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Bob Chair: ‘Peanut’ Profits Make Dividend Premature

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of The Bahamas (BOB) chairman says it is “premature” to discuss resuming ordinary shareholder dividend payments when profits to-date have been “kind of peanuts”.

Wayne Aranha told the BISX-listed institution’s annual general meeting (AGM) that both Board and management were focused on returning the troubled lender to sustainable profitability, and higher returns for a bank of its size, before looking at capital returns to investors.

He added that BOB needed to “get running on a V8 engine” following years of sustained multi-million dollar losses that have left it with a $137.593m accumulated deficit, forcing it to be rescued via two government bail-outs and a rights issue entirely financed by Bahamian taxpayers.

Confronted with a question about when payments might resume, Mr Aranha replied: “It’s premature to talk about when we will pay a common share dividend... I know everybody is anxious about when we will get to that point of paying a dividend. It would be premature to guess.

“We, as seen from the level of provisioning, are not yet running on a V8 engine - assuming it’s a V8 and not a V12. I’m hesitant to look to the future to say when we will get a common share dividend.”

Mr Aranha said he thought BOB last paid a dividend in either 2012 or 2013, the years just prior to the first Bahamas Resolve transaction in which $100m worth of government bonds were injected into the bank’s balance sheet in exchange for loans owed by 13 delinquent borrowers.

Rather than dividends, the BOB chairman said board and management focus needed to be on sustaining - then growing - BOB’s bottom line following its recent return to profitability, and generating shareholder returns at a level consistent with a bank of its size.

“The concentration now must be on sustainable profitability,” Mr Aranha told shareholders. “We look now and say we made $1.966m [in the 2019 first quarter] compared to $658,000, but after this $15m payment to preference shareholders (see other article on Page 1B) we will have $150m in capital. A $1m profit on that is kind of peanuts.

“The board must clearly focus the bank to that point where it makes a return reasonable for a bank of our size. Whether it’s 8-10 percent or not, I don’t know, but it’s clearly not 1 percent. That’s where our concentration is.”

Mr Aranha’s message to investors, and the wider capital markets, is that BOB’s recovery will be a long-haul despite its taxpayer-financed return to profitability, and it is likely to be many quarters - even years - before the bank owned 82.6 percent by the Government will be in a position to resume dividend payments.’

The BOB chairman said the bank’s loan portfolio was key to its sustained profitability, because that “is where the money’s to be made”, yet to acknowledged that “it’s a very competitive market” for credit in The Bahamas.

BOB’s loan book quality, with 28.92 percent or $101.648m of the net portfolio in default at end-June 2018, still represents the greatest obstacle to the bank achieving consistent profitability given that this percentage remains more than double the commercial banking industry average despite the shedding of its worst performing business credit.

BOB’s AGM, unlike in previous years, was relatively sparsely attended with just 30-40 of the 3,000 minority shareholders in attendance. The bank had placed several notices in the paper advertising the wrong date, giving December 30 instead of November 30, although this was subsequently corrected.

Mr Aranha also apologised after the proxy materials mailed to shareholders inadvertently omitted Phaedra Mackey-Knowles, the National Insurance Board’s (NIB) investments chief, and the social security system’s Board representative, from this list of those standing for election as BOB directors.

The meeting was also temporarily delayed for several minutes at the start while checks were made to ensure that the Public Treasury, which holds the Government’s majority interest in BOB, was represented so that a proper shareholders’ quorum was present.

Mr Aranha, meanwhile, revealed that BOB “has also been plagued with a relatively high turnover of staff”, although it hoped that the appointment of a new executive team headed by managing director, Kenrick Braithwaite, will help resolve this problem.

He added that fast-paced change in the banking industry meant “BOB needs to move beyond its legacy challenges and re-tool itself”, and “restore” both its brand and customer trust in the bank.

The BOB chairman, though, said the bank will not expand its branch network in the Family Islands and elsewhere unless the venture will be profitable, breaking with how the Government has used it in the past.

Mr Aranha added that BOB would look to technology-driven solutions for under-served Bahamian communities, adding: “We’re trying to see if there is a solution resulting in the unbanked and under-banked areas having access to banking facilities without putting a physical plant there with a branch and facilities as it’s just too costly.”

Referring to pleas by Long Island MP, Adrian Gibson, for BOB to establish a branch in his constituency, he continued: “I’m sure he’s not the only one of the political directorate who’d like to see a bank in their island, but we can’t do it at a loss to the shareholder.”

Mr Aranha gave a broad outline, rather than any specific details, on BOB’s turnaround plan and did not identify any markets or niche opportunities it plans to target to reverse a loan book that has declined to just $321m at end-September 2018.

He said a “strong risk management culture” and improved sales and customer service remained key elements of the revival, although BOB’s new banking system will “take many months to implement” and only be ready at some point between July 2019 and June 2020.

“One of the issues is that we need to get up to scratch where our systems are reliable,” Mr Aranha added. “It’s like running an old car. At some point the bearings wear out, and you have to change them or change the car.

“We’re at a point where some of our systems are aging and changing them, unfortunately, it doesn’t work like a new Board comes in and they change. Executives get angry when you say why is it so slow. The answer, which is quite good, is they say they want to do it right.

“Part of the resources we’re putting into infrastructure is to improve service delivery. We have to strike the balance between delivery of the service and doing it in a cost effective way. It we promise service at a certain level we must be able to deliver and the system changes are part of that.”

Mr Aranha said BOB wanted to be “a bank that looks after the interests of customers and shareholders regardless of a change in the political directorate”, something he described as vital to the bank’s brand.

“Premises is an area that needs attention and we will get to that,” he told shareholders. “It’s important not to spend money too early on premises before you get on the path to sustainable profitability. We’re going to have to look at physical premises.”

Shareholders earlier approved changes to BOB’s memorandum and Articles of Association to bring the bank into line with “best practice”, consolidating into them previously attached amendments that allowed directors representing the minority shareholders to be appointed to the Board and the conversion of unissued preference share classes to ordinary shares.

Comments

John 1 year, 10 months ago

Despite how much long suffering shareholders would love dividends, BoB has to recover some more and become more healthy financially before resuming dividends. Have to get market share and consumer confidence back.

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bogart 1 year, 10 months ago

In terms of efficiency...thermal...internal cumbustion engines are the most inefficie nt.......so why does dis Chairman wants to move ups tp V8....an V12.....when the entire world is headed in opposite direction wid hybrids...electric operated cars for greater efficiencies.....??????....eben da govt recognises dis and rents a number of electric cars in efforts to eventual transition for da greater benefits.....!!!......number of Nissan Leafs on the roads of Nassau....they are the ones without exhaust pipe smokin an pollution....!!!!

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