The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas last year admitted to “deficiencies” in its anti-money laundering regime, and submitted an ‘action plan’ to address them to industry regulators.

The admission is contained in the BISX-listed institution’s annual ‘corporate governance’ compliance certification, which all Bahamas-based bank and trust companies are required to submit to the Central Bank.

Bank of the Bahamas’ certification, submitted on April 28, 2015, conceded that “deficiencies in respect of” its compliance with anti-money laundering and counter terror financing guidelines had been “noted”.

“An action plan to remedy the deficiencies has been prepared and submitted to the Inspector [of Banks and Trust Companies], indicating whether the necessary remedial action has been taken,” the bank’s certification, contained in its 2015 annual report, reads.

“The Board recognises that weaknesses exist in relation to oversight and maintenance of policies, and development of procedures and processes to reflect the control environment as it changes.”

It is unclear whether all these “deficiencies” have now been remedied, given that the certification was submitted 11 months ago. However, their existence will serve as a further concern for shareholders who have endured a near-$100 million loss over the past two years.

While Bank of the Bahamas’ Board said the institution was “materially compliant” with the Central Bank’s corporate governance principles, it acknowledged there were deficiencies in other internal controls and systems.

“We do recognise that continued attention and progress are required in the following areas in order to further enhance the control environment of the bank, and improve the enterprise risk management process,” Bank of the Bahamas’ certification conceded.

These “areas” include staff training on risks and operating standards; risk monitoring and assessment; improved data quality; and monitoring of loan portfolio quality.

“The Board reviewed the bank’s comprehensive Business Continuity Plan (BCP), and has identified a number of gaps in the BCP process, including lack of testing of the plan and weaknesses in recovery strategies,” the Bank of the Bahamas certification added.

“The Board will seek to ensure that suitable recovery strategies are adopted, and that the Bank’s BCP is tested moving forward.”

The certification also disclosed that internal audits had identified unspecified “issues”, some of which were still being addressed, while “remedial actions” were also underway to tackle concerns identified by Central Bank inspectors.

The messages to shareholders from Bank of the Bahamas’ chairman, Richard Demeritte, and managing director, Wayde Christie, were kept short in the newly-released annual report for the year to end-June 2015.

“The bank made solid progress in reducing loan losses,” said Mr Demeritte, “and while we are not yet in the black, a return to profitability appears on the horizon.”

Mr Christie, meanwhile, acknowledging that “ the eyes of the Bahamas” were watching the bank’s turnaround efforts, said shareholders will be asked to approve the reclassification of unsubscribed shares.

“To facilitate new regulatory requirements, shareholders will be asked to approve a reclassification of unsubscribed shares that will boost liquidity reserves,” he wrote, supplying no further details.

This approval will likely be sought at Bank of the Bahamas’ April 15 annual general meeting (AGM).

Touting the bank’s recovery plan, Mr Christie said: “We now have a road map for change that will also be assisted by an advisory committee of independent persons.

“The changes that are coming are nothing short of a transformation. BOB is metamorphosing from a universal bank to a more focused lender. Credit quality will increase while average credit limit will decrease.”

Mr Christie emphasised, though, that Bank of the Bahamas will continue to rely heavily on its 65 per cent majority shareholder - the Government - to return to profitability.

Apart from deposits, Mr Christie said the bank will “strive to serve as the preferred provider for our majority shareholder, handling payment and benefit processing”.

Despite the $100 million ‘bail out’, which saw Bank of the Bahamas transfer $45.2 million worth of ‘bad’ loans to the Government-owned Bahamas Resolve vehicle, the bank’s 2015 results were still depressed by high credit loss provisions.

‘The bank’s year-end financial results, however, still reflect the continued challenges with systematically high loan delinquencies, which reduce the level of income recognised, coupled with significantly reduced values on collateral holdings,” Bank of the Bahamas said in its annual report.

“As a consequence, the bank recognised provisions for loan losses of $26.1 million. With the impact of increased provisioning, the bank realised a net loss of $30.4 million compared to a net loss of $66.3 million in the prior year.”

Bank of the Bahamas still had $198.4 million worth of non-performing loans weighing down its balance sheet at end-June 2015, compared to $254.4 million the year before.

“The bank’s credit quality rating was 34.84 per cent at June 30, 2015, compared to 38.52 per cent in the prior year and 15.8 per cent across the industry,” the bank’s annual report said.

“The bank significantly revised its expectations on the extent and timing of an anticipated economic recovery, and subsequently revised the methodologies used for the recognition of loan loss provisions.

“Despite the mechanisms implemented by the Credit Risk department along with Collections, challenges with the overall portfolio persist as increased delinquencies and diminished collateral values have resulted in significant provisions for consumer, commercial and mortgage loans.”