The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman yesterday called for the Government to produce a “feasibility plan” for the Bank of the Bahamas ‘rescue’, questioning why no other institution had experienced similar problems.

Gowon Bowe told Tribune Business it was vital that the Government was not left “out of pocket” by the $100 million ‘bail out’, and that all parties to the transaction remained accountable from a fiscal perspective.

The PricewaterhouseCoopers (PwC) Bahamas accountant and partner, told this newspaper that in the interests of fiscal transparency, the Government needed to publish details on the recovery prospects for the ‘bad’ loans; whether any losses were likely to be incurred and by whom; and when the loans were likely to be recovered.

The BCCEC chairman, though, backed the Government’s decision to prevent any possible slide of Bank of the Bahamas into insolvency, given its $679 million year-end deposit base.

Agreeing that the situation was “very challenging”, Mr Bowe suggested that Bank of the Bahamas’ lending practices might need reform, given that it was the only local institution requiring a government rescue.

“It certainly is a very challenging situation to be confronted with, both as a government as well as citizenry, as Bank of the Bahamas is a major deposit taker,” Mr Bowe said, adding that any possibility it might collapse was “a significant threat”.

“It’s positive that the Government has seen its way clear to step in and alleviate that threat, to ensure Bank of the Bahamas has time to gather itself, start becoming profitable and start to build back reserves from a capital adequacy perspective,” he added.

“While the recession had a significant impact on the bank, you have all the other banks not incurring the same type of challenges.

“There are business practices and behaviours [at Bank of the Bahamas] that need to be revisited and altered, and a level of accountability to ensure government funds are not being used other than to provide breathing space.”

Friday’s ‘bail out’ deal saw Bank of the Bahamas transfer $100 million worth of ‘bad’ commercial loans to Bahamas Resolve, a ‘bad’ bank set up by the Government as a special purpose vehicle (SPV).

This had the advantage of keeping the $100 million in loan liabilities off the Government’s balance sheet, this ensuring it does not add to the national debt and attract international rating agency attention.

The ‘hole’ on Bank of the Bahamas’ balance sheet was plugged with unsecured promissory notes backed by a ‘Letter of Support’ from the Government.

The net effect of the transaction, though, has been to lumber the Bahamian taxpayer with $100 million in potential ‘bad’ loan liabilities, while boosting Bank of the Bahamas’ retained earnings back into positive territory via a $55 million injection.

Mr Bowe said that while the plan was “new to the Bahamas”, nations such as the UK and US had done similar, taking equity stakes in troubled banks or taking other measures to nurse them back to health.

Now, following their recovery, governments were selling their equity stakes for a profit, or exiting via other, profitable means.

Reiterating that the Government had taken “necessary action” to stabilise Bank of the Bahamas and ensure it remained “a viable concern”, Mr Bowe said it was possible that one - or both - parties to the ‘rescue’ might experience a loss if the $100 million worth of loans was not fully recovered within the 10-year period allowed.

Expressing hope that Bahamas Resolve was “a facilitator”, and would not eat up endless taxpayer funds to ‘bail out’ Bank of the Bahamas, Mr Bowe told Tribune Business: “What would have been good is a clear understanding of the economic impact from this for the Government’s coffers.”

This, he added, called for the Government to provide details on the “anticipated payback period, what the losses are expected to be, if any, and a feasibility plan to ensure the Government is not out of pocket at the end of the day.

“And, if it is out of pocket, that the amounts are controlled and well understood. The devil is always in the detail, and shareholders and depositors will be the judge of whether it’s sufficient or not.”