The Tribune

• ‘Extraordinary’ $11.7m investor payout unveiled today

• Commonwealth rebound driven by COVID reversals

• Aims to ‘match or exceed’ pre-pandemic profit in ‘23

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Commonwealth Bank is targeting its growing deposit base for new borrowers after hitting its 2022 full-year profit goal in just nine months through a $58.22m bottom line.

Tangela Albury, the BISX-listed bank’s vice-president and chief financial officer, told Tribune Business it will today declare an “extraordinary” four cents per share dividend to shareholders after enjoying a more than $72m year-over-year positive swing on its profit performance.

However, the reversal from a $23.923m loss for the nine months to end-September 2021 has been achieved almost solely through the reversal of loan loss provisions booked during COVID-19. The pandemic’s end enabled Commonwealth Bank to reverse, or unwind, some $21.679m worth of such impairments during the period to end-September 2022 compared to the $74.846m in provisions it took during the same nine months of the prior year.

This represents a $96.5m positive swing that has driven Commonwealth Bank’s 2022 profit rebound. However, to ensure this rebound is sustained the BISX-listed lender must generate higher growth in its core consumer/personal loans business, yet its net credit book expanded by just over $10m during the first nine months of this year to $777.855m.

Gross interest income for the nine months to end-September 2022 actually fell by 11 percent year-over-year, dropping from $100.305m in 2021 to $89.319m this time around, while net interest income dropped by a similar margin - 12.3 percent - to $76.514m. Acknowledging that post-COVID provisioning reversals will eventually ease, Ms Albury said Commonwealth Bank will again focus on “organic loan book growth” as profits return to “normal” pre-pandemic levels.

Predicting that the institution will “match or exceed” pre-COVID profit levels in 2023, she added that the recent Moody’s downgrade of The Bahamas’ sovereign creditworthiness “will not have any material impact” for Commonwealth Bank even though it holds $551m in government debt securities that could be exposed to an impairment charge as a result.

Responding to written Tribune Business questions, Ms Albury said it expected “the pattern of profitability” seen during the first nine months of 2022 to continue through the fourth quarter to year-end. The four cents per share “extraordinary” one-off dividend represents a capital return to shareholders worth a collective $11.7m, and will take total investor payouts for 2022 to-date to some $23.4m according to this newspaper’s calculations.

“The Bank’s third quarter financial performance has exceeded our budgeted expectations as the strong rebound of the economy has facilitated the reduction of the bank’s non-performing loan book, as well allowed for improvement in overall loan delinquency,” Ms Albury said. “We have seen the reversal of loan impairment expense in the first quarter hold, with a mild uptick in the third quarter, and this has resulted in the bank meeting its full-year profitability goal at the end of the third quarter.”

The three months to end-September 2022 saw Commonwealth Bank produce $15.428m in total profit compared to a $13.128m loss during the prior year period, again driven by the reversal of COVID-19 loan loss provisions. Ms Albury said the BISX-listed lender will now prioritise growing its borrower base once again as the Bahamian economy returns to a more solid footing after the pandemic.

“We recognise that the bumper level of profitability that the bank is experiencing in 2022 is driven by the strong rebound of the economy of The Bahamas after the severe economic shocks brought about because of the COVID-19 pandemic,” she added.

“As the economy continues to normalise, and the rate of profitability trends towards historic averages, we plan to focus on the organic growth of our loan book and yields, delinquency management and improvements in the way we service our customers, which we expect to sustain the bank’s normal level of profitability.”

Commonwealth Bank generated total comprehensive income of $32.374m and $51.64m for 2019 and 2018, respectively, and Ms Albury said it will focus on converting new depositors into loan clients. The bank’s deposit base has expanded by more than $50m, or some 3.5 percent, during the first nine months of 2022 to $1.513bn compared to $1.462bn at year-end 2021.

“Growth of interest income will come at a steady rate as we as attract both new depositors and borrowers to the bank,” she predicted. “We have seen where our customer deposit base has grown by approximately 3.5 percent year-over-year, and these new depositors are also potential customers for our loan products, so our plans are around harnessing this opportunity for loan growth.

“We are also focusing on our existing loan clients and their needs for expanded credit, as well niche opportunities within the mix of our personal lending products of mortgages, consumer loans and credit card facilities. We also expect that our continued efforts to reduce our non-performing loan book will translate into increased interest income, and so delinquency management, inclusive of aggressive recovery of charge-off loans, will be key to growing the top-line interest income.”

Ms Albury added that any impairment charge taken on Commonwealth Bank’s government debt investments as a result of Moody’s recently downgrading The Bahamas was unlikely to have any major impact on the loan loss provisioning reversals taken earlier in 2022.

“The bank has exposure to debt instruments issued directly by the Government of The Bahamas totalling approximately $551m as of September 30, 2022,” she confirmed. “As part of the bank’s risk management processes, any adverse change in the credit rating by international agencies such as Moody’s will cause an assessment to determine if there is a significant increase in credit risk.

“The outcome of this assessment is generally associated with an increased impairment charge. However, we do not anticipate that this will have any material impact on the reversal of impairment expenses already experienced through the nine months of 2022.”

Meanwhile, Ms Albury said a broad-based cost increase had driven a $5m or 10.8 percent rise in general and administrative expenses to $54.539m for the nine months to end-September 2022. She explained: “There are several key factors resulting in the material change in general and administrative expenses year-on-year.

“Namely additional deprecation resulting from the completed construction of the Abaco branch building, increased property insurance costs, increased real property tax costs and increased staff costs, which include the cost of Saturday banking operations, which have been instrumental to improving our in-branch customer service experience.”

Commonwealth Bank is facing increased competition from rival commercial lenders in the personal loan space, especially from Fidelity Bank (Bahamas) and Bank of the Bahamas. Ms Albury said the Central Bank’s move to relax requirements around borrower debt service ratios, and loan down payments, would improve the BISX-listed institution’s competitiveness versus non-bank rivals.

“It is a positive signal to the market that credit expansion is encouraged in a sound and safe manner to allow and facilitate stable economic growth,” she added of the regulator’s move. “However, the credit market has significantly expanded outside of the traditional financial institutions licensed by the Central Bank, which do not have to adhere to debt service ratio limits, and this change can contribute to our improved competitiveness.”

Describing 2022 as “an unusual year” for both The Bahamas and Commonwealth Bank, similar to 2020 and 2021, Ms Albury said: “As we normalise our economy and the bank’s operations, there is no expectation that 2022 against 2023 will be comparable. What is the basis of comparison will be our pre-Dorian and pre-COVID normalised financial performance, and we expect to match or exceed that in 2023.

“This will be challenging as The Bahamas is not immune from the global economy and, in particular, the primary source economy for our tourist product, the US. We are also at risk for the effects of climate change, also a non-controllable effect on the economy, and ultimately impacting lending conditions for the bank.

“We remain cautiously optimistic on these issues and are satisfied that we will maintain a fortified balance sheet to help the bank navigate these challenges while returning a good profit next year.”