The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The “full-scale” taxpayer bail-out of Bank of the Bahamas has deepened, with the Government taking up its entire $10 million bond issue amid a 51.3 per cent increase in half-year losses.

The Government’s acquisition of the whole 2016 year-end convertible bond issue, as previously predicted by Tribune Business, was quietly disclosed in the BISX-listed institution’s latest financial statements.

It was not even referenced in the management discussion of Bank of the Bahamas’ first half results, which attempted to paint an optimistic picture that the troubled institution is on the path to recovery, despite a further $5.428 million loss for the half-year to end-December 2016.

However, the key line in the report to shareholders by Renee Davis, the acting managing director, is that Bank of the Bahamas will not return to profitability until it fully deals with a non-performing loan portfolio that accounts for a mammoth 46 per cent of total issued credit.

“The Bank’s return to profitability is largely dependent on the performance of the loan portfolio; a great part of the bank’s success will be contingent on resolving its non-performing loans,” Mrs Davis conceded to investors.

This implies an extremely long, arduous work-out is still required to stabilise Bank of the Bahamas and place it on a sustainable long-term footing -something that was quickly seized on by long-suffering minority shareholders.

Dionisio D’Aguilar, who is also the FNM’s candidate for Montagu, told Tribune Business of the Government’s bond take-up: “It’s in a full-scale bail-out now.

“If it weren’t for the Government and its deposits it would be completely bankrupt. The fundamental problem is that 46 per cent of the loan portfolio is non-performing. You can survive on 10 per cent, but you can’t survive 46 per cent. That is the critical number.”

Bank of the Bahamas’ financials for the year to end-June 2016, as first revealed by Tribune Business, disclosed that 46.07 per cent, or $234.886 million of its total $510 million loan portfolio, was non-performing - meaning 90 days or more past due - at that date.

Meanwhile, the bank’s balance sheet at end-December 2016 shows that without the $100 million in promissory notes (bonds) issued to Bank of the Bahamas in October 2014 in exchange for the $45.2 million net ‘bad’ loans transferred to Bahamas Resolve, the institution would be insolvent with assets exceeding liabilities.

Bank of the Bahamas’ accumulated deficit now stands at almost $100 million, having totally wiped out the $54.622 million in ‘special retained earnings’ written back into its balance sheet via the Bahamas Resolve transaction.

The balance sheet now also shows $10 million in ‘interbank borrowings’ as a liability, which are unexplained but could be the convertible bond issue taken up by the Government.

Mr D’Aguilar yesterday predicted that Bank of the Bahamas “is going to cost the Bahamian taxpayer $600-$700 million to bail it out”, as the Government had little to no choice but to keep ‘bailing out’ the BISX-listed institution to protect both depositors and the wider economy.

Apart from the $100 million promissory note and Bahamas Resolve transaction, the Government injected a further $40 million into the bank last year by taking up its entire September rights offering.

And, with December’s $10 million bond issue the first of three equal tranches, it is likely the Government will end up infusing $70 million in capital into Bank of the Bahamas over a seven-month period.

“This is even bigger than BEC,” Mr D’Aguilar told Tribune Business in regard to just how much taxpayer/Government financial support will be needed to prop up Bank of the Bahamas.

“This is the single biggest loss, and the Bahamian taxpayer does not realise how they’ve been taken advantage of by the poor management of this bank. It’s a disaster.

“The Government needs to sell it and fund the losses. They’re kicking it down the road, and will have to keep funding it and bailing it out to protect the depositors.”

Warning that Bank of the Bahamas’ demands on the taxpayer could weigh heavily in assessments of this country by the international credit rating agencies, Mr D’Aguilar reiterated: “The Bahamian public don’t understand the cost of this. This is huge, enormous.

“The cost of this loss is going to be massive for the finances of the Government. This is what happens when the Government runs things; you get these enormous financial disasters, and our government and economy cannot afford it. ‘Where the VAT money gone?’ The VAT money has gone to bail out the Bank of the Bahamas.”

Other shareholders were equally scathing. Mike Lightbourn, president of Coldwell Banker Lightbourn Realty, said the bank’s latest loss was “absolutely no surprise”.

“I don’t know how they can keep the doors open,” he added. “It is really incredible that they allow this institution to continue, whereas all other banks they’ll close down.”

Mr Lightbourn was likely referring to the Government’s 79 per cent majority stake in Bank of the Bahamas, through the Public Treasury and National Insurance Board (NIB), which many believe explains the ‘light regulatory touch’ that is perceived to have been taken towards it.

Bank of the Bahamas’ financial statements for the half-year to end-December 2016 showed that its total comprehensive loss had increased by almost $2 million year-over-year, rising from $3.587 million to $5.428 million.

However, the loss for the final three months, or second quarter, dropped by 37.3 per cent, falling from $3.267 million to $2.049 million.

Provisions for non-performing loans again helped to drive the ‘red ink’, as they rose for the half-year by 18 per cent, from $6.134 million in 2015 to $7.237 million at the end of last year.

Mrs Davis, though, focused on the positive, telling shareholders: “The bank’s net credit loss expense is $0.7 million lower than the same quarter in the prior year, while non-accrual loans also decreased.

“Year-to-date, $7.2 million net credit loss expense is $1.1 million higher than prior year-to-date as more timely provision assessments are being made.”

She promised: “Sustainable growth, effective management of our non-performing loans and improving operational efficiency remain the primary focus for the bank.

“As we prudently, systematically and urgently improve in these areas, the Bank will return to profitability. Increased value for each of our stakeholders is a paramount commitment.”

However, the progress identified by Mrs Davis was relatively small when compared to the overall scale of Bank of the Bahamas’ problems and the $120 million-plus in total losses incurred over the past three years.

She added that the $10 million in convertible capital bonds had helped bring Bank of the Bahamas back into compliance with four of the five key capital ratios mandated by the Central Bank, and would work to “absorb losses when capital falls below a certain requirement.

Pointing to a $5 million increase in performing loans during the 2016 second half, Mrs Davis said: “BOB is significantly enhancing its collections function with a key initiative to accelerate resolution of impaired assets and monitoring of the existing portfolio for potential restructures

“Total operating income (TOI) increased from prior year by $0.6 million or 6.91 per cent for the quarter, and decreased $1.2 million or 6.56 per cent year-to-date. For the quarter, the increase was owing to higher net interest income and higher net fee and commission income, as the bank strengthens its auxiliary revenue streams.

“Year-to-date, the decline was primarily owing to an extraordinary other income of $1.3 million recorded in prior year. Without the impact of this extraordinary income, TOI would have also shown a positive variance.”

Mrs Davis said Bank of the Bahamas had reduced operating expenses by $0.1 million or 1.58 per cent for the second quarter, and by $0.6 million or 3.54 per cent for the half-year, due to lower staff costs and other administrative expenses.