By NEIL HARTNELL
Tribune Business Editor
Bank of the Bahamas’ continued quarterly losses show it has “much bigger problems” than the $100 million in ‘bad’ loans already removed from its balance sheet, the Opposition’s deputy leader said yesterday.
K P Turnquest, the FNM’s finance spokesman, suggested more troubled credit may have to be transferred to the Bahamas Resolve vehicle, after the losses incurred by Bank of the Bahamas shareholders increased by 73 per cent year-over-year.
Speaking after the BISX-listed institution unveiled $17.1 million in investor losses for the nine months to end-March 2015, Mr Turnquest called on financial industry regulators to pay closer attention to what was happening at the bank.
He added that it was “unacceptable” that the Bank of the Bahamas’ Board, and management, had failed to deliver on promises made at last year’s annual general meeting (AGM) to disclose the bank’s turnaround strategy to shareholders.
And the Opposition’s deputy expressed “surprise” that Bank of the Bahamas was blaming its continued losses on delinquent commercial loans, given that the 13 worst performers in this category were supposed to have been transferred to Bahamas Resolve as part of the Government-organised $100 million ‘bail out’ last October.
“I think it’s a major concern for us,” Mr Turnquest told Tribune Business. “What exactly is the strategy at Bank of the Bahamas, and what is the plan for restructuring and putting the bank back on a sound footing?”
Paul McWeeney, in his last message as Bank of the Bahamas’ managing director, blamed “an ageing portfolio of systematically high non-performing commercial loans” and more aggressive provisioning methods for the continued ‘red ink’ through the 2015 third quarter.
Mr Turnquest described this statement as “very telling with respect to the continued delinquency and arrears in the commercial portfolio”.
“I’m very surprised,” he said of the reasons cited by Mr McWeeney. “It says there is, or was, a much bigger problem than the 13 loans they shoved into this special purpose vehicle [Bahamas Resolve].
“There’s obviously a much bigger problem to the extent there is still obviously a significant portfolio of non-performing and under-performing loans. How stable is the bank now, and how much more are we going to have to absorb?”
Tribune Business revealed on Monday how Bank of the Bahamas’ results for the third quarter and first nine months of the financial year to end-June 2015 show it is suffering increased losses on reduced top-line income
Its net loss for the three months to end-March 2015 jumped more than five-fold year-over-year to $7.252 million, compared to $1.301 million the year before, due to reduced revenues and higher loan loss provisions.
That quarter was the first full three-month period that was free from the Bahamas Resolve transaction’s impact, yet it produced Bank of the Bahamas’ highest quarterly loss for the 2015 financial year.
Several shareholders told Tribune Business on Monday that Bank of the Bahamas was “fast becoming a noose around the Government’s and taxpayer’s necks”, implying that as 65 per cent majority shareholders they would bear the burden of recapitalising the institution.
While acknowledging that “there’s always that risk”, Mr Turnquest told Tribune Business: “I don’t know if I want to go that far.
“The Government had the opportunity to point the bank in a new direction with respect to changing the current Board of Directors’ make-up.
“They believe they can continue to operate in the same manner as in the past,” he added. “In the absence of any strategic plan being presented to the shareholders, we’re left to guess what’s different.
“It’s obviously not working. If we continue in this vein, we’re going to be in serious problems in a minute.”
Mr Turnquest suggested that the Government expand the ‘Bahamas Resolve’ concept by transferring all Bank of the Bahamas’ problem loans to the special purpose vehicle (SPV).
This would further the ‘good’ bank/’bad’ bank solution the Government adopted in October following Bank of the Bahamas’ $69 million net loss for the 2014 financial year.
Bahamas Resolve is the ‘bad’ bank filled with toxic loans, leaving Bank of the Bahamas - in theory - as the ‘good’ bank with performing credit than can help rebuild its balance sheet and restore the institution to profitability.
However, Bank of the Bahamas’ latest results suggest it is still being weighed down by problem loans. Yet transferring these troubled assets to Bahamas Resolve will merely switch liability from the bank and its shareholders to the Bahamian taxpayer.
“I think that the first thing to do is recognise we have a problem, and since we’ve already taken the extra step of creating Bahamas Resolve to take these large loans, we might as well go ahead and fully re-capitalise the bank by transferring the rest of the troubled assets, so the bank has the opportunity to rebuild,” Mr Turnquest said.
“Then we will have to collect for the Bahamian people what monies are transferred to this vehicle. This is the Bahamian people’s money, the Bahamian people’s bank.”
He added: “There’s no point in trying to resuscitate a bank or asset that shows no ability to turn around on its own.
“I believe the regulators have some responsibility here. The Securities Commission, because this is shareholder money, and I’d be interested to see what the Central Bank has to say on it.”
Bank of the Bahamas’ $17 million-plus net loss incurred year-to-date has already wiped out the $54.623 million ‘retained earnings’ write-back from the Bahamas Resolve transaction. That is now overshadowed by the $57.348 million accumulated deficit sitting on Bank of the Bahamas’ books.
The Resolve transaction saw Bank of the Bahamas exchange a net $45.4 million worth of ‘bad’ commercial loans with the Government-owned vehicle in exchange for $100 million worth of promissory notes (government bonds).
The benefits from that deal, which allowed Bank of the Bahamas to ‘write back’ $54.6 million in provisions and accrued interest, are already being eradicated by its continued losses.
And, if those $100 million worth of promissory notes are excluded, Bank of the Bahamas was barely solvent at March 31, 2015. Ignoring those notes, its total assets of $730.769 million exceeded $727.76 million in total liabilities by just $4 million.