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Finco Profits Near-Double On 50% Loan Provision Fall

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FINANCE Corporation of the Bahamas (FINCO) profits near-doubled in 2017 due to a more than 50 per cent drop in loan loss provisions, even though bad credit increased to $121 million.

Royal Bank of Canada's (RBC) mortgage arm, in financial statements released yesterday, unveiled an improved financial performance even though impaired (non-performing) loans increased slightly as a percentage of its total gross credit portfolio.

The BISX-listed entity, 75 per cent majority-owned by RBC, saw little change in loan book health during the 12 months to end-December 2017, with 'impaired' loans - those 90 days or more past due - increasing in value from $119.414 million to $120.87 million.

"Loans and advances classified as impaired represent 14.44 per cent (2016: 13.95 per cent) of the total loans and advances portfolio," FINCO's financial statements, audited by PricewaterhouseCoopers (PwC), said.

"The allowance for impairment losses represents 8.92 per cent (2016: 8.01 per cent) of the total loans and advances portfolio, and 61.73 per cent (2016: 57.39 per cent) of the total impaired loans."

While 'impaired' and current loans were little changed from 2016, FINCO saw a jump in credit slipping into the 'past due but not impaired' category, which rose by 26.5 per cent - from $66.946 million to $84.657 million.

As with most commercial banks, the high 'bad loan' hangover from the 2008-2009 financial crisis continues to act as a drag on FINCO's financial performance. However, loan loss provisions fell by 50.1 per cent year-over-year - from $25.017 million to $12.477 million - accounting entirely for the mortgage lender's improved bottom line performance.

Total comprehensive income jumped by 91.3 per cent, rising from $11.604 million to $22.193 million, with the improved showing prompting FINCO's Board to reward shareholders for their patience with the payment of an early January dividend and $0.10 per share 'special dividend'.

Interest income and net interest income were both down against 2016 comparatives, with total income almost $3 million lower year-over-year, dropping 5.7 per cent to $48.779 million.

FINCO's results, though, were bolstered by a 5 per cent decline in non-interest expenses, which fell by more than $700,000 year-over-year to $14.349 million.

Much of this decrease came from a more than $800,000 drop in staff costs, which were cut by 34.5 per cent year-over-year from $2.58 million to $1.69 million, as FINCO reduced headcount and was more deeply integrated within RBC's other operations.

On the balance sheet side, FINCO's net equity or 'worth' rose from $179 million to $201 million, with total impairment allowances standing at $74.614 million.

FINCO continues to pay significant 'technical service and license' fees to its RBC parent, which totalled $71.42 million in 2017 compared to $6.012 million the year before.

Comments

John 7 months, 1 week ago

Should this be $7.14 and not $71.42 in 2017 fees to its RBC parent.

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John 7 months, 1 week ago

So is it safe to say RBC’s right sizing efforts were successful and the company is now able to realize sustainable profits and pay dividends? How is this acceptable and not questionable for RBC-Finco but some called for investigations when BoB made similar announcements?

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Reality_Check 7 months, 1 week ago

FINCO discontinued paying dividends for the past several years to allow for the build up cash that could be used to repay a large deposit account balance RBC had with FINCO. The large deposit account balance arose from dividend and other amounts due to RBC over many years that were transformed to a deposit account with FINCO rather than being paid to RBC. With RBC's impending departure from the Bahamas, RBC made sure FINCO accumulated sufficient cash to extinguish its large deposit account liability to RBC. In other words, FINCO's loan loss provisioning in recent years was used by RBC as a tool to an end. Now that RBC has received most of the cash it had previously kept on deposit with FINCO for years, RBC is once again allowing FINCO to pay dividends. Where are the regulators??!! Are the regulators and external auditors blind to what RBC has been doing and the resulting adverse impact on FINCO's share prices in recent years???!!!

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