The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed bank’s conservative approach to COVID loan loss provisioning has paid off by ensuring “there’s no overhang that depresses staff morale”, its chief executive says.

Gowon Bowe told Tribune Business that Fidelity Bank (Bahamas) decision to take more than $20m worth of provisions during 2020’s first nine months meant it got all “the bad news” out upfront rather than letting it continue to pile up gradually.

As a result, he argued that staff and the bank itself are better positioned “to participate in the exuberance of the recovery” post-COVID rather than having to worry about the continual booking of provisions that act as a drag on bottom line profitability.

Speaking after Fidelity Bank (Bahamas) total comprehensive income more than quadrupled to $17.796m for the nine months to end-September 2021, as opposed to just $3.723m the prior year, Mr Bowe said of the figures: “One of the things we are fairly confident in is that they are fully representative of the realities on the ground.

“We have not changed our approach to lending, provisioning and how we run the business. There’s nothing we could say is an extraordinary boost or gain. With the new accounting standards, we are confident we recognised everything by the end of last year.”

Rather than place a vast number of borrowers in blanket COVID loan deferral programmes, as many rival institutions did, Fidelity Bank (Bahamas) opted for a ‘horses for courses’ approach where only those clients in actual distress received such forebearance. And it also declined to treat the latter borrower category as remaining current with their payments.

“The reality is that when you go into a loan deferral programme, the difficulty is what does that do to your data in terms of its quality,” Mr Bowe said. “Fidelity never put persons into a deferral programme that says: ‘You’re still current’. We knew we had to exercise forebearance.

“What it resulted in was us taking very significant provisions last year, but it set us up where there’s no overhang that continues to depress staff morale. What I mean by that is the global pandemic is tiring in and of itself, and if you see bad news for an extended period of time, it has a mental impact on staff.

“If you get a little bit of bad news every week, is that better than a lot of bad news up front?” the Fidelity chief asked, suggesting that the answer was negative. “I don’t want bad news that repeats itself.

“What has been most gratifying for the executive management team is our staff have a very full appreciation for why we were very conservative in our provisioning last year even though our financial performance took a hit,” he added, “because this year we are able to participate in the exuberance of the recovery that is taking place.”

Fidelity Bank (Bahamas) staff have been able “to focus on the willingness of borrowers to bring their loans back current”, while also restructuring credit facilities where they are able to. “There’s a level of excitement that if we can perform admirably in difficult times we so set ourselves up to do better as the economy recovers,” Mr Bowe said.

The BISX-listed institution’s increased 2021 profitability has been driven largely by reduced loan loss provisions, which fell by 76.4 percent year-over-year - from $20.314m in the first nine months of 2020 to $4.793m - as a result of it booking anticipated losses related to COVID-19 early.

Its aggressive loan loss provisioning contrasts with rivals such as Commonwealth Bank, which suffered a $23.9m loss for the nine months to end-September 2021 - a near-$50m turnaround from the prior year’s $25.3m profit - due to having delayed booking its provisions on delinquent credit until this year.

William Sands, Commonwealth’s executive chairman, in a message to shareholders said: “The primary contributor to the results has been the bank’s loan impairment expense of $74.8m, which when compared to the same period in 2020 reflects an increase of 92 percent.

“While the bank maintains a well-diversified loan portfolio, our customers in good standing that were granted extensions to participate in our loan payment deferral programme have been concentrated in the sectors of the economy most impacted by the pandemic, namely the hotel and leisure sectors.”

Mr Bowe, meanwhile, said Fidelity Bank (Bahamas) has “new products coming on stream that we are very excited about” and will launch in 2022, although he declined to provide specifics. He added that their introduction will boost the bank’s fee income.

“Fee income is not being generated to compensate for less interest income,” the Fidelity chief said. “It comes with value added services being released. We should earn money from interest income and the loan portfolio.”

Mr Bowe said the impact from the downgrade of The Bahamas’ sovereign creditworthiness by Moody’s and Standard & Poor’s (S&P) was likely to force Fidelity Bank (Bahamas) to take a provision equal to 1 percent of its $115m government securities portfolio - a sum of around $1m or just over.

“It could cost us $1m in additional provisions,” he acknowledged. “It may not be quite as high, but is only around 1 percent. We’ve not shied away from government exposure. We certainly believe they have the capacity and ability to pay.

“But we have changed the tenor. You’ll see more of our reinvestment in the shorter-term paper. Really, for us, it’s more about the Government being put in a position of strong cash flow. For most institutions it’s not about exposure; it’s ensuring regular turnover of cash flow.

“It’s expected that, as we do the calculation based on the credit rating, there will be additional provisions on our government securities portfolio but that is a paper provision, and it will come back to shareholders as we get closer to normality on each of the instruments.”