By NEIL HARTNELL Tribune Business Editor CIBC FirstCaribbean International Bank (Bahamas) has seen its market capitalisation plummet by 44.4 per cent since the recession started, its 2011 annual report disclosing that return on equity (RoE) had also dropped to a five-year low of 10.4 per cent. The bank, which is more than 95 per cent owned by its Barbados-based regional parent, has seen its market capitalisation drop from $1.761 billion at year-end 2007 to $978.558 million as at October 31, 2011, almost $200 million being shaved from this figure last year. The drop, in turn, will impact the Bahamas International Securities Exchange's (BISX) indexes, as CIBC FirstCaribbean is the largest stock by market capitalisation. The recession, and subsequent economic decline in the Bahamas, have not been kind to CIBC FirstCaribbean, with 2011 loan loss impairments of $32.223 million again squeezing the bottom line, which shrunk by $4 million or 6.5 per cent year-over-year to hit $57.9 million. The market will also be watching to see whether the $6.1 million, or 7.9 per cent, increase in CIBC FirstCaribbean's operating expenses to $83.208 million will be repeated in 2012. Most other Bahamian commercial banks have worked had to contain their operating expenses, but CIBC FirstCaribbean said it was hit in 2011 by "one-time restructuring" and increased pension costs, coupled with a rise in Business Licence fees. The operating expense rise, coupled with the top-line interest income and operating income fall, pushed CIBC FirstCaribbean's efficiency ratio to a five-year high (meaning low) of 48 per cent for the 12 months to end-October 2011. The lower a bank's efficiency ratio, the better. Among the bright spots was that CIBC FirstCaribbean remains more than adequately capitalised. Responding via e-mail to recent Tribune Business questions, Marie Rodland-Allen, the bank's managing director, said its Tier 1 and Total Capital ratios both remained at 24 per cent, "well ahead" of the Central Bank of the Bahamas' 17 per cent requirement. Acknowledging the year-over-year decline in CIBC FirstCaribbean's net loan portfolio to $2.3 billion, from $2.4 billion at year-end 2010, Mrs Rodland-Allen told Tribune Business: "The decline reflects the difficult local and global economic conditions in which we are currently operating. However, CIBC FirstCaribbean has an excellent team of professionals in the Bahamas who are able to identify and capitalise on good business opportunities." Confirming that the decline was due to a "slowdown" in credit demand, CIBC FirstCaribbean's 2011 annual report noted that loans to the Government and Bahamian business community fell by $87.7 million or 8.1 per cent year-over-year. This segment accounts for 41 per cent of its gross loans. CIBC FirstCaribbean's personal loan portfolio, meanwhile, also shrunk by $22.7 million year-over-year, although mortgages showed some growth of $12.7 million. As a percentage of its $2.41 billion gross loan portfolio, the bank's $395.087 million worth of non-performing loans amount to a 16.4 per cent share, up on the prior year's 15.25 per cent. "Productive loans were $2 billion, down $110 million or 5.2 per cent from the p0rior year," the CIBC FirstCaribbean 2011 annual report said. "This decrease primarily reflects a combination of paydowns and repayments of loans, and a shift of loans from productive to non-productive (impaired) classification. Impaired loans increased by $13 million or 3.3 per cent, represented mainly by a net increase in non-productive mortgages of 15.7 per cent." Loan loss impairment reduced by $1.8 million or 5.3 per cent year-over-year, with the ratio of impairment to gross loans 1.3 per cent at end-2011, compared to 1.4 per cent the prior year. In terms of the ratio to non-performing loans, the 2011 variety stood at 22 per cent compared to 23 per cent in 2010. Elsewhere, CIBC FirstCaribbean saw its interest expense drop by $18.3 million or 28.6 per cent. "The main factors include lower deposit and hedging instrument volumes, in addition to lower interest rates on deposits," Mrs Rodland-Allen told Tribune Business. Interest income fell by $13.4 million or 6.8 per cent, aided by CIBC FirstCaribbean's decision to reduce its risk high profile in 2010 through selling higher yielding securities, then reinvesting in lower risk, lower yielding ones.