TRANSFERRING more toxic Bank of the Bahamas loans to Bahamas Resolve will “tremendously” increase this country’s public debt, former Central Bank Governor and Bahamas Resolve Chairman James Smith said yesterday.
“By doing this you would free up the balance sheet and make it compliant with the Central Bank,” he said. “The downside is you’ve increased tremendously your public debt. There’s no winning in that situation but clearly if you want the bank to have a head-start you have to deal with the terrible loan book.”
Mr Smith said he recommended months ago to the previous administration that to turn BOB around, it should remove all of the bank’s toxic loans from its books, not just a part of it as the Christie Administration had done.
Meanwhile yesterday, former Court of Appeal President Dame Joan Sawyer criticised the new administration’s decision to follow in the footsteps of the PLP and transfer BOB’s toxic loans to a special purpose vehicle (SPV).
“So the FNM has followed the PLP’s nonsense,” Dame Joan said on the Nahaja Black Show. “They have gone down the train even further than the PLP in that regard.”
The comments came after Wayne Aranaha, chairman of BOB, revealed that $166m in toxic BOB loans will be transferred to Bahamas Resolve, the SPV the Christie administration created in 2015 to clean up BOB’s balance sheet and go after loans the bank was unable to recover.
The $166m is on top of the $100m in bad loans the previous administration transferred to the SPV.
Bahamas Resolve has faced significant headwinds going after the bad loans, leading Mr Smith to warn earlier this year that taxpayers will have to pay the interest and principal related to much of those loans.
The yearly interest to the bank is about two to three million dollars, Mr Smith has said. Bahamas Resolve has so far only been able to sell two of the properties from its original portfolio. Its recoveries were supposed to finance the interest payments to BOB.
“The banks isn’t clean in all of this,” Mr Smith, who served as minister of state for finance in the first Christie administration, said yesterday. “There are legal challenges before the courts on the amount of interest they were charging and agreements they didn’t keep. That helps explain why they couldn’t go after so much of the bad loans.”
Mr Smith said the Christie administration decided not to transfer the loans of politically exposed persons like members of the government to the SPV, a fact he believes meant efforts to clean up the bank’s balance sheet did not go far enough.
It’s not clear if the new administration will place a similar restriction on what loans can be transferred to the SPV.
Deputy Prime Minister and Minister of Finance Peter Turnquest has said the $166m transfer is the bank’s “best shot” for recovery, adding the previous administration “tried to protect certain borrowers,” resulting in the bank having to carry provisions it didn’t need to.
Nonetheless, “Bahamians will pay quite a lot” for this, Mr Smith said.
“The banking system had over $1b in non-performing loans, working through that during the last four years. One bank had to discount to take them off the books. “Similarly, we will have to eat it someway down the road and that process starts immediately. First you have to recognise the debt; $100m in promissory notes were given from the former administration to BOB in exchange for the bad loans.
“Now I presume another $160m notes will be exchanged. It’s a liability of the government for which they must pay back interest and principal over time.”
Mr Turnquest has said the government’s rescue of BOB will be debated in Parliament.
In 2015 Prime Minister Dr Hubert Minnis, then the leader of the Official Opposition, led about 100 supporters on a march to BOB’s headquarters on Shirley Street to protest the leadership of the bank.
“We have assembled here at the people’s bank to declare with one loud voice that enough is enough,” he said speaking from the bank’s steps at the time. “The government must act and they must act now. The use of government voting power to prop up failed leadership in the bank is unacceptable, when the Bahamian taxpayers have been made to swallow a $100m increase in the public debt load in order to prop up the same bank.”