By NEIL HARTNELL
Tribune Business Editor
Bank of The Bahamas’ top executive admitted its risk management had been poor as he revealed the Central Bank has blocked it from taking on new business borrowers for three-plus years.
Kenrick Brathwaite, the BISX-listed institution’s managing director, told Tribune Business that events before his appointment meant it was unable to currently rebuild a commercial credit portfolio that he believes remains “really critical” to the bank’s future prospects.
“We still have a restriction from the Central Bank with regard to new commercial credit. The restriction has been in place for the last three years, and we cannot take on any new commercial clients. That’s still continuing,” he disclosed.
“That part of the business, which is really critical to us in my evaluation, we’re not able to build. That’s because of history, and history suggests that we’ve not done the things we should have done with regard to risk. We’d like to start building more commercial relationships, but we’re still seeking the Central Bank’s authorisation.”
Mr Brathwaite, who was appointed to the post some years after Bank of The Bahamas required two taxpayer-financed bail-outs to survive, is the first senior executive or board member at the government-majority owned institution to admit that risk management practices may have been at fault in the run-up to those events in 2014 and 2017.
Many observers, especially the Bank of The Bahamas minority shareholders who collectively hold just under 18 percent of its equity, will though likely regard Mr Brathwaite’s comments as an understatement given the spectacular destruction of investor value that left more than $144m in accumulated losses on its balance sheet at end-June 2020.
Besides risk management, the Central Bank also previously took Bank of The Bahamas to task for its heavy credit exposure to politically exposed persons or PEPS such as ex-Cabinet minister and MP, Leslie Miller, with whom it is locked in a court battle over $30.6m it alleges he owes over loans secured on the Summerwinds Plaza.
The taxpayer has also, at a conservative estimate, spent over $300m in propping up Bank of The Bahamas through a combination of the two bail-outs, which injected government bonds worth $100m and $167.6m, respectively, into its balance sheet, plus a $40m rights offering that had to be 100 percent acquired by the Public Treasury. The latter, together with the National Insurance Board (NIB), owns 82-plus percent of the bank on the government’s behalf.
Bank of The Bahamas’ commercial loan portfolio shrunk by almost $5m during the 12 months to end-June 2020, according to its recently-released unaudited financial statements, finishing the year at $70.556m compared to $75.385m.
Mr Brathwaite said the bail-outs, which transferred many delinquent borrowers to the Bahamas Resolve work-out vehicle, had enabled Bank of the Bahamas to “get rid of a lot of the toxic loans” that previously plagued it.
That recent past has likely encouraged the Central Bank to keep the bar on new commercial lending in place, even though it restricted the bank’s loan book growth prior to COVID-19. And, while the BISX-listed institution has returned to regular - albeit reduced - profitability in the years following the 2017 bail-out, the pandemic and its fall-out threaten to reverse such gains.
Some $15.348m worth of loan loss provisions, in anticipation of COVID-linked borrower defaults, and a $6.316m impairment to the value of its government debt holdings due to the Moody’s downgrade, produced a more than-$10m bottom line reverse that plunged Bank of The Bahamas into a $7.384m bottom line loss for its June 2020 financial year.
Mr Brathwaite said that while an economic rebound would enable Bank of The Bahamas to recover at least some of these provisions, he did not expect one to occur before the April-June 2021 quarter - the fourth in the bank’s financial year - at earliest.
He added that a significant chunk of the $1.85bn worth of commercial bank loans placed on deferral due to COVID-19 earlier this year, representing around one-third of all outstanding credit, could fall into default if the hotel and tourism industry did not rebound soon.
“We’re hoping at some point in time we’ll be able to put this back,” Mr Brathwaite said of the bank’s provisioning, noting that the $6.3m impairment related to Moody’s would likely take longer to reverse given that this depends on an improvement in the Government’s fiscal position. “We’re hoping that when this economy spins around we’ll be able to reverse most of that provisioning that’s affecting us tremendously.
“Forty percent unemployment is going to be around for a while,” he added. “The hotels seem as if they’re not going to open up. We haven’t even begun to think of what it will look like in the banking industry if those hotels do not open.
“You’re talking most of the $2bn becoming non-performing. A lot of that $2bn is government employees. I don’t think it’s as critical as we think it is, but a lot of that $2bn will be hotel borrowing and it’s going to affect delinquency numbers for the entire industry.”
Mr Brathwaite voiced hope that Bank of The Bahamas will be able to start reversing some of the loan loss provisioning during its 2021 financial year’s fourth quarter, but it remains the most vulnerable and exposed commercial bank due to its pre-COVID-19 problems.
For removing the $162.803m worth of bonds injected into its balance sheet would leave it with an $8m solvency deficiency, where liabilities exceed assets. Accumulated losses are again moving in the wrong direction, while almost one-quarter of its loan portfolio - some 23.78 percent - remains non-performing or more than 90 days past due.
Mr Brathwaite said Bank of The Bahamas’ loan portfolio will “look a lot different” once it either restructures delinquent loans or sells the residential properties that act as collateral for these mortgages. He added that the bank was “gaining a windfall” from its “improved collections effort” and sale of delinquent properties, and said: “We’re well on our way to improving the numbers.
“The challenge is the percentage [of delinquent loans] is not changing because the portfolio is not growing. The lack of growth is keeping the percentage high even though the actual number as a dollar value is reducing.”
The Bank of The Bahamas chief also pledged that COVID-19 will “not derail” the institution’s turnaround strategy, although he acknowledged it had been set back by three to four months. He added that it remained focused on automating its systems, such as loans, debt management and accounting, as well as various credit and debit card-related plans.