By NEIL HARTNELL Tribune Business Editor SCOTIABANK (Bahamas) exceeded its 2011 internal projections through an almost $59 million reversal of its first-ever annual loss, its managing director telling Tribune Business it is targeting a "better year" for 2012 despite forecasts of a "three-five year" banking industry recovery. Kevin Teslyk told Tribune Business that 2011 was "the turnaround we expected to see", after it turned 2010's $29.127 million net loss into a $29.868 million profit, putting the writedown on its $200 million-plus loan to Baha Mar firmly behind it. "2011 was certainly a much-improved year over 2010, which was the year where we had one significant loan to the hospitality industry that was written-off," Mr Teslyk confirmed. "That resulted, for the first time in Scotiabank (Bahamas) history, in it recording a net loss for the year." Describing it as a "one-time, non-recurring event", Mr Teslyk confirmed that the loan in question was the $200 million-plus syndicated line of credit to Baha Mar that Scotiabank (Bahamas) took the lead in arranging. The situation was ultimately resolved through a debt-for-equity swap, with the bank taking a minor equity stake in the $2.6 billion Cable Beach redevelopment and writing-off a significant chunk of the loan amount owed. Without the Baha Mar situation to encumber it, Scotiabank (Bahamas) saw its net impairment losses cut by 56.5 per cent year-over-year, from $104.946 million the previous year to $45.652 million in the 12 months to end-October 2011. With the top-line down slightly, the impairment drop was the one factor responsible for driving Scotiabank (Bahamas) back into the black. However, 2011's net income of $29.868 million remains well down on the $66.975 million posted in 2009, Mr Teslyk conceding the bank "did have some increased provisions on the residential mortgage portfolio" last year. "But, all in all, it was a good year," he told Tribune Business. "Better than our expectations. It was the turnaround we expected to see after 2010. We are expecting 2012 to be a better year, but modestly so, and we do not expect any major growth year-over-year." Mr Teslyk said Scotiabank (Bahamas) 2012 performance would largely "be a function of how the non-performing loan book performs". The bank's non-performing portfolio, as a percentage of the total, is around the Bahamian banking industry average of 13 per cent, and impacts both the top-line (reduced interest income) and bottom line (higher loan loss provisions). That is already evident from Scotiabank (Bahamas) 2011 results. Its interest income dropped by around $4.5 million or 3.5 per cent to $121.975 million, compared to $126.454 million in 2010, although a combination of high excess liquidity and the Central Bank's Prime rate cut dropped interest expense from $20.089 million to $15.997 million year-over-year. As a result, net interest income was relatively flat at $105.978 million, compared to $106.365 million in 2010. Describing the Bahamian commercial banking industry as being in a "three-five year cycle" when it came to turning around relatively high loan delinquency levels, Mr Teslyk told Tribune Business: "It's going to take three-five years of hard work on everyone's part to work through this." Scotiabank (Bahamas) loan book shrank year-over-year, falling from $1.621 billion to $1.498 billion, partly due to the Baha Mar loan no longer being on the books. Mr Teslyk acknowledged it was "very difficult" for all Bahamian commercial banks to generate loan book growth in the current environment, one reason being that it was hard to find borrowers who matched up to the more stringent lending requirements. "The biggest reason is just the lack of appetite, the lack of desire among consumers to add further leverage. They want to deal with the debts they have now," he added, "trying to manage this through debt consolidation." Scotiabank (Bahamas) appears to have decided not to pay out any year-end dividend to its Canadian parent, as retained earnings rose by the equivalent of its net income - growing to $705.469 million from $675.601 million at year-end 2010. Pointing out that all Bahamas-based banks "remain very well capitalised", Mr Teslyk said of Scotiabank: "We're well above international standards. The Central Bank, in recent times, has had higher capital requirements as a means of preparing in the good times to withstand shocks that happen in the difficult times. We're well in excess of the norms, and the Basle 3 norms undergirding them." Scotiabank (Bahamas) main capital investment focus for 2012 remains construction of its Carmichael branch, which is being located near the intersection of Carmichael Road and Sir Milo Butler Highway. "We're working with the contractor, the developer to hand over the box in June/July this year, and will then proceed with the leasehold improvements, with a view to opening at the same time as the relocated Cable Beach branch did last year, November 2012," Mr Teslyk told Tribune Business. The Carmichael branch will involve a capital investment of around $1 million, he added, and would open with around 10 staff. "That's a fast growing residential community in the Bahamas, and many clients reside there," he added. Describing the Carmichael Road branch as Scotiabank (Bahamas) "biggest" capital investment for 2012, Mr Teslyk added: "We've set aside capital, fairly significant capital, to do works at both the downtown Nassau branch, here in the Tradewinds Building in Rawson Square, and in Freeport. Those are in the low six-figure digits. "What we spend and how quickly we spend will be a function of how the year turns out. If it turns out to be a more difficult year, we'd look to slow down or curtail spending, until we get back into slightly better times. Each and every year has been better than the previous year, and we expect the trend to continue." Asked about Scotiabank (Bahamas) plans for a branch in eastern New Providence, an area where it does not have a presence, Mr Teslyk said this had slipped behind the existing branch upgrades in terms of priorities. "The east remains an area of interest for Scotiabank," he confirmed. "It's a little bit fallen down the priority list in 2012. It's something we'll start exploring in greater earnest in 2013. We will reinvest in existing plant, and improve and enhance efficiency. This year, the focus is really going to be on Freeport and looking at our main branch in downtown Nassau."