The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Standard & Poor’s (S&P) says it is still “closely monitoring” the $100 million Bank of the Bahamas ‘bailout’ to ensure this is an isolated event, describing the situation as a “downside risk” for this nation.

Dr Lisa Schineller and Julia Smith, respectively S&P’s outgoing and incoming lead Bahamas analyst, told Tribune Business they were watching the BISX-listed institution’ situation to make sure it was not the first sign of a banking sector meltdown.

Ms Smith said the credit rating agency wanted to be “sure those problems are contained”, after Bank of the Bahamas was rescued by the Government via a bonds-for-bad commercial loans swap.

“It was definitely something that we monitored closely, and something we reviewed,” she told Tribune Business.

“The important thing was to make sure this was not a systemic issue for the banking sector as a whole, and making sure this was not representative of something that would lead to worse in the banking sector.

“We’re still monitoring that situation closely, and making sure this is something that is contained.”

S&P’s key concern has been to determine whether Bank of the Bahamas’ ‘bail out’ is an isolated event, or the first signs of deeper problems within the Bahamian commercial banking industry.

It wants to be sure there is no risk of ‘contagion’, which means that Bank of the Bahamas’ problems will not spread to other commercial banks.

There has been no sign of this happening to-date, and it is highly unlikely such ‘systemic’ problems will occur. More than 80 per cent of the banking sector’s total assets are held by the three Canadian-owned banks, Royal Bank of Canada (RBC), CIBC FirstCaribbean International Bank and Scotiabank, all of whom are well capitalised, have the support of strong international parent institutions, and have absorbed losses far greater than Bank of the Bahamas’ almost-$69 million net loss in 2014.

“Obviously, it wasn’t a positive development,” Ms Schineller told Tribune Business of Bank of the Bahamas. “We are assuming this is an isolated case that is going to be managed. It remains a downside risk we’re continuing to look at.”

The Bank of the Bahamas ‘bail out’ is based on a ‘bad loans for unsecured government bonds’ swap, whereby a portfolio of troubled Bank of the Bahamas loans has been transferred to Bahamas Resolve, a so-called ‘bad’ bank, in exchange for promissory notes.

Bahamas Resolve will pay interest on these bonds to Bank of the Bahamas, presumably using proceeds from loan recovery, helping to fill the ‘hole’ left on its balance sheet.

The Christie administration has provided a ‘letter of support’, rather than guarantee, to underwrite the bonds, thus preventing the rescue plan from becoming a liability on its balance sheet.

S&P’s fellow rating agency, Moody’s, last year highlighted how the Bank of the Bahamas situation highlighted the Bahamian commercial banking industry’s collective non-performing loan pile, and the resulting drag on the economy.

“The problems faced by Bank of the Bahamas highlight the negative effect the global financial crisis has had on the Bahamian banking system,” Moody’s said then.

“The banking system’s non-performing loans were 16.1 per cent of total loans at end-2013, and 17.2 per cent as of August 2014, compared to 6.1 per cent in 2008.”

And it warned: “The health of the banking system continues to pose challenges for the Bahamas, as a relatively high level of non-performing loans is an important factor limiting credit growth and stronger economic recovery.

“Since clearing the existing stock of non-performing loans will take several years, measures to avoid an increase in their level will be required to ensure that the financial health of the banking system does not further deteriorate.”

Bank of the Bahamas yesterday announced it signed an exclusive processing agreement and acquiring services deal with CenPOS.

The agreement covers the entire Bahamas, and Bank of the Bahamas will promote and rollout CenPOS’ services to the business community.

These services include mobile processing, electronic bill presentation and payment, integrated payment solutions, shopping carts, point-to-point encryption, tokenisation, recurring billing and mobile wallet.

“The Commonwealth of the Bahamas has one of the largest business communities in the Caribbean region, in part due to the fact that the Bahamas is one of the most popular tourist destinations in the Caribbean,” said Jorge Fernandez chairman and co-founder of CenPOS.

“Therefore, it made strategic sense for CenPOS to cultivate a business relationship with a local acquirer that shared in our vision and was willing to embrace a technological change to create a difference in the market place.

“We wanted to partner with a local Bahamian bank that understood the local business needs and was willing to create their own blue ocean strategy through the adoption of CenPOS’s technology offering, ultimately making the competition irrelevant in the market place.”

Renee Davis, Bank of the Bahamas’ acting chief operating officer, said: “Bank of the Bahamas is proud to partner with CenPOS to continue to be the leader in delivering cutting edge technological banking solutions to our customers.”