The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas’ managing director yesterday said he had “not one doubt” the institution will return to profitability by December 2015, despite its shareholders incurring a collective $9.895 million net loss for the current year’s first six months.

Paul McWeeney told Tribune Business that the figures for the period to end-December 2014 covered the final moves associated with its $100 million government-financed bail-out, which saw 13 non-performing commercial loans transferred off its balance sheet.

Expressing confidence that no further ‘bad’ loans would need to be transferred to the Government’s ‘special purpose vehicle’, Bahamas Resolve, Mr McWeeney said the “bulk” of the clean-up was now behind Bank of the Bahamas.

Emphasising that the BISX-listed institution was focused on its “strategy to turn the bank around”, Mr McWeeney told Tribune Business: “I’m still confident that by December we’ll be profitable.

“I’m totally confident. There is not one single doubt in my mind. We’re getting there. No two ways about it. The equity base has been restored, and the Government has demonstrated its commitment to the bank.”

Some shareholders and observers are likely to be sceptical, given that Bank of the Bahamas investors saw their collective net loss for the six months to end-December 2014 increase by 34.7 per cent - from $7.348 million to $9.895 million.

While the bank’s performance still appears to be trending in the wrong direction, one positive indicator was the reduction in loan loss provisions, which fell by 19.8 per cent year-over-year to $8.795 million.

“There’s some small cleaning up going on, but the bulk is behind us,” Mr McWeeney told Tribune Business of the loan loss provisions. “We have odds and ends going on.”

Apart from delinquent borrowers, Bank of the Bahamas is facing similar challenges to other Bahamian commercial banks in that it is having to contend with declining collateral/security values for real estate-based loans.

Mr McWeeney reiterated that Bank of the Bahamas’ lending had been concentrated in mortgages and commercial credit, the two categories that were “hardest hit” by the 2008-2009 recession and subsequent slow recovery.

“We didn’t focus on consumer lending,” he added, “which seems to be the safest as it is dealt with by salary deductions. Our focus will be on retail and electronic banking going forward.”

Mr McWeeney conceded that Bank of the Bahamas’ decision to retreat from commercial lending, a move being copied by other banks, would be “a major blow” to the private sector and economic growth.

Companies rely heavily on bank credit to finance job-creating investment and expansions, and the withdrawal of Bahamian commercial banks from this space could lead to the economy’s ‘lifeblood’ drying up.

This has major implications for the Government and its desire to lower the Bahamas’ 15.7 per cent unemployment rate, but Mr McWeeney suggested it was the inevitable consequence of the banking industry’s “changed risk appetite” given the problems experienced with large commercial loan defaults.

“We’ve gotten burnt by commercial lending, so you’re going to shy away from it,” he told Tribune Business.

“That’s a major element of development, providing credit to commercial and small and medium businesses, and our withdrawal from that market is a major blow to the economy.”

Mr McWeeney, who previously announced he would leave his post at the bank’s June 30 year-end to retire, said he was focused on the leadership transition and creating a platform that would enable his successor to enjoy the fruits of the return to profitability.

Based on Mr McWeeney’s comments, that will only likely occur in the first half of its 2016 financial year, meaning Bank of the Bahamas shareholders will have to endure another loss-making year in 2015.

“We’re well-positioned,” he added. “We have good people here, and have a very capable and strong majority shareholder backing us, so I’m confident we’ll have a place, particularly in electronic banking, where I believe we have a competitive advantage. I’m confident that whoever takes over will take the bank further than I did.”

Mr McWeeney, though, said that while he believed the “broad” details of Bank of the Bahamas’ recovery strategy should be shared with shareholders, his replacement and the Board might have a different view.

“If I had my way, the broad strategy would be released to the shareholders,” he told this newspaper. “That’s my way of thinking. But there will be a new regime here, and they may have a different way of thinking.”

Mr McWeeney said Bank of the Bahamas had issued some 40,000 pre-paid cards, a figure he described as “pretty significant in this market”.

He added that the bank was also working on pre-paid cards for the National Insurance Board (NIB) and other government agencies, in a bid to improve payment systems and make fund transfers more efficient.

The $9.895 million half-year loss increased the accumulated deficit on Bank of the Bahamas’ books to $50.095 million at the 2014 year-end, a sum close to wiping out the $54.622 million loan provision/accrued interest write back that it benefited from via the Bahamas Resolve transaction.

And, in his note to shareholders, Mr McWeeney wrote: “The bank recognised loan loss provisions of $5.1 million during the quarter and $8.8 million year to date, resulting in a net loss of $5.7 million for the quarter and $9.9 million for the period ended December 31, 2014.”