June 2015, Bank of the Bahamas’ interest income fell by 14.2 per cent to $42.739 million, due to the loan portfolio’s reduced quality and size.

Total operating income fell by 12.3 per cent to $32.996 million, and while loan loss provisions dropped by 62.5 per cent - from $69.723 million to $26.124 million - they remained extremely high.

Net losses were $1.42 per share. Bank of the Bahamas also closed its Thompson Boulevard branch on September 30, 2015.