The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top banker yesterday suggested the ‘Bahamas Resolve’ concept could be expanded to deal with other commercial bank ‘bad loans’, and potentially kickstart the Government’s stalled Mortgage Relief Plan.

Ian Jennings, Commonwealth Bank’s president, was quick to add, though, that more details were required on the ‘bad bank’ solution for Bank of the Bahamas, so the industry could gain a full understanding of how it would work.

Describing Bahamas Resolve as “an interesting concept”, Mr Jennings floated the idea that it could be extended to take over, and recover, ‘bad’ mortgage loans made by the wider commercial banking industry.

He added that the Bank of the Bahamas ‘bail out’, and subsequent publicity, had “not been helpful for the industry as a whole or the business environment”, given the tendency to ‘tar all banks with the same brush.

And he urged Bahamians to “break the cycle” of over-borrowing, and consolidating debt to reduce monthly obligations, only to borrow more money all over again.

While not commenting directly on the $100 million bonds-for-bad loans ‘bail out’ of Bank of the Bahamas, Mr Jennings said his bank had always managed its balance sheet cautiously, conscious it did not have a parent to back it up.

“No one wants to be in the situation Bank of the Bahamas was in,” Mr Jennings told Tribune Business. “Ever since our bank was Bahamianised, we were very conscious that the bank did not have a parent company.

“We have always taken a very prudent approach in the sense of capitalisation, and also for building liquidity and investments. A significant portion of our balance sheet is represented by government bonds and registered stock.”

The Bank of the Bahamas ‘rescue’ has been structured such that a net $45 million in ‘bad loans’ were transferred to a government-owned special purpose vehicle (SPV), Bahamas Resolve.

In exchange, Bank of the Bahamas has received $100 million in government bonds (unsecured promissory notes), upon which it will receive interest payments from Bahamas Resolve.

Suggesting that this concept could be put to wider use, Mr Jennings said: “It’s an interesting concept, and I hope we may be able to get a better understanding of Bahamas Resolve and what they’re thinking. I don’t know enough details.

“The question being asked is what teeth does Resolve have to make them more effective in collecting the loan?”

He is not the first to raise this issue, with the Government yet to name the accounting firm that will be hired to collect on the bad loans Bahamas Resolve now owns. Other unresolved issues include how Bahamas Resolve will be structured, in terms of management and Board of Directors, and the resources that will be put behind it.

Assuming all these issues can be resolved satisfactorily, Mr Jennings said the Bahamas Resolve concept could be expanded to cover a wider portion of the commercial banking industry and its non-performing loan portfolio.

“Maybe they can take a look and see whether it’s a vehicle that would work for Mortgage Relief and those customers,” he told Tribune Business.

“Mortgage Relief is not easy to do in practice because of all the issues around it, unemployment and how long those customers have been without a job.”

This newspaper understands that transferring ‘bad’ mortgage loans into an SPV, similar to the Bahamas Resolve structure, was among the options assessed by both the Government and commercial banking industry as a means to make the former’s Mortgage Relief Plan work.

Mr Jennings, though, said the problem remained the same: Too many defaulting borrowers simply lacked the income to properly service their mortgage loans.

In such situation, the only solution was to either foreclose on the subject property or for the bank to exercise its ‘power of sale’ under the mortgage.

“These are the hard questions we have to deal with in helping those unemployed,” Mr Jennings told Tribune Business. “It there’s no income, there’s nothing you can do for them.

“All you can do is work with the customer to help them understand the situation, and come to a mutual agreement to sell the home. Hopefully there is a residual balance left over to help them start again. It’s a tough life out there.”

While the Government was concerned about protecting families and homeowners, Mr Jennings said commercial banks had to safeguard their shareholders and depositors.

Expressing hope that the proposed Credit Bureau would help prevent Bahamian borrowers from over-extending themselves, Mr Jennings said bank efforts on this issue were being stymied by less-regulated lenders.

“Customers come in for debt consolidation, have more of their salary to meet their obligation, and go back out and take on more debt,” he told Tribune Business. “Until we break that cycle, it’s going to continue.”