The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The assertion by Bank of the Bahamas International’s managing director, that his role in the bank’s lending decisions was “curtailed” from 2009, is contradicted by the industry’s top regulator describing him as involved in “all facets” of this area.

Paul McWeeney’s suggestion, contained in the bank’s 2014 annual report, does not align with a December 13, 2012, letter sent to the Bank of the Bahamas Board by Central Bank governor, Wendy Craigg.

Demanding immediate corrective action to what she describes as serious deficiencies in Bank of the Bahamas’ loan and credit risk management operations, Mrs Craigg’s letter suggests that Mr McWeeney was the dominant person in this area until at least end-2012.

“All facets of the licensee’s credit risk process are managed directly or indirectly by the licensee’s managing director, which is inconsistent with sound industry credit principles,” Mrs Craigg said in her letter to chairman Richard Demeritte and other Bank of the Bahamas’ directors.

“While the credit organisation chart depicts some segregation between the business development and the credit control and oversight functions with respect to the reporting structure, in practice (in the absence of effective challenges by either of the licensee’s credit risk function, the Board or a well-experienced, strong internal audit function), the managing director is in a position to influence all material (credit approval; collateral perfection and disbursement; or delinquency management) credit related decisions.”

Mr McWeeney could not be reached for comment yesterday, despite Tribune Business leaving messages on his direct office line and cell phone seeking “urgent” comment.

However, in Bank of the Bahamas’ February 28, 2013, response to numerous Central Bank directives intended to mitigate the weaknesses identified by its examiners, it said a new credit risk management regime had been implemented from January 1 that year.

The bank said its credit risk management division continued to report to the Board’s Credit Risk Committee, “and the dotted line to the office of the managing director has been removed” from its organisational chart.

Bank of the Bahamas said the managing director’s authority had been “delegated” to the senior manager in the credit risk management committee, a move that was set to be ratified at a March 2013 meeting of the full Board of Directors.

Mr McWeeney had last week appeared to distance himself from many of the lending decisions made by Bank of the Bahamas in recent years, pointing out that his role in this area had been “curtailed” since 2009.

He said the responsibility for decisions on who should get loans, and credit risk management, rested with an “independent division” in Bank of the Bahamas that reported directly to the Board’s Credit Risk or Credit Adjudication committees.

As revealed by Tribune Business, in heavily coded language, Mr McWeeney seemed to be laying blame for at least some of Bank of the Bahamas’ poor lending decisions on the Board of Directors and its various committees, plus part of the bank’s management team.

Suggesting that Bank of the Bahamas would undergo an organisational restructuring when it came to credit decisions and risk management, Mr McWeeney said there “appears to be a misconception” about his role in past loan extensions.

“It will be noted from the Organisational Charts contained in this annual report (and indeed others circulated in the past) that the managing director does not have direct involvement in any aspect of general credit risk governance or adjudication,” Mr McWeeney wrote.

“These functions and the associated responsibilities repose in an independent credit risk division of the bank that reports directly to the Credit Risk Board Committee or Credit Adjudication Board Committee.

“In contrast, the managing director’s specific credit adjudication function was gradually curtailed at the operating level in keeping with regulatory guidelines introduced in 2009. However, the bank is revisiting this structure with a view to making appropriate changes that will better ensure positive results in the immediate future.”

Mrs Craigg’s letter, though, seems to imply that the managing director’s “curtailed” role in the loan/credit risk process only came about in late 2012-early 2013, and resulted from Central Bank pressure.

Mr McWeeney also used his annual report message to shareholders to affirm that loans to politically-exposed persons (PEPs) “never” exceeded more than 5 per cent of Bank of the Bahamas’ total outstanding credit portfolio.

He emphasised that the bank’s lending decisions have never been governed by political considerations. Despite the bank now being 65 per cent majority-owned by the Government (via the Treasury and National Insurance Board), Mr McWeeney said it had never granted commercial (business) loans to applicants who were already sitting MPs.

While borrowers may subsequently enter Parliament after such loans are granted, Mr McWeeney said there were only “few, extremely few” occasions when sitting MPs had been granted consumer loans by Bank of the Bahamas.

Reiterating that such loans were “objectively” granted, based on Bank of the Bahamas’ credit criteria, Mr McWeeney said some had “greatly exaggerated” how large PEP-related loans were in relation to its total portfolio.

However, Mrs Craigg’s letter revealed that Central Bank examiners in late 2012 identified

“imprudent credit approval decisions for certain” politically-exposed persons (PEPs) and related party transactions.

The examiners, Mrs Craigg said, were “unable to satisfy themselves” that these loans had been granted on a “consistent arm’s length basis.

Bank of the Bahamas also failed to provide examiners with a full list of PEP and related party loans, and the Governor said such advances had already - and would continue - to result in credit write-offs to the tune of “millions of dollars”.