The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas' bail-out vehicle must be "more aggressive" in liquidating the assets securing its 'bad loan' portfolio, the Deputy Prime Minister urged yesterday.

K P Turnquest told Tribune Business that the Government was adamant Bahamas Resolve will "not become another burden on the backs of the Bahamian people", amid warnings it will soon be unable to service its obligations to the BISX-listed institution.

"It is a reality we are aware of," he said. "The fact of the matter is that Resolve has to do a better job, a more aggressive job of liquidating those properties it has to meet its commitments."

Mr Turnquest added that the Minnis administration would "ensure we do everything in our power to make sure it does not become another burden on the backs of the Bahamian people.

"Concern is not necessarily a word I would want to use, but we are aware of this and want to mitigate it".

Mr Turnquest, who is also minister of finance, was responding after Bahamas Resolve's former chairman, James Smith, again warned this week that Bahamas Resolve's inability to collect on its 'bad loan' portfolio means it cannot fulfill its obligations to Bank of the Bahamas.

Mr Smith, a former Central Bank governor and finance minister, had delivered a similar warning to Tribune Business in June 2016. He is now suggesting that the Public Treasury may have to takeover interest payments on the bank's bonds from Bahamas Resolve, further burdening an already-cash strapped Bahamian taxpayer.

Bahamas Resolve is the special purpose vehicle (SPV) created in October 2014 to facilitate the rescue of Bank of the Bahamas. The 'bail out' saw a collective $45.2 million in 'bad loans', belonging to 13 delinquent borrowers, transferred from the BISX-listed institution to Bahamas Resolve, with the subsequent 'hole' in the bank's balance sheet plugged by $100 million worth of government bonds.

The interest payments due to Bank of the Bahamas on those bonds were supposed to be serviced by the proceeds from Bahamas Resolve's sale/liquidation of 'distressed assets' securing those loans - mainly high-end and apartment-style residential properties, together with some business premises.

However, Mr Smith this week - as in June 2016 - warned that the value of Bahamas Resolve's loan 'security' was around 50 per cent less than what was considered to be its initial worth. This, combined with slower-than-expected property disposals, is impacting the SPV's ability to service Bank of the Bahamas' bonds.

"In the beginning, we used proceeds of a sale to fund the interest," Mr Smith said. "But going forward we said to government officials that you're going to have to make this a line item in the Budget.

"The yearly interest to the bank is about $2-$3 million. At first, proceeds came in from a Paradise Island property we sold; that was enough for a while. We sold a second property and that helped for a while as well. But the Treasury may have to kick in afterward. Even if we were to sell every property, it wouldn't be enough to settle the debt and, at some point, you have to get money from somewhere to pay it."

Mr Turnquest yesterday told Tribune Business that Bahamas Resolve's creation, and the structure of Bank of the Bahamas' October 2014 'bail out', had not been properly thought-out by the former Christie administration.

"It was a hastily put-together arrangement," he said, "and not necessarily well thought-out, but we have to deal with it."

Mr Turnquest said a new Board had been "designated" for Bahamas Resolve, but the Minnis administration had yet to officially appoint it.

The Christie administration's priority in rescuing Bank of the Bahamas was to bring the BISX-listed institution back into compliance with the Central Bank's solvency and capital ratios, while simultaneously ensuring there was no negative impact for the Government's own finances and balance sheet.

The implications for Bahamas Resolve, and its ability to service the interest payments due to Bank of the Bahamas, would not have been the primary consideration when structuring the bail-out.

However, Mr Smith's renewed warning indicates that Bahamas Resolve - and Bank of the Bahamas - are set to become a further liability that will have to be covered by long-suffering taxpayers.

Apart from low valuations and a difficult real estate market, Bahamas Resolve's former chairman has also warned that some of the 13 'bad borrowers' are being uncooperative and denying the SPV - and its agents - access to the properties on which credit is secured.

Bahamas Resolve is also having to pay fees to its manager, the Deloitte & Touche accounting firm, and the Higgs & Johnson law firm that is acting as its attorneys.