The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading businessman yesterday said there was a potential “silver lining” to the $100 million Bank of Bahamas ‘rescue’, adding that the case for the Government retaining majority ownership had “diminished”.

Franklyn Wilson told Tribune Business that the “clean up” of the BISX-listed institution’s loan portfolio, which saw $100 million in ‘bad’ credit transferred to the Bahamas Resolve ‘bad bank’, had made Bank of the Bahamas “more attractive” to potential buyers.

Apart from the possibility of obtaining a reasonable sales price, the Arawak Homes chairman said Bank of the Bahamas’ decision to “curtail” its commercial lending activities had reduced the rationale for the Government to hang on to its 65 per cent majority stake.

And Mr Wilson suggested that if the Government were to sell its equity stake, it could do so on terms that solved the problems caused by the bank’s withdrawal from lending to Bahamian businesses.

He acknowledged that this move had “huge consequences” for the economy, particularly small and medium-sized businesses that relied on debt financing from banks for job-creating growth and expansion.

But, if the Government were to find a Bank of the Bahamas buyer with deep pockets, and which could successfully recapitalise the institution, Mr Wilson said it could insist - as part of the sales agreement - that it become a ‘full service’ institution and re-enter commercial lending.

This would re-fill the void presently being created, and Mr Wilson suggested the Government could use ‘cash flow’ - and any other recovered assets - from the 13 ‘bad’ loans Bahamas Resolve has inherited to finance businesses or boost the capital markets.

“There may be some silver lining,” Mr Wilson told Tribune Business on the Bank of the Bahamas ‘rescue’. “This company, Bahamas Resolve, now has $100 million in assets on paper.

“If these assets are managed effectively, suppose Resolve gets positive cash flow [from either recovering the loans or getting borrowers back into good standing].

“That could potentially be another source of funding for the business community. That could be a God send, depending on what they do with the cash flow realised.”

Some observers are likely to view Mr Wilson’s comments as over-optimistic, and questions abound as to whether Bahamas Resolve - and the unnamed accounting firm that will manage it - will enjoy any more success in the collection efforts than Bank of the Bahamas has generated.

The Government, too, has yet to confirm how it will treat any proceeds from the loan/asset recovery process should Bahamas Resolve enjoy a measure of success.

But Mr Wilson said: “Depending on whatever decision the Government makes, that can be deployed to supplement and support the capital markets broadly.

“The company, Resolve, has the potential to be a silver lining. In addition to having taken the hit and cleaned up Bank of the Bahamas, the bank becomes a more attractive entity to other investors who may want to buy it. It becomes a more attractive investment opportunity.”

Mr Wilson said the Government’s majority ownership of a private commercial bank had previously been justified by the need to “fill the void” on lending to the private sector.

With Bank of the Bahamas now retreating from commercial/private sector lending following Friday’s ‘rescue’ plan, Mr Wilson said the rationale for the Government retaining its 65 per cent majority stake had reduced.

“Why does the Government need to own that?” he asked. “The case for the Government disposing of Bank of the Bahamas becomes greater.

“The potential for doing that has become more realistic. The attractiveness of the bank to private sector investors increases. The Government would now be in a position where the can say: ‘We will sell it, and have no doubt we will find a buyer’.”

Bank of the Bahamas effectively has had little choice but to exit the commercial loans market. Around 51 per cent, or $107.443 million, of its $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.

Brushing aside Tribune Business questions on whether he himself would be interested in acquiring Bank of the Bahamas, Mr Wilson said the Government could attach terms to the sale of its 65 per cent stake (held by a combination of the Public Treasury and National Insurance Board) that would benefit the economy.

“A consideration of selling it is that the buyer becomes obligated to make the bank a full-service bank again, with a commercial lending arm,” he told Tribune Business. “Depending on how this plays out, I see this as a possible scenario.

“Resolve has the potential to become another source of funding that can strengthen or add to liquidity to local capital markets. Resolve could have a good ending.”

Mr Wilson called on the accountants who will manage Bahamas Resolve to hire retired loan adjustment and collection specialists who had a proven track record in this area while working for commercial banks, suggesting this would boost recovery efforts. He added that such persons were in plentiful supply.