The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance spokesman yesterday said he would “fully support” the Government selling its controlling 65 per cent interest in Bank of the Bahamas International, calling for it to get out of business altogether.

K P Turnquest, the FNM MP for East Grand Bahama, told Tribune Business that by selling its equity stake the Government would eliminate any suggestion of political interference in the bank’s operations and lending policies - allegations that have dogged it in recent weeks.

Mr Turnquest, a former Grand Bahama Chamber of Commerce president, extended this line of thinking to all other ‘businesses’ in which the Government holds an ownership stake, agreeing it should exit the likes of Bahamasair and the utility corporations.

Asked by Tribune Business whether the Government should hold a majority equity stake in a commercial bank, Mr Turnquest responded: “That’s a very good question. I don’t think so.

“We know any institution the Government is majority owner in is subject to manipulation.”

Taking this school of thought a step further, he added: “It [government] ought to leave all those businesses to the private sector to invest in, manage and control. Whether it’s the banking industry, the airline industry, the radio and media industry, whatever, it’s proven that the private sector does a better job.”

Then asked by Tribune Business whether he would back the Government selling either all, or a majority interest, in Bank of the Bahamas International to private investors, Mr Turnquest said: “I would. I would fully support that.”

Several capital markets observers have told Tribune Business that the practice of the Government appointing the entire Bank of the Bahamas International Board should end, as this would further remove any perception of political influence over the institution.

It has been just about the only Government majority-controlled entity to avoid such perceptions until recently, when it was subject to a tabloid newspaper campaign against it.

Getting the Government out of business is hardly a revolutionary idea, but the Bahamas and many other Caribbean nations have been slow to embrace a trend many other nations first employed in the 1970s-1980s.

The Bahamas only tangible steps along this road have been the Bahamas Telecommunications Company (BTC) privatisation; the outsourcing of reverse osmosis water production (largely to Consolidated Water); and the potential quasi-privatisation of BEC.

The Government, through the National Insurance Board (NIB) and the Public Treasury, last year increased its equity stake in Bank of the Bahamas International from a long-standing 51 per cent to 65 per cent, giving it two-thirds control.

The increased equity stake resulted from the Government, via the Treasury and NIB, injecting $31.5 million in capital into the bank to acquire non-voting ordinary shares.

Bank of the Bahamas International said the move would enable it to replace preference share capital, which has to be eliminated under the new Basel III capital standards.

However, banking industry sources have repeatedly suggested to Tribune Business that the Government’s capital injection was really a recapitalisation of the BISX-listed bank, providing it with a cushion to deal with upcoming loan loss provisions.

They expressed surprise that Bank of the Bahamas International’s 4,000 public shareholders, who hold the 35 per cent minority, were not invited to participate via a rights issue, which would have prevented dilution of their stakes.

Mr Turnquest, meanwhile, said his main concern over Bank of the Bahamas International was to ensure there was ‘no run’ on the bank by depositors or creditors.

Asked whether statements by the bank and the Government had assuaged his fears, Mr Turnquest said: “Not necessarily.

“I have no reason to lessen my concerns,” he added. “The Prime Minister indicated that the full support of the Government is behind the bank, which is reassuring, but we have to be concerned about the position of the business.

“The Bahamian people don’t want to be stuck with a situation where they have to bail out the bank.”

Mr Turnquest, though, quickly agreed that Bank of the Bahamas International was far away from any ‘bail out’ situation, especially given the Government statements.

“It’s obviously, one, that we’re very concerned about the ability of the bank to continue with its credit lending policies, and we’re concerned about the jobs associated with the bank,” he added.

“We need to have an understanding that there is good governance, and that prudential standards are being maintained, etc, etc.”

Bank of the Bahamas International has responded previously to the tabloid campaign, which has alleged it gave out multi-million dollar, unsecured sums to politically-connected supporters of the Progressive Liberal Party (PLP) - much of which is in default.

Pointing out that it currently has close to $140 million in equity capital, Bank of the Bahamas International says its risk weighted capital ratio of 22 per cent is higher than the 14-17 per cent mandated by the Central Bank.

It dismissed allegations of political favouritism in the granting of loans as “simply untrue”, stating that all credit granted to “so-called political persons” occurred in 2008-2010, when the PLP party was not in power.

It added that any credit extended to them was “for bona fide commercial loans”, and described those that had attracted media scrutiny as “a very small fraction” of the total loan portfolio and “not in any way constituting a material risk” to the bank’s soundness.

As at June 30, 2013, Bank of the Bahamas International had 10.007 outstanding loans worth a collective $753.046 million. Some $118.926 million, or 16.18 per cent of the total, was then non-performing or 90 days at least past due.

However, data contained in the bank’s annual financials shows loan quality among its $469.08 million worth of ‘good credit’ significantly worsened between 2012 and 2013.

Credit deemed ‘satisfactory risk’ fell by more than 50 per cent, from $331.401 million to $152.436 million, while ‘watch list’ credit almost doubled - from $86.063 million to $170.218 million.

‘Sub-standard, but not impaired’ loans increased by a similar amount - from $75.84 million in 2012 to $146.427 million at 2013 year-end.