The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas yesterday said its decision to “curtail” its commercial lending activities was a “double-edged sword” for the country, as it would potentially retard private sector and economic growth.

Paul McWeeney, the BISX-listed institution’s managing director, told Tribune Business that commercial bank credit to the Bahamian private sector was fast drying up, as his bank had been one of the few remaining lenders in the space.

Growing Bahamian companies often rely on debt financing from banks, the traditional source of such capital, to finance their job-creating expansion and growth plans.

But, with Bank of the Bahamas the latest institution to pull back from this market, an essential ‘lifeline’ for business and domestic economic growth is slowly being squeezed and cut off.

“We’re going to curtail our commercial lending going forward,” Mr McWeeney told Tribune Business. “We’re heavily involved in electronic banking, and will continue to focus on that and focus primarily on consumer lending, mortgages and consumer loans.”

Of the implications for the private sector and wider Bahamian economy, Mr McWeeney said of the bank’s decision: “Us coming out of the commercial market is a double-edged sword, because we were one of the main drivers of that.

“There are very few banks involved in commercial lending now, which is not good for the country. People tend to forget that.

“I think most banks have withdrawn from the commercial market some time ago, but as an indigenous institution, we felt that was part of our mandate,” he added.

“Yet with the performance of our commercial loans, we have had to change our focus. The economy doesn’t support it. When we recognised this issue, we had to change course.

“We went into commercial lending heavily, and did well for a while as the economy was performing strongly, but as time went on more businesses failed and found it hard to survive.”

Bank of the Bahamas has had little choice but to retreat from commercial lending, as ’bad’ business loans figured prominently in Friday’s government-sponsored ‘rescue plan, featuring the transfer of $100 million in such credit to ‘bad’ bank Bahamas Resolve.

Around 51 per cent, or $107.443 million, or Bank of the Bahamas’ $207.084 million commercial loan portfolio was non-performing at June 30, 2014.

The $107.443 million was a 142.3 per cent increase on the previous year’s $44.341 million in ‘bad’ commercial loans. And loan loss provisions for ‘bad’ commercial (business) loans increased almost five-fold in 2014, from $14.92 million the year before to $69.222 million this year.

Just 42 per cent of Bank of the Bahamas’s $750.418 million loan book was ‘performing’, meaning it was neither past due nor impaired, as at June 30, 2014.

Non-performing, or impaired loans, collectively totalled $254.43 million at June 30, accounting for 38.52 per cent - more than one-third - of Bank of the Bahamas’ net credit portfolio.

The sum total of all this is that Bank of the Bahamas has joined the list of local commercial banks who have had their fill of bad business loans due to the recession and its aftermath, and have chosen to exit this market. Some $377.4 million in total banking sector commercial loans were in arrears at end-August 2014.

Many banks, Bank of the Bahamas included, have reconfigured their business models to focus on higher yielding, greater volume consumer loans that can be secured via salary deductions.

Commonwealth Bank has led the way in this, and Fidelity Bank (Bahamas) altered its focus several years ago to consumer lending, switching from a mortgage-oriented approach.

Mr McWeeney, meanwhile, also confirmed that Bank of the Bahamas would now only be involved in providing overdrafts “on a very limited basis”.

Many of these had been used to provide working capital to business borrowers now in trouble.

Some 82 per cent of Bank of the Bahamas’ overdrafts were “subject to specific provisions” at year-end 2014.

The bank’s financials showed that out of $81.41 million in overdrafts ($60.089 million business, $20.32 million personal), some $63.936 million were “related to certain non-accrual mortgage and commercial loans.

Mr McWeeney said Bank of the Bahamas was adjusting its processes to make them swifter and more efficient to handle consumer loans, reducing turnaround time.

Credit risk functions had also been altered to allow for the business model shift, and Mr McWeeney told Tribune Business: ‘The whole idea is really risk management.

“We have to be satisfied that our portfolio is not caught up in such large exposures, and that the risk is diversified in smaller amounts.”