The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas’ managing director yesterday expressed confidence it would return to profitability “within the next 12 months”, revealing that the loan portfolio “clean up” had largely been completed by end-September 2014.

Paul McWeeney told Tribune Business there was “light at the end of the tunnel”, despite last week’s $100 million ‘rescue’ by the Government, and almost-$69 million net loss suffered by its shareholders for the 2014 financial year.

The Bank of the Bahamas chief, in an interview with Tribune Business, also revealed several further details regarding last Friday’s ‘bail-out’ and the bank’s future. They include:

• Just 13 loans have been transferred from Bank of the Bahamas to Bahamas Resolve, the Government-incorporated special purpose vehicle (SPV) that will act as a ‘bad bank’.

Given that these loans account for a collective $100 million worth of ‘bad credit’, it appears that Bahamas Resolve has inherited some large commercial/business risks that owe an average of almost $8 million.

• While Bank of the Bahamas had $254.43 million in non-performing loans on its books at June 30, accounting for 38.52 per cent - more than one-third - its net credit portfolio, Mr McWeeney said this amount had now been reduced by $100 million.

He expressed confidence to Tribune Business yesterday that Bank of the Bahamas would be able to “cure” the remaining $150-plus million.

• Mr McWeeney denied that any of the $69.723 million loan loss provisions taken by Bank of the Bahamas at the June 30, 2014, year-end were forced upon it by external auditors, Ernst & Young.

And he also refuted claims that the BISX-listed institution may have misled shareholders, and the capital markets, by not giving them appropriate warnings in previous quarterly reports of the hit that was coming.

• Bank of the Bahamas has already “realigned” its credit risk function, as it switches its business model away from commercial loans to credit that is consumer-focused - mortgages and consumer loans.

Mr McWeeney also disclosed that Bank of the Bahamas is largely exiting the overdraft business, a sector where 82 per cent of its loans are troubled.

Asked whether the bank regretted past loans and lending policies, Mr McWeeney said he and the institution wanted to look forward and not go back.

He repeated previous denials that much of Bank of the Bahamas’ problem loans were politically-related, and would not be drawn on his future with the BISX-listed institution.

• Mr McWeeney also downplayed Bank of the Bahamas’ non-compliance with four out of five key Central Bank capital ratios at financial 2014 year-end.

He said banks frequently slipped into temporary non-compliance “from time to time”, and added that the Central Bank was kept fully informed about the ‘rescue plan’.

Still, Mr McWeeney’s optimism is likely to surprise many Bank of the Bahamas shareholders and others, who are likely still reeling from the Government ‘rescue plan’ and subsequent announcement of an almost-$69 million net loss.

“It’s a major step in the right direction, no two ways about it,” Mr McWeeney told Tribune Business of last week’s ‘rescue plan’ for Bank of the Bahamas.

“That’s coupled with the restructuring we’re doing internally and the new retail products we’re set to launch. We are very confident we will return to profit in the near future - I would anticipate within the next 12 months. The bank has a solid future ahead of it.”

Mr McWeeney further revealed that the majority of the loan portfolio “clean up” had been completed in the 2015 financial year’s first quarter, which closed on September 30 this year.

While this effort will continue in “dribs and drabs”, the implications of Mr McWeeney’s remarks - for its 3,500 minority shareholders and 40,000 depositors - is that the worst is now behind the troubled bank.

However, many in the commercial banking industry are likely to disagree. They, and others, view the Government’s $100 million ‘good’ bank/’bad’ bank solution as a short-term stop gap that is far from satisfactory.

A full recapitalisation of Bank of the Bahamas (led by the Government as majority shareholder) or its sale to a new owner would be the preferred routes, but with neither a realistic option, Bahamas Resolve it was.

Indeed, many banking industry contacts have privately told Tribune Business that they view the situation as one where the Government hopes Bank of the Bahamas ‘muddles through’, and that by throwing some business its way the institution will gradually nurse itself back to health.

Mr McWeeney yesterday said that apart from the consumer lending focus, Bank of the Bahamas will also concentrate on its electronic banking platform - private label cards for other institutions, plus travel cards for civil servants and the previously-announced social services card.

However, banking industry sources said the ‘missing element’ in the Bank of the Bahamas recovery plan was any reference to reducing its costs and expenses.

These totalled $34.2 million in the year to end-June 30, 2014, and sector sources suggested these needed to be slashed by several million dollars.

They added that Bank of the Bahamas also needed to reduce its branch network and staffing levels, with its 12 nationwide outlets now more than CIBC FirstCaribbean International Bank (Bahamas).

Yet with the Government using Bank of the Bahamas to achieve social objectives, and provide financial services in far-flung Family Islands, this is unlikely. The bank, though, did apparently persuade the Government to drop plans for branches in Bimini and Abaco - at least for the moment.

Mr McWeeney, meanwhile, said there had been no effort to conceal Bank of the Bahamas’ loan portfolio issues from investors.

“Every time I wrote a quarterly report, I alluded to the fact we had to take an aggressive look at the loan loss provisions,” he told Tribune Business. “I put it in every quarterly report. This is how banks operate. This is what banks do; they do it all at once.”

Although he did not say so, this appears to be a reference to CIBC FirstCaribbean International Bank (Bahamas) capital markets-record $174 million net loss for the six months to end-April 2014, which included $75 million in loan loss provisions.

And Mr McWeeney also denied that Bank of the Bahamas was forced into its year-end provisions by Ernst & Young.

“That never entered the discussions,” he said of the external auditors. “The bank did those prior to finalising its year-end. This is part of a bank’s year-end exercise.”

Mr McWeeney also revealed that Bank of the Bahamas had attempted to sell its bad loan portfolio to international buyers, but any potential purchase became too complicated due to the need to obtain Investments Board, exchange control and a whole host of other approvals.

Talks with the Government on the Bahamas Resolve transaction began in mid-June, according to Mr McWeeney, adding that it required “a lot of work” to obtain the necessary regulatory permissions.

Asked what his and Bank of the Bahamas’ views were on the past six months, Mr McWeeney replied: “Just learn from it and move forward.

“The work is not done. It’s not automatic and smooth sailing, but there’s light at the end of the tunnel.”

He added: “It’s been hard, but it’s all part of the game. It’s unfortunate we get thrown into politics, but all businesses lose money from time to time.”