The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

CIBC FirstCaribbean International Bank (Bahamas) plunged to a $63.543m net loss for the year to end-October 2020 as it awaits permission to pay almost $94m in total dividends to shareholders.

The BISX-listed financial institution, unveiling its full-year results, blamed the combined effects of a $72.747m goodwill impairment and $65.5m increase in loan loss provisions due to COVID-19 for a near-$158m bottom line reversal compared to 2019's $94.376m net profit.

The impairment likely relates to the last remaining goodwill on CIBC's balance sheet from the merger with Barclays back in 2002. Goodwill represents the sum paid over and above the net value of Barclays' tangible assets, and Colette Delaney, CIBC FirstCaribbean's regional chair, argued that the Bahamian subsidiary would have generated a $9.2m full-year profit had it not been for this write-down.

"This result was significantly lower than the prior year’s net income of $94.4m, and largely driven by two main factors - lower revenue due to the steep decline in US interest rates and reduced transaction related non-interest income, and increased provisions for credit losses of $65.5m," she told shareholders.

"This increase in credit provisions, together with the aforementioned reduction in the carrying value of goodwill, reflect updated macroeconomic forecasts driven by the extent and timing of the impact from COVID-19. Management has worked diligently during the year to mitigate these headwinds by curtailing expenses."

The financial results published by CIBC FirstCaribbean reveal that it is presently awaiting permission from the Central Bank of The Bahamas to pay some $0.78 per share in collective dividends to its shareholders, after the regulator suspended such payments by commercial banks. It has also halted their repatriation to foreign parents in a bid to conserve the country's foreign exchange reserves.

"The directors previously declared dividends totaling $0.78 per share, which are not reflected in these unaudited consolidated financial statements as they are subject to regulatory approvals and are pending the Central Bank’s lifting of its current suspension of dividend approvals for domestic banks," the results said.

Calculations by Tribune Business show that, based on 120.222m in outstanding ordinary shares, this dividend - if and when approved - amounts to a total $93.773m being taken out of the Bahamian institution at a time when its performance and balance sheet is likely to come under increasing strain due to COVID-19's economic fall-out.

Given that CIBC's regional parent holds a 95.21 percent stake, or 114.464m shares, it is in line to receive some $89.281m of this dividend, with Bahamian shareholders collectively receiving the $4.492m balance.

Retained earnings on the balance sheet fell from $226.532m at financial year-end 2019 to $94.426m at the end of October 2020, but Ms Delaney said the bank's Board had decided not to declare a dividend for the year-end.

"Due to the significant uncertainty in the current economic environment and the Central Bank’s current suspension of dividend approvals, the directors have decided not to declare a dividend. We will continue to monitor the impact of the aforementioned and the expected recovery, and will reassess dividend payouts next quarter," she added.

The build-up of such shareholder returns comes as CIBC works to sell a majority stake in its FirstCaribbean regional business, which includes The Bahamas, to the Colombian banking conglomerate, GNB Financial Group.

With much changing since the deal was first announced, due to COVID-19, it is unclear whether the purchase price of terms will have altered. Ms Delaney told shareholders: "At the beginning of our 2020 fiscal year, we announced that GNB Financial Group had agreed to acquire 66.73 percent of the shares of FirstCaribbean International Bank (our parent company) from CIBC subject to regulatory approval. All parties continue to pursue the transaction and the regulatory review process."

Seeking to reassure shareholders as to CIBC FirstCaribbean's financial strength, she added of the Bahamian operation: "Capital remains strong. The Bank’s tier one and total capital ratios are 25.9 percent and 26 percent, which remain in excess of the applicable regulatory requirements."

CIBC FirstCaribbean International Bank (Bahamas) results give an insight into the pressures facing the Bahamian commercial banking industry as a whole, as COVID-19 loan deferrals unwind and institutions get a better handle on how many borrowers can still meet their obligations.

The Central Bank, in its quarterly review of the three months to end-September 2020, found that total private sector loan arrears grew by $61.4m or 9.7 percent over the period as several loan deferral initiatives came to an end.

"The quarterly growth in total private sector loan arrears was owing to increases across all of the broad categories," the Central Bank said. "In particular, the consumer segment expanded by $50.7m (28.6 percent) to $227.9m, with the attendant ratio firming by 2.4 percentage points to 10.4 percent.

"In addition, commercial arrears grew by $8.5m (13.9 percent) to $69.8m, with the associated ratio rising by 84 basis points to 8.3 percent, and mortgage delinquencies moved higher by $2.2m (0.5 percent) to $399.5m, firming the corresponding ratio by nine basis points to 15.3 percent of associated claims."