By NEIL HARTNELL
Tribune Business Editor
Bank of the Bahamas' (BOB) latest bail-out has cost Bahamian taxpayers more than three times' the net value of toxic loans purchased from the stricken BISX-listed bank.
The full-year 2017 accounts, released yesterday, reveal that the Government paid $162 million to acquire non-performing credit worth just a net $49 million as part of the bank's August 'rescue'.
The accounts, audited by the KPMG accounting firm, reveal that the $113 million "difference" will be written back into Bank of the Bahamas' balance sheet as 'special retained earnings', boosting its net equity and helping to largely erase a $140.498 million accumulated deficit.
Explaining the implications of BOB's most recent bail-out, the financials said: "A portfolio of non-performing loans with principal amount of $131 million, and accrued (unpaid) interest receivable of $31 million, with a total net book value of approximately $49 million was derecognised.
"$162 million in unsecured promissory notes [government bond or IOUs] was received for these loans and was recognised as an asset.... The net difference of approximately $113 million between the Notes received and the net book value of the derecognised assets was recognised directly in equity as 'Special Retained Earnings', and is considered to be a part of the bank's regulatory capital."
The gulf between the sum paid by the Government/Bahamian taxpayers to rescue an essentially insolvent Bank of the Bahamas, and the net value of the 'toxic' loans acquired by the Bahamas Resolve bail-out vehicle, has never previously been disclosed.
The August 2017 transaction copied the model established by the first Bahamas Resolve 'rescue', which injected $100 million worth of government paper into BOB in exchange for 'bad' loans worth a net $45 million.
However, the latest bail-out represents a far greater transfer of liabilities from BOB to the Bahamian taxpayer. For the sum paid by the Government is 230.6 per cent, or more than three times' higher, than the $49 million net worth assigned to Bahamas Resolve's latest toxic loan portfolio. The ratio for the first 'rescue' was just 122 per cent.
That $49 million valuation is also open to question, given that James Smith, Bahamas Resolve's inaugural chairman, previously revealed to Tribune Business that the first $45 million portfolio was worth half that amount once all the loan security/collateral was properly assessed.
The two bail-outs are a massive transfer of liability from BOB, and its shareholders, to the Bahamian taxpayer, given that it is the Government - through Bahamas Resolve - that now has responsibility for collecting on these 'toxic' loans - a process that could last decades.
The Government is also redeeming the $100 million worth of bonds injected into BOB through the first Bahamas Resolve transaction, a process that will be completed via four payouts this fiscal year.
This raises the possibility that the Government will, at some stage, also have to redeem the $162 million involved in the latest transaction and replace them with hard cash - something that represents the most significant potential drain for taxpayers.
But BOB's financial statements for the year to end-June 2017 reveal that the Minnis administration had little choice but to effect a second 'bail-out', given that an astonishing 55 per cent - more than half - of the bank's loan portfolio was rated non-performing.
The bank's continued deterioration was highlighted by the fact that non-performing loans, as a percentage of BOB's total credit portfolio, had increased from 46.07 per cent at year-end 2016 to 55.11 per cent just one year later.
This meant that $246.973 million, out of a net $448.125 million portfolio, was 90 days or more past due at end-June 2017. In particular, 79.4 per cent or $44.038 million of BOB's $55.487 million commercial mortgage portfolio was deemed 'impaired' at the year-end date.
Some 57.8 per cent, or $103.494 million of BOB's $179.101 million commercial loan and overdraft segment, was also branded as 'non-performing' at year-end 2017.
The scale of the latest Bahamas Resolve transaction was meant to cure this, and BOB's continued non-compliance with four out of five key regulatory capital ratios set by the Central Bank of the Bahamas.
"It is expected that this transaction will restore all of the bank's regulatory capital ratios to compliance," BOB's 2017 financial statements said of the latest 'bail-out'.
"As of June 30, 2017, and 2016, the bank was not in compliance with regulatory minimum requirements for the following [four] ratios primarily due to the significant net losses recorded by the bank and the consequential accumulated deficit position.
"The Central Bank is aware of these regulatory deficiencies, and has imposed certain supervisory interventions on the bank. The bank continues to report to the Central Bank on its progress. Effective September 30, 2016, the Central Bank increased the minimum capital requirement for the ratio on total capital to total risk weighted assets to 18 per cent for the bank."
The extent to which the Government continues to prop up BOB is further highlighted by the fact that, at end-June 2017, the Public Treasury and other government agencies accounted for 37.4 per cent - more than one-third - of the bank's total deposits.
The impact from the Bahamas Resolve transaction was not included in BOB's 2017 financials, given that the 'rescue' occurred two months after its year-end. The BISX-listed bank's net loss almost doubled, from $23.296 million in 2016 to $46.3 million, almost entirely due to a more than-100 per cent increase in loan loss provisions.
These grew from $24.499 million to $51.957 million for the year to end-June 2017, highlighting the extraordinary weakness of BOB's credit portfolio.
KPMG, pre-bail-out, warned shareholders that there was a "material uncertainty" over BOB's ability to continue as a 'going concern' given the heavy, consistent losses incurred by the bank since its 2014 financial year.
"The bank has experienced continuing operating losses for the last several years, and was also non-compliant with certain of its externally imposed regulatory capital requirements as at June 30, 2017, and 2016," KPMG said.
"These events and conditions, along with other matters as set forth, indicate that a material uncertainty exists that may cast significant doubt on the bank's ability to continue as a going concern.
"Management does not expect that the continued operating losses or regulatory capital deficiencies will impact the bank's continuing ability to operate as a going concern. Our opinion is not modified in respect of this matter."
In a separate development, Tribune Business understands that Anthony Allen, formerly Scotiabank's top Bahamian executive, has resigned from his post as BOB's deputy chairman for unspecified "personal reasons".