The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The $168m Bank of The Bahamas (BOB) bail-out is unlikely to become a liability for Bahamian taxpayers within the next three-five years, Moody's believes.

The international credit rating agency, in its annual in-depth analysis of the country's economic and fiscal status, said the second BOB "rescue" from August 2017 was unlikely to migrate to the Government's balance sheet "in the near term".

This is despite the Government having to absorb an $84m hit, which took its 2017-2018 capital spending in line with budget estimates, due to the failure to recover the former toxic BOB loans that were transferred to Bahamas Resolve, the bail-out vehicle, in the first rescue.

As a result of redeeming the $100m in promissory notes (bonds) that were injected into BOB's balance sheet to plug the hole created by the toxic loans' removal, the Government was forced to incur extra borrowing/spending.

"As the assets transferred to Resolve have turned out to be worth only around 20 percent of the original $100m valuation according to IMF estimates, proceeds from the asset sales have been lower than originally envisioned," Moody's said.

"In fiscal 2017-2018, the government redeemed $100m of the promissory notes from BOB, thereby virtually taking the still outstanding bad debt, amounting to $84m, related to the first bailout on to its balance sheet."

The second $168m bail-out occurred last summer, with more bad commercial loans removed from BOB's books as that portfolio was "wound down as the bank transitions to a retail-lending focused business model".

"Like the initial transfer, Resolve issued promissory notes to BOB equal to $168m to offset the transfer of the bad loans. As during the 2014 bailout, the proceeds from these bad assets will be used to service the promissory notes," Moody's said.

"To date, the government's fiscal costs related to BOB remain contained and limited to a one-time transfer of $84m in fiscal 2017-2018 to clear the bad debt from the first bailout. If the transferred assets of the second bailout prove un-sellable and/or Resolve is unable to secure other funding to pay BOB, the residual cost could migrate on to the sovereign's balance sheet. In the near term (next three to five years), we view the likelihood of contingent liabilities from Resolve crystallising on the government's balance sheet as low-to-moderate."

Moody's added that BOB's seeming recovery, with the BISX-listed institution starting to turn small quarterly profits following the bad loans' removal, could help offset any migration of Bahamas Resolve's liabilities on to Bahamian taxpayers.