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Development Bank Fund ‘Sinking’: Covers 1/3 Of $46m Bonds

* Just 28.4% of loans ‘performing’ * Accumulated losses over $60m * Solvency deficiency at $31.31m

THE Bahamas Development Bank’s (BDB) ‘sinking fund’ covered just one-third of its $46 million outstanding bond debt at year-end 2016, with only 28.4 per cent of its loans ‘performing’.

The BDB’s 2016 financial statements, tabled in the House of Assembly in Wednesday by the Prime Minister, reveal the parlous state of another state-owned enterprise (SOE) that has racked up more than $60 million in losses for the Bahamian taxpayer during its 43-year existence.

The accounts, audited by Grant Thornton (Bahamas), show that the BDB had a $31.31 million solvency deficiency at end-2016 with its continued existence in question without further government (Bahamian taxpayer) financial support.

Of particular concern is the fact that its ‘sinking fund’, which was created to set aside money to repay the BDB’s two bond holders, is substantially under-funded compared to the principal owed.

The ‘fund’ contained just $15.608 million worth of assets, mainly Bank of the Bahamas (BOB) deposits, at end-2016 compared to the $46 million principal owed to the National Insurance Board (NIB) and Central Bank of the Bahamas.

NIB, which holds $42 million worth of BDB bonds, is by far its largest creditor. The financial statements note that NIB was paid the $3 million that came due during 2017, but there is a $30.028 million deficiency between the principal owed and the ‘sinking fund’s’ assets.

Unable to service its obligations itself, the BDB has become increasingly reliant on the Government (taxpayer) to make principal and interest payments on the bonds - and $3.674 million in other long-term loans - on its behalf.

The Government made $1.898 million in such payments during the 2016 calendar year, helping to increase the total sum owed by the BDB to the Public Treasury to $21.453 million at year-end.

The ‘sinking fund’ deficiency, coupled with the sum owed to the Government, explains why the BDB’s chairman, Lynden Nairn, told Tribune Business back in October that “everything turns” on its ability to restructure $64 million in long-term debts.

He added that negotiations with NIB and the Central Bank over the remaining $43 million bonds were geared towards giving the BDB “breathing room”, which likely involves extending the maturity/principal repayment date (a debt rollover) and lowering the interest rate coupon.

Emphasising that the BDB was not asking institutional investors to write-off their investments, Mr Nairn said then that the Board’s recapitalisation plans also rely on the Government agreeing to convert its $21 million debt into a larger equity position in the bank.

The BDB’s room for manoeuvre, though, is restricted by the fact that 71.6 per cent of its gross loan book was either non-performing, or represented ‘extraordinary advances’ and credit to employees, at year-end 2016.

Some $22.731 million worth of loans were classified as non-performing, meaning they were at least 90 days past due, while just $9.935 million worth of credit was current. Heavily indebted and struggling to service its obligations, and with the majority of borrowers delinquent, the BDB has little funding through which to extend credit to new entrepreneurs and stimulate economic growth through the small and medium-sized enterprise (SME) sector.

BDB’s accounts showed that one loan, “due from family members of key management personnel” and worth $73,197, was non-performing at year-end 2016. It was said to be fully secured, with an interest rate of 10.5 per cent.

Total loan loss provisions stood at $13.8 million at year-end 2016, reducing the size of BDB’s net outstanding loan portfolio to just $21.162 million.

For the 12 months to December 31, 2016, BDB’s total comprehensive loss fell by 42 per cent to $1.878 million from $3.23 million in 2015, due largely to a $1.585 million ‘swing’ on loan recoveries.

The Minnis administration has set 2020 as a deadline for the BDB to ‘stand on its own feet’, whereby it will cease paying the $3 million annual interest payments to NIB and the Central Bank on its behalf.

Asked previously whether the BDB could achieve the Deputy Prime Minister’s three-year ‘self-sufficiency’ target, Mr Nairn replied: “We think that it’s possible.

“Frankly, Neil, with a lot of the plans we have, everything turns on our ability to restructure our long-term debt. That’s the major thing that needs to happen, and if that doesn’t happen, and we can’t restructure, then the answer is that’s not achievable. If we are able to restructure, there’s a very good possibility we will be able to do it.”

Comments

bogart 1 year, 11 months ago

Accumulated losses over $60,000,000. And 28.4 % losns performing $31,310,000. Solvency defiviency. Well, Carls Jr private sector with 3 locations closed, Russells, Ironmongery, Mauras, Nassau Shop, etc Five different owners with decades of experience closed and cut losses. Did anyonne get fired after losing the first 5 million, or losing the sevond 5 million, or third 5 million. Of course anything is possible with the public taxpsyers VAt money to spend but if the business is losing we should not go against business sense.

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bogart 1 year, 11 months ago

Of course the govt can merge Bank of the Bahamas, Development Bank and the Mortgsge Corporation to obtain synergies cutting the 3 Boards of Directors, Management, rents etc try to minimize expenses.

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screwedbahamian 1 year, 11 months ago

In 2011 my pension from NIB was taken away by the Ingraham FNM government at my retirement age because government decided to increase the years of contribution retroactively to the implementation date of 1972. The fund did not have the necessary funds to pay the monthly pension payments mandated by the Lyndon Pindling, PLP government due to the gross mismanagement and rampant corruption of the Agency. With the present NIB having to pay and absorb the losses from the continuous gross mismanagement and rampant corruption in every government agency those currently collecting NIB pension will have the same thing happen in the not too distant future. How can we expect out children to strive for school grades better that D- if all they are exposed to is failure at every level of our governments.

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true919 1 year, 11 months ago

What you are saying makes absolutely no sense, once you are awarded a pension no government can take that away from you by "increasing the years of contribution retroactively to the implementation date of 1972" You are grossly misinformed and in the future educate your self with facts before speaking because you sound very silly trying to relate this to politics!

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sheeprunner12 1 year, 11 months ago

Bogart gave the best ideas for the three government agencies ...... Will KPT consider this???

We need to get rid of these dependent "white elephants" and make Government "lean and mean".

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seamphony 1 year, 11 months ago

who here honestly thinks all these years people lucky enough to get loans from BDB or BOB or student loans from MOE ever had the intention to pay them back in the first place?! crooked and/or politically exposed staff cherry picking their family and friends or whatever for these types of "free money" schemes... who can clean inside/outside/front or backyard of this house only god knows...

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happyfly 1 year, 11 months ago

Our entire economy is being held back by people who dont repay their loans. Whether it's these ridiculous government 'hand-out' banks or legitimate commercial banks such as CB and RBC. Successive governments have protected and shielded borrowers to the point that it no longer makes sense for anyone to be in the business of banking. People forget that a bank's primary role is to act as a mediator between people who have money in savings accounts and people who want to borrow money. The amount of people (on these message boards) crying about the evil banks lending people money ??? That's what they do ! Dont get me wrong, I hate the way my bank treats me when I sometimes feel like I am one the last of the fools actually paying off their loan. However, one should never forget that they are a business like anyone else and it's not really their money they are lending. It is your neighbor's money. The bank takes peoples deposits and lends it to you and take a commission for doing that. When the government does nothing but protect people who are not paying that money back it messes up the entire system and we are all paying for that with negative economic growth for the last 10 years.

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screwedbahamian 1 year, 11 months ago

True919 - it appear that you, unfortunately like many is the reason why the Bahamas may never be more that a third world country. Obviously your reading comprehension level is very low or your reading skills are none existing. I suggest that you get a third grade student to read my post and explain it to you.

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