By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Scotiabank (Bahamas) yesterday said it had gained $7 million from the sale of non-performing mortgage loans, which helped to drive a 266 per cent increase in 2016 profits.
The Bahamas-based commercial bank, in e-mailed responses to Tribune Business questions, said the removal of these ‘bad loans’ from its balance sheet accounted for 92 per cent of the year-over-year reduction in non-performing credit.
It added that it was “making strong progress” in tackling the ‘bad credit’ legacy created by the 2008-2009 recession, with “performing loans” increasing by $31 million or 3 per cent year-over-year in 2016.
“Scotiabank is making strong progress in addressing non-performing loans,” the bank said in its e-mailed response to Tribune Business.
“During the year, the bank sold several non-performing loans, which are included in this [loan loss impairment]line, as well as the subsequent impact of avoidance of additional losses due to these sales.”
Noting the positive financial impact, Scotiabank (Bahamas) added: “The sales accounted for 92 per cent of the reduction in our non-performing loans, and resulted in gains of approximately $7 million.
“Performing loans have increased year-over-year by $31 million or 3 per cent. A number of rate-driven campaigns have also contributed to the bank’s growth.”
The removal of non-performing loans from its books drove a 55.3 per cent reduction in Scotiabank’s loan loss impairment charges in 2016, which fell from $41.502 million the year before to $18.569 million.
With income and operating expenses relatively flat year-over-year, the near-$23 million drop in loan loss provisioning resulting from the ‘bad mortgage loans’ sale was almost solely responsible for Scotiabank (Bahamas) more than tripling its bottom line.
The bank’s net income jumped from just $8.407 million in 2015 to $30.776 million, a result it will use to justify its strategy of selling-off non-performing mortgages for which there were slim recovery prospects.
Scotiabank (Bahamas) did not identify the purchaser of its non-performing mortgage loans, but it is likely to have been Gateway Financial, the company owned by Sunshine Holdings entities, Sunshine Finance and RoyalStar Assurance.
Sir Franklyn Wilson, Sunshine Holdings’ chairman, confirmed to Tribune Business last August that Gateway had acquired a portfolio of “several hundred” delinquent home loans, all more than 90 days past due, from a then-unnamed commercial bank.
He added that Gateway’s efforts to subsequently restructure these loans had already proven “very effective”, and would allow many borrowers to remain in their homes on terms better aligned with their financial circumstances.
Entities such as Gateway have been viewed as part of the solution to the Bahamas’ entrenched mortgage/housing market crisis, as they can reduce the pile of ‘bad loans’ weighing down commercial bank balance sheets.
Selling such distressed loans enables commercial banks to recover some of their previous provisioning, and releases capital for lending to better-qualified home purchasers.
The Central Bank’s report on December 2016 economic developments revealed that total non-performing Bahamian mortgage loans declined in value by $150.6 million or 28.9 per cent in 2016, due largely to the transaction between Scotiabank and Gateway.
But, despite its improved profitability, Scotiabank (Bahamas) confirmed it also remains in consolidation mode, as it seeks - like its many commercial bank counterparts - to extract further efficiencies and reduced costs in a low growth environment.
While not providing a figure for how many Bahamian jobs may ultimately be shed, Scotiabank (Bahamas) said it was still transferring back office functions, including its collections units, to its Caribbean south services hub in Trinidad.
Promising that it would seek to move affected employees into other roles within the bank, Scotiabank (Bahamas) said: “The bank is in the process of transitioning certain back office support functions and its collections units into the Caribbean South Shared Services hub.
“It is difficult to say exactly how many people will be affected as the bank works diligently to fill upcoming positions with affected individuals
“Some positions will be left in these units in order to perform services in support of collateral administration, insurance and processing activities, site visits, client field calls, and other on-the-ground activities.”
Explaining the rationale for its continued consolidation, the bank added: “This change is consistent with the bank’s strategy of being better organised to serve our customers while reducing structural costs.
“Also, the bank will improve quality of support, achieving a consistently high customer experience level, and will increase efficiencies with a quick adaptability to market changes and changes in process to better serve the customer.”
Scotiabank (Bahamas) added that the Central Bank’s 0.5 percentage point interest rate cut just before Christmas 2016 would temporarily narrow interest margins, as deposit rates would take longer to adjust than their loan counterparts.
“The reduction in Prime will have a significant impact on the bank’s overall net interest margins. While deposits rates will not be impacted, loan rates have been reduced for clients with variable rate loan facilities,” it added.
Comments
John 7 years, 1 month ago
So why didn't BoB recover when it's toxic loans off the books and 'sold' them to Resolve? Several years later and BoB is still operating in the red and in need of cash injections. And what progress has Resolve made in recovery of the toxic loan portfolio?
banker 7 years, 1 month ago
Interesting accounting here. Maybe an accountant can explain it. You sell off your loans on pennies on the dollar, and get $7 million and you count it as profit? Doesn't one have to account for that as a loss against the loans. Do we have an accountant here that can explain how monies from the sales of distressed loans (which have some loss amount) gets counted as profit?
realfreethinker 7 years, 1 month ago
Not an accountant but the loans were sold so it will be a profit. It cant be listed as a loss . although the loans were non performing,by removing them from the books,any money made after that will be considered profits
Sickened 7 years, 1 month ago
In my mind they can count it as profit only if they have written the loans off or considerably down already. I don't know how long a bank would wait before writing a loan off or down but I would guess that it's NOT immediately after 90 days. I would however guess that they had hundreds of loan that were written off completely.
realfreethinker 7 years, 1 month ago
They will write a loan off so that it can be removed from the balance sheet,which means it will only be counted against that year's bottom line However they sell loans at reduced rate ,bearing in mind that with the amount of interest collected has probably exceeded the principle borrowed. After paying a mortgage for about ten years the interest you would have is usually higher than the amount borrowed, so selling off those loans at pennies on the dollar doesn't necessarily mean the bank is losing money.
Chucky 7 years, 1 month ago
It's not really that difficult to understand once you know where the original money comes from. Banks are in effect "licensed issuers of currency". All new money is created out of debt, i.e. the banks "write" mortgage money into existence. They don't actually loan you money that is on deposit. So when you go to a bank for a mortgage (100k for example), the bank creates this new money, essentially out of thin air.
Noteworthy, it is only the original loan balance that is created in the process, and since the borrower must pay back the original balance plus interest, this creates a rather large problem for the system. Essentially when the money is paid back, it is "deleted" from the system or "destroyed'.
The problem lies in the fact that the interest portion of the loan must be paid, and this takes money out of circulation. Anyone who thinks about it will realize that without the continual expansion of debt, currency would quickly become of short supply. Its not an accounting issue, this is the basis of the fiat currency system. It's essentially one big Ponzi scheme in which the central banks, commercial banks and the government collude.
The results are felt by everyone, but understood by few. Basically the debt cycle needs to continually expand to prevent currency shortage, this leads to ever increasing money supply which is not backed by anything, and ends with the devaluation of currency over time, this devaluation is passed off and explained to people as inflation. We all know that for the most part inflation can't really exist. After all, all goods and are cheaper to make now then ever before. Think of automation (less labour and faster production), increasing mining efficiency of natural resources (mining takes less people, and is done on a much larger scale due to modern better equipment. Nothing is more expensive to make today than in the past. But with so many dollars "written" into existence, money is just not worth what it used to be. All governments participating in the game (all countries currencies are fiat, ie. not back by gold), and if in general all countries expand their money supply at the same rate, the relative exchange rates remain the same. Have some fun and look what it cost to buy something 50 years ago and compare it to todays price using a gold standard. Ie. how many ounces of gold did it take to buy a car in 1950, and how many it takes today, you will notice it's essentially the same. Try it with shoes, go back a 100 years if you like, the historic prices can be found online. The banks don't really lose anything , since they didn't lend their money. Look up any banks balance sheet, notice their "assets" exceed their "liabilities" . Did you know that a loan on the books of a bank is an asset, and your deposit is a liability. How can they have more "assets" than "liabilities", other than by using a fiat scam. A bank can't lend what it doesn't have , right?
SSPP99 7 years, 1 month ago
A Bank has more "assets" than "liabilities" because they also use "equity" to finance assets.
Assets = Liabilities + Equity
Every bank is required to hold a certain amount of equity to buffer any losses to protect deposits which are the liabilities of a bank.
Other than that I agree with your sentiments
Well_mudda_take_sic 7 years, 1 month ago
Typical Sir Snake preying on the poor in our country and acting as a frontman with his local partners for foreigners who are foolishly putting up a good portion of the funding required to acquire the mortgage loans. Can you imagine Sir Snake and his foreign cronies replacing the bank as your lender?! That's a fate more than death for the delinquent business or homeowner!!! After all, Sir Snake and his partners are only interested in ultimately taking possession of the land (or possibly the business) that is subject to the mortgage. And of course Crooked Christie is more than willing to let his favorite equally crooked crony, Sir Snake, prey on those who have fallen on the most tragic of hard times! The stupid foreigners involved obviously don't realize that Sir Snake will eventually inflict a most poisonous bite on them too, when the time is right.
banker 7 years, 1 month ago
Having a distressed loans business is an opportunity to seize property for pennies on the dollar.
bogart 7 years, 1 month ago
Turning loans into profitable ones after could only use the same variables both institutions have at their disposal, interest rate, length of mortgage, balloon payments, interest only for a period of time until payment can be increased etc. etc. How can one institution make a profit where the other a few blocks away cannot and has to sell your mortgage? WHY are they allowed to shed liability? Bank profits are affected by the amount of money that has to be set aside for the possible loan loss non preforming or provisioning- same as the Bank of Bahamas situation years ago. The bank does not lose as the house is sold and customer is taken to Court and Judgements lodged against them for life until they repay and they are almost certainly unlikely to ever borrow again. Preposterous that every single 4000 plus defaulted last customer seems so far to be at fault! Bankers have a duty to ensure that customers have a fair chance of success. However as these Banks have their headquarters in other countries it is questionable whether the banking policies and ratios and application forms were ever in the Bahamian customers favour or designed to extract maximum profit. Note that these forms have been changed in most banks after the 4,000 plus defaulted customers tying up some 1 billion. Bahamian mortgage bankers are given mortgage loan targets to meet say 3 million in mortgages depending on the branch location. If these mortgages targets are met the banker is affected in getting a perfect Staff appraisal performance report and thus the salary increase. Bankers who meet these targets are rewarded and in the past it is alleged that bankers who met and surpassed their mortgage to be given out targets were rewarded with thousands of dollars as bonuses and SUV's. Absolutely incredible that where Bahamian mortgages with Bahamian customers in houses can be bought and sold by FOREIGN HEADQUARTERED BANKS and no national investigation is done as to how every customer is to blame and no BANK or loan officer is at fault. Investigations are needed. Also incredible that foreigners can answer the phones and know and inquire on all your business and this has been going on for some time and there is nothing done about it. Mind you foreigners can know your confidential business but there is ruckus over the Bahamian court being allowed to know tap into your business. Investigations are needed we cannot allow foreign profit oriented companies to do this to BAHAMIANS.
Chucky 7 years, 1 month ago
Seems you are having a hissy fit. Note that you are very protectionist when it comes to how "Bahamians " are treated; I wonder how you feel about Bahamians borrowing money and agreeing to pay it back , and not doing so. Nobody has held a gun to someone's head and made them take a mortgage.
You sign up for it, and take the banks money, you better pay it back, or they're coming for their stuff, and rightfully so. Get a grip life, if idiots didn't borrow more than they can afford, they would be able to make their payments! Perhaps there are too many idiots who spend money on multiple mistresses and mag wheels for their cars, instead of putting aside savings for a rainy day. People who held views like your's Bogart, are the problem in this country.
mckenziecpa 7 years, 1 month ago
I am an accountant
Here are the journals entries.
debit original mortgage $$$ credit loan term debt $$$
An allowance account is set up for the potential bad debt
bad debt expense income statement allowance for bad debt balance sheet.
When the loan becomes bad, the loan is written off as follows a reversal of the original entry. Cash is also debit Debit long term note on mortgage $$$ Credit Bad Debt $$$
The cash hit the income statement its positive its a profit and so is the reduction in bad debit because it is written down.. The note well a debit takes it off the balance sheet.
banker 7 years, 1 month ago
Thank you. Understand now.
Emac 7 years, 1 month ago
Well alright Mr. Mckenzie!
bogart 7 years, 1 month ago
You are obviously illiterate failing to understand that bankers have targets to meet in order to get a pay increase. Protectionism is when our birthright is parley to invite hotels etc business and jobs and Bahamians are pursued with huge marketing budgets get loans which should really be investigated as to whether due care and attention was done after Bahamians pay a bank fee for excellent service! Bankers go after customers call real estate agencies looking for prospective customers and other sources to meet their quota. It is quite possible that loan officers can 'lead' the prospect, it is possible existing loan payments can be 'forgotten' to qualify to fit into the 45% Debt service ratio. It is possible and quite likely that budget figures are minimized or not included to show that loans can be repaid. It is quite possible that a thorough application was not done especially in the lunch hour appointment or by archaic forms which when done at best shows a marginal loan applicant and which is covered by a Mortgage Indemnity and all this done by young officers still living at home not aware of true expenses.etcetcetc. My views and which I am thankful is by the respected Tribune paper. We happen to believe in democracy and free speech. Yours In assaulting people with views like mine as your problem would be akin to that of the NAZI where people like me were annihilated in death camps so please change. As a Christian I forgive you.
Chucky 7 years, 1 month ago
Hey Bogart I agree with your free speach, and everyone has it too.
But this doesnt automatically mean your views are great, or right, or good for the Bahamas.
bogart 7 years, 1 month ago
I have stated many times before that investigations are needed into why 4000 plus mortgages went bad crippling the housing, construction affiliated industries. The defaulted mortgagor has noone to turn to as he is broke. 4000 usually husband and wife makes it 8000 usually with 2-3 children 16000 at times with parents etc. No Bahamian banker is perfect and where the figures do not add up for a fair chance of success for the client who paid a fee for service to be properly processes bankers should be charged with fraud and jail time also. When you buy a plane ticket not only you expect to get to your destination but you expect that the plane wheels will not fall off and passengers harmed. Thank goodness airlines can be fined. The Bank of the Bahamas should have an investigation and closed if not viable and persons charged for all our tax dollars pumped into it without an investigation and officers punished instead of being paid off and as likely rehired at another financial place. In fairness to the foreign banks fair play should happen in market economy.Many homeowners do not deserve to go through pain and suffering with the memories imprinted on their children. Wrong is wrong whether is foreign or our own Bahamian. 20 million in public funds should not automatically go to mortage relief if it can be first proved that the bank faulted on the application and some loan officer did not push through the loan to meet teir target of loans demanded by some foreign officer. We depend on foreign investments we welcome it but we should not be lesser off at the end. Fair is fair to both Bahamian and foreign alike. Go through past financial articles and see comments and advocate for investigations into the banking crises.
killemwitdakno 7 years, 1 month ago
Do they mean they never profited $3M?
Alex_Charles 7 years, 1 month ago
Now of only BOB wasn't a flaming pile of Garbage
SSPP99 7 years, 1 month ago
Bogart - A bank has more assets than liabilities because they also use equity to finance assets.
Assets = Liabilities + Equity
Every business has more assets than liabilities or else they would be insolvent.
Other than that I agree with your sentiments.
bogart 7 years, 1 month ago
Thank you for agreeing with my other sentiments. Appraisers, accountants, bankers are not perfect. Many disputes exist with one now over failed business failure etc in Florida Court another seems brewing over Bahamar payout to shareholders over cents on the dollar In determing equity, persons have had questions raised going as far back as the 1984 Commision of Inquiry with hotel valuation. Cash cow business of Clico somehow managing to get bank to obtain loans to buy office buildings and other notable business failures where govt became entwined in guarranteeing saving deposits and one currently where employee pension funds was used to fund equipment for supermarket chain. In transferring, meging, combining, by acquisition, reverse acquisition or any such process I do not believe the govt received and stamp duty in the Barclays/CiBC-FirstCaribbean. The govt did get a large amount from the oil refinery sale in GB tough. Currently there are queries on what stamp duty is paid over sale of land obtained at a bargain price and avoiding paying more if the is equity more than sale price. Currently there are two sets of Appraisers one who goes to college to studt for years and the other who as a part of a Real Estate Certification can become one ans is licensed by an Act. How do you see the Bank of the Bahamas with the govt injecting or support of 100m for resolve now posibly crystallised and continued injections of funds? In terms of equity? Capitol ratios?
Sign in to comment
Or login with:
OpenID