The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A prominent Bank of The Bahamas (BOB) shareholder yesterday warned it was "way too early to celebrate" its 199 percent first quarter profits increase as multiple concerns remain.

Darron Cash, pictured, the former Free National Movement (FNM) chairman, told Tribune Business that "the jury is still out" on whether the BISX-listed institution can sustain a performance that saw net income near-triple to $1.966m for the three months to end-September.

He described BOB's loan book quality, with 28.92 percent or $101.648m of the net portfolio in default at end-June 2018, as likely "the greatest risk" to achieving consistent profitability.

Mr Cash said the Bahamian public, who were responsible for giving the bank a "new lease on life", still did not know if a third government bail-out will be required, and he criticised successive administrations for doing "a disservice" by not providing greater clarity on why BOB suffered five consecutive annual losses that took its accumulated deficit to more than $140m.

He added that increased depositor and public confidence was now key to completing BOB's rescue, as this will enable the Government to reduce its support and, ultimately, begin to sell down its majority 82.6 percent stake in the bank.

"It's important to accentuate the positive, and it is good to see the net income and comprehensive total income numbers moving in the right direction," Mr Cash told Tribune Business. "That's a positive step that we ought to acknowledge and commend the Board and management team for.

"Having said that, it's way too early to celebrate that the financial results have improved because the jury is still out on whether the results that have been achieved are going to be lasting. A quick look in the annual report highlights the quality of the loan portfolio continues to be one of, if not the greatest, risks in terms of sustained profitability."

Tribune Business reported last month that more than one-quarter of BOB's net loan portfolio was delinquent at end-June 2018 despite the prior year's $167m government bail-out, with the financials unable to escape a "going concern" warning from external auditors, KPMG.

Some 28.92 percent or $101.648m of BOB's net loan portfolio remains in default. While that represents a significant drop of over $145m from the year-before's 55.11 percent ratio, it is double the 14.3 percent average delinquency ratio for the full Bahamian commercial banking industry.

The bank's second bail-out largely focused on removing delinquent commercial mortgages, leaving BOB with a still-problematic residential mortgage portfolio. Some 31.2 percent, or $76.325m, of a $244.481 residential mortgage book remains in default, accounting for around three-quarters of the bank's remaining troubled loans.

"Shareholders, and by shareholders I mean the Bahamian people, still don't know or are in a position to be 100 percent, even 80 percent, satisfied that all the bad news has been revealed," Mr Cash told Tribune Business.

"That is the great unknown for the long-term viability of the bank.... Clearly, BOB's auditors recognised that the quality of their loan portfolio continues to put them at great risk and calls into question whether the bank is a going concern."

BOB's near-triple first quarter profit surge came despite a slight decline in top-line interest income, with its net loan book shrinking by more than $20m to $331.315m at end-September 2018. This indicates the BISX-listed commercial bank is struggling to find new credit opportunities, and increase market share, in the very area that represents its core business - lending.

Indeed, most of BOB's year-over-year first quarter improvement came from reduced operating expenses and loan loss provisions, which together accounted for around $950,000 of the $1.3m bottom line improvement.

And BOB's just-released 2018 annual report disclosed that net loans and advances to customers for the 12 months to end-June fell by $96.6m or 21.56 percent, down from $448.1m to $351.5m.

"The overall decline in net loans and advances was due to lower gross loans and advances by $173.8m or 29.82 percent year-over-year, partly offset by lower provisions for credit losses, primarily as a result of the Resolve transaction," BOB said. "Provisions for credit losses moved from $142.6m to $65.6m, a decrease of $77m or 53.96 percent."

Mr Cash said that while BOB's net interest income appeared to have "stabilised" during the three months to end-September 2018, "the bank has to be focused on growing that number and market share in a meaningful way".

"Stability is growing but a growth trajectory over the coming quarters would inspire a lot more confidence," he added. "In my view there's a legitimate concern about the deposit portfolio. Whether or not that stabilises and continues to grow as an indication of public confidence is to be seen.

"Over the next few quarters we'll see whether growth in the deposit number becomes evident, and not just from Government-connected corporations but average Bahamians who begin to develop more confidence in the long-term stability of the bank."

BOB's 2018 audited financial statements show that the Government continues to prop-up the bank in multiple ways. Together with its agencies, they accounted for $242.325m or 38.6 percent - more than one-third - of the bank's $628.406m in deposits at end-June 2018.

"There's one element of BOB that I want to personally highlight," Mr Cash told Tribune Business. "I want to express my view that the Government has done the Bahamian people a disservice by not revealing in greater detail the underlying reasons why the bank ended up in the position it did.

"The bank has a new lease on life entirely because it was bailed out by the Government and Bahamian people, and anyone who looks at the nearly $140m in accumulated losses and compares that to $167m in special retained earnings... that reflects the extent to which the Bahamian people stepped in to rescue this bank.

"Anyone who looks at this can see the extent to which the Bahamian people are invested in Bank of The Bahamas' survival and ultimate future. The Government ought to be a lot more specific on why these losses occurred and what policy changes have been made so they do not happen again."

Mr Cash continued: "Yes, there's reason to be encouraged, but they've got to demonstrate the ability to manage the existing loan portfolio very well. If they demonstrate the ability to do that, then the fear of the bank going out of business without a government bail-out will subside.

"The Government will then be in a position to offload its shares to confident investors who believe the bank does have a future."

Mike Lightbourn, another of BOB's 3,000 minority shareholders, told Tribune Business that BOB needed to recover and prosper for the good of both itself and the wider Bahamas.

"Obviously they're making positive headway, which we're all happy about, and hopefully they're going to be less of a drain on the Government," he said of BOB's first quarter results.

"It's a positive outlook and they're headed in the right direction. We don't know how long they're going to take, but for the sake of the bank and the country I hope they achieve their goals quicker than expected.

"I just hope they've cut out all the fat and loans to politically exposed persons (PEPS). I think they have by and large; they have to - it's the only way to redeem themselves. We all want them to do well; it's good for them and the country."