The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of The Bahamas’ managing director says a shrinking loan book, combined with rising deposits and cash, is “a formula you don’t really want” for sustained long-term profitability.

Kenrick Brathwaite, speaking after the BISX-listed institution unveiled just $500,000 in net income for the six months to end-December 2021, told Tribune Business he continues to hope the Central Bank will soon remove the prohibition on new commercial lending imposed after its near-collapse some eight to nine years ago.

Arguing that the inability to lend commercially was creating a “skewed” loan portfolio that lacked diversity across a range of credit types, he asserted that Bank of The Bahamas had implemented stringent internal controls and reforms such that its “credit risk rating system is just as good as any bank in the country”.

Although the 2022 financial year’s first-half net income represented a five-fold increase on the prior year, that came against the low bar of just a $100,000 profit for the same period. “We’re trying valiantly to reach the point of sustained profitability over the long-term, but that will not come until we expand the debit cards, credit cards and commercial lending,” Mr Brathwaite said.

“We have a three-year strategic plan that we have just amended, and hopefully at the end of that we will have ironed out all the kinks regarding structures, systems and credit card processing... But for us to reach our profit goals we need to be able to lend commercially as soon as possible because that is part of our strategic plan.”

Bank of The Bahamas has been restricted from lending to businesses since 2013-2014. Some observers will likely argue that the restriction should remain in place indefinitely given the $300m-plus cost imposed on the Bahamian taxpayer from two government bail-outs of the bank, plus a $40m initial public offering (IPO) that the Government had to pick fully pick up via the Public Treasury and the National Insurance Board (NIB).

The Central Bank first has to complete an assessment to determine whether Bank of The Bahamas’ risk controls and other critical procedures are sufficiently robust to give it confidence there will not be a repeat of the huge commercial loan delinquency that almost led to the institution’s collapse.

“We hope they come in and do their review,” Mr Brathwaite said. “I think our structure in terms of credit risk rating is just as good as any bank in the country. I don’t see that being a challenge, but they have to come in and do their assessment to confirm we’re in position to lend commercially.”

Bank of the Bahamas, in common with most local commercial banks, is in a position where its liabilities (deposits) are increasing but its main source of assets (loans) are shrinking due to the inability to find new, qualified borrowers to which to lend those deposits.

For the six months to end-December 2021, Bank of The Bahamas saw deposits increase from $696m to $716m, a rise of $20m, while its net loan book shrank from $388.656m to $376.37m. Cash and its accounts with the Central Bank jumped from $121.332m to $127.909m over the same period.

“That’s a formula you don’t really want,” Mr Brathwaite told Tribune Business. “You want deposits to increase but be able to lend that money out. The fact we’re not lending commercially eliminates one area where we might absorb some of that influx.. There is no way to absorb all of the deposits in the system.

“The irony is that the Government is saying we need to lend to small businesses and companies. We all agree with that but we need to aggressively target that market so we can absorb a lot of the liquidity in the system.”

While Bank of The Bahamas’ focus on higher-yielding consumer loans had helped drive net interest income for the six months to end-December to $17.576m, as opposed to $15.969m the year before, Mr Brathwaite added: “That is good for profit but not good for sustainability, and not good for diversification.”

Banks typically balance their loan books between mortgages, consumer loans, commercial credit and credit cards, and he added: “You really want to create a bank where the loan book is not skewed one way or the other as you will be less likely to withstand shocks in the latter case. 

“I’d prefer all our credit products move in the same direction so the percentages are balanced. If we’re not able to aggressively pursue all these areas the percentages become skewed at the end of the day.”

Admitting that the COVID-19 pandemic had endured far longer than the Bahamian banking industry had anticipated, Mr Brathwaite said: “I don’t need to tell you COVID-19 has stretched a lot further than anticipated. A lot of bankers thought that, by now, we would be on an upswing where we would be near to normalcy in banking.

“That has not really happened yet with these plateauing profits. With no other variants coming down the line, the Central Bank said 2022 would not be a year when we really start to see the economy rebound. We expect to see the economy start rebounding in 2023, and in banking that’s a long time.”

Mr Brathwaite, in his message to Bank of the Bahamas shareholders, said: “Higher total operating income year-to-date is driven by higher net interest and non-interest income. The increase in interest income is due to an overall growth in the loans and advances from consumer loans for successful loan campaigns, and an increase in non-interest income from ATM service charges as the bank deployed additional offsite ATMs.

“The increase in operating expenses year-to-date is mainly due to IT-related expenses, as the bank invested in system innovation and upgrades to support the bank’s planned growth and strategic objectives. Other increases were also noted in staff costs, depreciation and other administrative expenses as the bank remains committed to improve on its products and customer service.”