The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

CIBC’s top Caribbean executive yesterday revealed that the “magnitude” of non-performing home loans in the Bahamas was “greater than anywhere else” in the region, this nation accounting for 50 per cent of the bank’s ‘bad’ mortgages.

Rik Parkhill, CIBC FirstCaribbean’s chief executive, told Tribune Business he was unsure why the Bahamas was the worst ‘bad mortgage’ performer out of the 17 countries the bank operates in, and admitted he never predicted the situation would reach its current low.

“I’d never have thought three years ago that the Bahamas would account for 50 per cent of [our] non-performing residential mortgages,” he told this newspaper by phone from Barbados.

While optimistic that CIBC FirstCaribbean had “turned the corner” following a 2014 financial year in which it suffered a region-wide net $150.831 million loss, Mr Parkhill said its Bahamian operations were still suffering from deep-rooted problems plaguing its mortgage portfolio.

“There’s a non-performing mortgage issue specific to the Bahamas,” Mr Parkhill told Tribune Business. “The magnitude of it is greater in the Bahamas than elsewhere.”

Asked why the bank had fared worst in the Bahamas when it came to ‘bad’ mortgage credit, Mr Parkhill replied: “I’m actually not sure in terms of the particular cause. The lending done in the Bahamas, on a loan-to-value basis, doesn’t differ materially from the way we’ve done lending in the rest of the region.

“There are a lot of homes where the people in them are not paying their mortgages, and a lot of homes on the market.”

Giving an insight into CIBC FirstCaribbean’s Bahamian difficulties, which are by no means confined to it alone, Mr Parkhill told Tribune Business: “If you look at non-performing residential mortgages, probably about half are in the Bahamas, and we operate in 17 different countries.”

The Bahamas accounts for between 35-40 per cent of CIBC FirstCaribbean’s regional business and top-line revenues, making it “the largest area of operations”.

Mr Parkhill suggested this might partly explained why the Bahamas’ non-performing residential mortgages were so high in comparison to the rest of CIBC FirstCaribbean’s territories.

And, with the Bahamas having such an important weighting in terms of its contribution to the bank’s overall financial performance, Mr Parkhill said CIBC FirstCaribbean’s fortunes to a great extent hinged on a turnaround here.

“We have to do well in the Bahamas if we’re going to do well as a bank,” he told Tribune Business, describing this nation as being of “significant strategic importance”.

“It’s extremely important,” Mr Parkhill added of the Bahamas. “It accounts for the largest share of top-line revenue generated. It’s the second largest employee centre for us after Barbados.”

His comments on CIBC FirstCaribbean’s own problems again serve to highlight the ‘mortgage crisis’ facing the Bahamas, which has effectively paralysed homeowners, in addition to the construction and real estate markets.

Tribune Business revealed last week how almost $1 out of every $4 mortgage dollars lent by Bahamian commercial banks was past due at end-October 2014.

The Central Bank of the Bahamas’ latest credit quality indicators report showed more than $700 million worth of mortgage loans were past due.

This, the report revealed equates to 24.04 per cent - almost one-quarter - of the banking industry’s $2.885 billion worth of outstanding mortgage credit being in default.

Of the past due mortgages, some $519.52 million, or 18.01 per cent of the total, are non-performing, meaning they are over 90 days past due and the banks have stopped accruing interest on them. A further $184.15 million, or 6.38 per cent of the total, is between 31-90 days past due.

The data obtained by Tribune Business showed that mortgage loans are the only private sector category where bad loans have increased in 2014, rising by $12.68 million or 1.83 per cent from end-2013 levels.

CIBC FirstCaribbean earlier this year incurred a Bahamian capital market-record $174 million net loss, some $75 million of which stemmed from extra loan loss provisions.

Mr Parkhill told Tribune Business yesterday that much of that sum related to “specific provisions against our mortgage portfolio”.

Implying that the provisions were, at least in part, prompted by reduced property values for the collateral backing these mortgage loans, the CIBC FirstCaribbean chief said the Bahamian and regional real estate markets were very different in 2006-2007 “in terms of what property values fetched at that time”.

“I think the magnitude of recovery is going to be a lot less than what the Caribbean has seen, at least in the short-term,” Mr Parkhill added.

Emphasising that there would be a recovery, though maybe not to the price levels seen in 2006 and 2007, the CIBC FirstCaribbean chief said the fact that an expected economic rebound did not materialise also weighed into the provisioning decision.

“We obviously look at the collateral values that are backing our loans on a regular basis,” Mr Parkhill said. “As recovery did not materialise, at least not in the way that was anticipated, the collateral was worth less and we had to reflect that in the financial statements.”

The Bahamas is one of the territories in which CIBC FirstCaribbean has opened dedicated Mortgage and Loan Centres, staffed by credit and financial specialists.

Apart from offering clients advice and a focused destination where loans could be applied for, decided and turned around more rapidly, Mr Parkhill said the centres were also intended to facilitate better risk management and credit underwriting.

He explained they were designed “to make sure that when our customers are thinking about buying a house, there’s actually a financial plan that’s sustainable”.

The remainder of CIBC FirstCaribbean’s Bahamian loss for the six months to end-April 2014 stemmed from a $115 million write-down of the $187.747 million in goodwill that the bank has been carrying on its books since the merger with Barclays 12 years ago. The Bahamas accounted for 87.4 per cent of CIBC FirstCaribbean’s region-wide $199 million net loss for the same period.

However, the Bahamian operations rebounded in the three months to end-July, with net income more than-tripling year-over-year to $11 million, compared to $2 million.

And, region-wide, CIBC FirstCaribbean showed second-half improvements, with net income for the final six months and fourth quarter standing at $48 million and $25 million, respectively.

The bank’s Bahamas results for the full-year and fourth quarter are likely to be posted next week and, while acknowledging that 2014 had been “a difficult year”, Mr Parkhill was optimistic enough to say: “We’ve begun to turn the corner in terms of increased profitability.”