By NEIL HARTNELL Tribune Business Editor COMMONWEALTH Bank yesterday said it was facing the prospect of 'drilling down' into an estimated 50,000 client accounts to determine if there was any US beneficial ownership connection, while telling Tribune Business that the Bahamian mortgage market was likely "to get worse before it gets better". Noting that the BISX-listed institution was less exposed to the $540 million worth of non-performing Bahamian mortgages, due to its consumer loan focus, Ian Jennings, Commonwealth Bank's managing director, said the US Foreign Account Tax Compliance Act (FATCA) was set to impose an additional compliance burden on it and all local commercial banks. He added that the "frustrating" aspect of FATCA was that it entailed slightly different customer verification procedures than existing anti-money laundering ones, especially where clients with dual US citizenship or permanent residency were concerned. Disclosing to Tribune Business that Commonwealth Bank was facing the task of investigating "50,000 accounts, maybe more" to determine if there was any US ownership nexus, Mr Jennings said Bahamian and other financial institutions had to comply if they wanted to maintain correspondent banking relationships and access to the US market. "The way that it's structured, a bank cannot afford to be non-compliant, because of the way they're circling the banks into it. We'll probably end up with what is perceived more as another intrusion into client affairs," he explained. "It's just identifying the gaps that's significant. What is frustrating is that the requirements are just slightly different from anti-money laundering procedures, and that requires us to do different things. If not for dual citizenship and nationality, we'd be pretty well covered by existing procedures." Speaking after Commonwealth Bank generated $51.8 million in net income for the 12 months to end-December 2011, its second most profitable year ever, Mr Jennings said the collective $540 million in non-performing mortgages held by Clearing Banks Association (CBA) members would likely "increase before it starts decreasing". Tribune Business revealed yesterday that an estimated 1,500-2,000 Bahamian homes were covered by non-performing mortgages, and Mr Jennings added: "The mortgage market has some very serious issues, and while we do not have as much exposure as some of the other banks, that sector is likely to get worse before it gets better." He told Tribune Business that Commonwealth Bank's mortgage portfolio was roughly worth $270-$280 million, accounting for an estimated 25-28 per cent of the institution's $1 billion-plus total loan book. Most of Commonwealth Bank's mortgage clients were also its consumer loan customers, Mr Jennings said, as the institution moved to become "a complete commercial bank" while shying away from both larger residential and commercial mortgages. Still, Commonwealth Bank's loan loss provisions increased in line with overall industry trends in 2011, while non-performing loans as a percentage of the overall credit book rose from under 3 per cent at end-2010 to just over that figure last year. Mr Jennings, though, pointed out that the consumer loan book focus and aggressive 180-day write-off policy had also helped to keep the non-performing loan ratio relatively low. He added that the reduction in interest expense, driven by a combination of surplus liquidity in the commercial banking system and the Bahamian Prime rate cut last May, had been a key factor in boosting Commonwealth Bank's 2011 performance. "The excess liquidity has been driving interest expense down for the whole of the year, and the change in Prime was a reflection of that," Mr Jennings told Tribune Business. "In effect, we got the cart before the horse. Elsewhere in the world, the change in interest rates drives liquidity, but here the liquidity drove the change in Prime." Mr Jennings also attributed Commonwealth Bank's 2011 net income increase to "hard work, and working with client borrowers amid a focus on credit quality. He added that "prudence" in lending during previous years had also borne fruit. Looking ahead to 2012, the Commonwealth Bank chief told Tribune Business that its net income performance was likely to come in between what it achieved in 2010 and 2011. If the US and global recovery took place more quickly than expected, and the benefits flowed through to the Bahamas, Mr Jennings said the bank's performance could be "maybe better" than 2011.