The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Development Bank's (BDB) chances of meeting the Government's three-year 'self-sufficiency' target depend entirely on its ability to restructure $64 million in long-term debt.

Lynden Nairn, the institution's newly-appointed chairman, told Tribune Business yesterday that "everything turns" on negotiations with the National Insurance Board (NIB) and other holders of the BDB's $43 million bonds in the quest for "breathing room".

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

With more than 60 per cent of the BDB's $34 million loan portfolio rated 'non-performing', the institution has been in "a holding position" for several years, unable to engage in lending to new entrepreneurs simply because it lacks the liquidity to do so.

Mr Nairn said the BDB's new Board had initiated efforts to collect on "100 per cent" of the security/collateral for non-performing loans, where borrowers failed to settle or agree a payment plan, as it seeks to place the bank in a position where it can again begin to fulfill its mandate.

This task, though, pales in importance compared to the long-term debt restructuring, which Mr Nairn said was critical if the BDB is to stand on its own feet by 2020.

This was the deadline set by K P Turnquest, the deputy prime minister, for ceasing the annual $3 million bond interest payments the Government has been making on the BDB's behalf - a practice that appears to have been in existence for seven years.

"What we are aiming to do is to effectively recapitalise the bank by seeking to convince our long-term lenders to restructure their facilities," Mr Nairn told Tribune Business.

"For example, we are seeking to persuade the Government to convert the bank's indebtedness to it into equity. We're asking the Government to convert $21 million or so that would have arisen from the annual payment of $3 million or so for bond interest."

The Bahamian taxpayer, via the Public Treasury, has been forced to finance interest payments to the bondholders as a result of the BDB's weak financial performance, which has left it unable to meet its obligations.

Mr Nairn yesterday confirmed the BDB had begun discussions with NIB and other bond holders to restructure its debt. While he declined to confirm specifics, this is likely to involve extending the maturity/principal repayment date and lowering the interest rate coupon.

This would reduce the BDB's debt servicing costs, and the chairman told Tribune Business: "We do have a significant bond obligation, which today stands at $43 million.

"They are held by NIB and others. We have commenced discussions with them with respect to restructuring. We're certainly not asking them to do write-offs of any of it, but we do need some breathing room so we can grow the performing loan book."

Asked 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."

Mr Nairn declined to give a precise ratio for the BDB's current non-performing loans, saying: "I do know what it is. I'm almost hesitant to tell you. Let me say that the non-accrual rate is in excess of 60 per cent."

In an earlier address to the Rotary Club of West Nassau, Mr Nairn said the BDB was unable to fulfill its mandate - financing the entrepreneurial dreams of Bahamians - due to a combination of high loan delinquencies, high indebtedness and under-capitalisation.

"Having amassed significant losses over the decades, the bank has essentially been in a holding position, primarily because it lacks the liquidity to engage in meaningful new lending," he added. "The bank is saddled with debt and an extremely high level of non-performing loans.

"The reality is that even if the bank never had a single bad loan, it still would have been unprofitable. That is so because the bank was undercapitalised from the beginning, and was/is operationally inefficient - in part because of a lack of economies of scale."

Mr Nairn added that the BDB's long history of high non-performing loan levels was "no secret", and the Board had little choice but to secure all loan collateral pledged by delinquent borrowers if it was to engage in new lending.

"The bank is patently aware of the need to institute measures that would minimise non-accrual loans," the chairman said. "With respect to existing non-accrual loans, the bank has embarked on an initiative designed to liquidate 100 per cent of collaterals held for non-accrual loans in the shortest possible time.

"Those measures are essential so that the bank might recover some of its capital for the purpose of new advances."