Published On:Monday, February 08, 2010

By NEIL HARTNELL

Tribune Business Editor

COMMONWEALTH Bank is unlikely to increase its loan loss provisioning in 2010 "unless the sky falls in", its chairman telling Tribune Business that the BISX-listed institution is likely to "do as well or better than" last year's $42 million net income - a result that exceeded Board expectations.

T. B. Donaldson, the former Central Bank governor, said the bank was "beginning to see some traction" among its clients and potential new borrowers that indicated the worst of the recession might be over, adding that its conservative provisioning policy in 2009 meant it was unlikely to add this in 2010 - boosting potential profits and dividends for shareholders.

"When I compare ourselves with other financial institutions, a profit of $42 million is not to be sneezed at at any time, especially these times," Mr Donaldson said. "I think our prudence paid off."

Adding that 2009 year-end profits actually "exceeded our expectations", although declining to specify by how much, Mr Donaldson said that when Commonwealth Bank realised how much the economic downturn was impacting its clients, it implemented provisioning and other measures during the year's last four months that "paid dividends".

"Our final figures came in better than we had forecast," Mr Donaldson told Tribune Business. "We're well ahead of where I thought we'd be and the rest of the Board."

He added: "The key to beating expectations was the hard work of the staff, the people who work on debt and collections.

"We had a full court press push to achieve the results we did. Everyone bought in and understood what we wanted to do. They've worked their butts off. We have an excellent corporate culture. You can see the Bahamian team at work, their pride at stake."

While net income, according to Commonwealth Bank's unaudited figures, declined by 14.8 per cent from its $49 million comparative in 2008, the decrease was almost entirely caused by a 40 per cent or more than $10 million rise in loan loss provisioning.

Mr Donaldson explained to Tribune Business that one reason why he was "looking forward" to 2010 was the likelihood that Commonwealth Bank would not have to add to its existing loan loss provisions, freeing up potential dividends for shareholders.

"We're so provided for that I don't think provisions will affect income much at all," he added. "We don't think we need to [add to loan loss provisions] unless the sky falls in. We're so provided for that we don't, in the near future, have to look to any more loan loss provisioning. We think the bank is adequately provided for.

"We're beginning to see some traction. People are feeling more confident, more people are eligible, and are coming in looking for loans. There are small signs people are feeling more comfortable about their lives."

While it was unclear how much better 2010 would be in comparison to last year, Mr Donaldson said: "I feel comfortable that this year we'll do as well or better than last year."

While Commonwealth Bank's return on equity declined from 35 per cent in 2008 to 27 per cent in 2009, and return on assets and earnings per share also fell, the latter from $0.44 to $0.37, the chairman said the institution had been able to keep paying out 65 per cent of profits as dividends.

The remaining 35 per cent went into continuing to build Commonwealth Bank's capital base, and Mr Donaldson said the BISX-listed institution remained "way ahead" of the key ratios mandated by the Basle committee and Central Bank of the Bahamas.

He praised the bank's "adaptability", saying the fact it was Bahamian owned and headquartered enabled it to respond "very quickly to circumstances on the ground", not having to go to places such as Barbados or London for a decision.

"We're great on expense control," Mr Donaldson said. "It's a bank where we have everything centralised. We have reached the point where the president, Mr Sands, approves all the expenditure. If you can't predict what your income will be, you can control the expenses."

While cost restraints had forced Commonwealth Bank to put numerous projects on hold, Mr Donaldson indicated that launching its debit card was "a high priority" for 2010, exploiting the implementation of the Automated Clearing House (ACH).

The internal efficiencies and economies of scale achieved by Commonwealth Bank enabled it to add its new Prince Charles Branch, and its Saturday banking functions, without increasing overall staff numbers.

Mr Donaldson said Saturday banking was likely to become "the norm very soon", as it provided customers - especially those unable to get to the branches during weekday work hours - with so much convenience.

For 2009, Commonwealth Bank saw total loan losses increase year-over-year by 41 per cent, or $7.6 million, even though it kept non-performing loans at 3 per cent of its total portfolio, well below the 9.4 per cent industry average.