Central Bank slammed ‘all facets’ of BOB’s lending

Tuesday, December 2, 2014

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank first raised the alarm over Bank of the Bahamas’ “very weak” commercial loan portfolio almost two years ago, Tribune Business can reveal, slamming “all facets of its credit risk management processes” as “unsatisfactory”.

Wendy Craigg, the Central Bank governor, highlighted the flaws that would lead to the BISX-listed institution’s recent $100 million, taxpayer-funded ‘rescue’, in a December 13, 2012, letter to its still-chairman, Richard Demeritte, and its then-Board of Directors.

The confidential letter, details of which are being revealed for the first time by Tribune Business, disclose that a November 12-20, 2012, examination by Central Bank inspectors found “that a large measure of the basic tenets of industry sound credit practices are either missing, not evident, or compromised within” Bank of the Bahamas’ credit processes.

Among the key findings detailed by Mrs Craigg were:

• The bank’s then-Board, in June 2011, “delegated authority” to its senior management to “reschedule” $47 million worth of non-performing loans.

Mrs Craigg said this was “above” the limits imposed on Bank of the Bahamas’ management, and suggested it arose from the Board’s “failure” to challenge management.

• Central Bank examiners identified

“imprudent credit approval decisions for certain” politically-exposed persons (PEPs) and related party transactions.

The examiners, Mrs Craigg said, were “unable to satisfy themselves” that these loans had been granted on a

“consistent arm’s length basis.

Bank of the Bahamas also failed to provide examiners with a full list of PEP and related party loans, and the Governor said such advances had already - and would continue - to result in credit write-offs to the tune of “millions of dollars”.

• Bank of the Bahamas’ efforts to secure collateral from large, delinquent commercial borrowers were slammed by Mrs Craigg as “selective and ineffective”.

These are the type of loans that have now been transferred to the Bahamas Resolve ‘bad’ bank, and it remains to be seen whether it - and its agents - are any more successful in collecting them than the bank.

• Bank of the Bahamas was reporting “inaccurate” non-performing loan levels to the Central Bank, Mrs Craigg’s letter reveals.

Up until late 2012, it had been excluding loans restructured on interest-only payment terms from its non-performing book, despite having taken specific provisions against some advances.

Bank of the Bahamas was thus ‘capitalising’ past due loan interest payments, enabling the associated loans to be classified as ‘current’.

This, Mrs Craigg said, was against both Central Bank guidelines and “international industry sound credit practices”.

• At the time of the November 2012 examination, more than half (23) of the bank’s largest 40 delinquent commercial borrowers, representing $62 million worth of credit, had not been transferred to Bank of the Bahamas’ Credit Risk Collections Unit.

Mrs Craigg slammed this as “an unacceptable breach of fundamental segregation of credit risk duties”.

• Collateral for large commercial loans was deemed “inadequate and deficient”, often not being independently evaluated, with valuations often depending on the “notional assessment” of Bank of the Bahamas branch managers.

• Central Bank examiners, who reviewed 20 of Bank of the Bahamas’ 40 largest commercial credit facilities, and 12 consumer loans, estimated that provisions for these specific loans were $15 million below “appropriate levels” at end-2012.

• The Central Bank also expressed concern about Bank of the Bahamas’ debt consolidation product for consumer loans, which then offered up to $75,000 of credit.

This allowed borrowers to exceed the Central Bank’s maximum 45 per cent of income to debt servicing ratio, the Bank of the Bahamas permitting 55 per cent.

Some $3.3 million of such loans had been granted at the examination date, with the Central Bank saying loans were being granted in excess of the $75,000 credit limit.

The regulator expressed concern that this loan programme would “exacerbate” Bank of the Bahamas’ “already weak credit portfolio”, leading to further losses and erosion of its capital base.

Mrs Craigg, in her letter, summed it up thus: “Based on the limited sample of credit files examined, the examiners observed that the credit initiation and approval process was weak, shoddy and inconsistent.

“The credit control weaknesses identified by the examiners are pervasive and require urgent remediation to avoid further deterioration of the licensee’s credit portfolio, and the resultant erosion of capital.

“The findings are deemed to be material gaps in management and oversight of credit risks in the licensee’s operations,” the Governor added.

“We have concluded, after careful deliberation of the issues identified, that the gravity and severity of the issues highlighted below require immediate remediation.”

Mrs Craigg said it was “imperative” that the Board and senior management address the issues identified on “an urgent basis”.

The ‘laundry list’ of concerns identified by the Central Bank, and the unusually strong language used by Mrs Craigg in her letter, will again raise questions about why drastic action was not taken sooner to remedy Bank of the Bahamas’ woes, given that the regulator had exposed how serious they were.

It will again raise questions over whether the BISX-listed institution was, by virtue of its 65 per cent government majority shareholder, able to keep the Central Bank at bay for almost two years until being force into the Bahamas Resolve ‘solution’.

Mrs Craigg’s letter also provides something of a ‘road map’ that charts why Bank of the Bahamas has got itself into such trouble.

Paul McWeeney, Bank of the Bahamas’ managing director, could not be reached for comment yesterday, despite Tribune Business leaving messages on his direct office line and cell phone seeking “urgent” comment.

However, Tribune Business has obtained Bank of the Bahamas’ February 28, 2013, response to the concerns detailed by the Central Bank.

In the document, sent to Abhilash Bhachech, inspector of banks and trust companies, Mr McWeeney said the bank’s Board had met the requirement to implement a new credit regime within 30 days.

He added that Bank of the Bahamas had also “discontinued” the practice of interest capitalisation on all non-real estate development loans, with the institution reviewing all its reporting and impaired loan practices.

When it came to Bank of the Bahamas’ largest 20 non-performing commercial loan customers, Mr McWeeney said loan loss provisions had been increased by $6.5 million for the 2013 financial year to-date, with $4 million added December 2012 just after the Central Bank examination.

Bank of the Bahamas also sought permission to fulfill commitments to extend $34 million worth of credit to commercial borrowers, despite the Central Bank demanding that such credit be capped at November 30, 2012, levels.

The Central Bank, in its response, refused such permission.

Comments

GrassRoot says...

The Central Bank is a toothless tiger. Q.E.D. Either give it some teeth or send it home. That the Central Bank dscribed a disaster and did nothing about it .e.g from informing other existing clients of BOB to going public with the information, makes the Central Bank just an accessory in to the fraud going on at BOB.

Posted 2 December 2014, 2:32 p.m. Suggest removal

Publius says...

Exactly

Posted 2 December 2014, 3:32 p.m. Suggest removal

ChaosObserver says...

the Central Bank is not in the position of cleaning up other peoples crappy laundry....only pointing out short comings, suggesting resolutions etc. BOB has to clean up their own crap...which is another way of say...."we're screwed"....

Posted 3 December 2014, 1:24 p.m. Suggest removal

birdiestrachan says...

It would be good if the Tribune could say in what year these Loans were made. I am sure these bad loans did not all occur in 2012. it had to be going on long before that.

Posted 2 December 2014, 3:53 p.m. Suggest removal

realfreethinker says...

What difference what year they were given. The bob is nothing more than another slush fund for the politicians and their friends and families

Posted 2 December 2014, 4:53 p.m. Suggest removal

asiseeit says...

That thing that I love about you Birdie, is the fact you will forgive your beloved party any transgression. I wish I could get buggered and be happy about it! The Bahamian people are out 100 MILLION dollars, oh well i wonder what year they did that? News Flash, pretty much the same people have been running BOB for some time. THE PEOPLE THAT RUN THIS COUNTRY ARE CROOKED!

Posted 2 December 2014, 7:12 p.m. Suggest removal

mangogirl01 says...

Yes birdiestrachan, the big, bad loans started pilling up in 2002 after PMcWeeney became MD, all to friends, families and lovers! Does that answer your question!

Posted 2 December 2014, 10:19 p.m. Suggest removal

concernedcitizen says...

way before that ,like that crazy a@@ loan to Obie W and not so PLeasant B in Freeport ,,,you mean that one birdie btw 2002 and 2007

Posted 3 December 2014, 11:45 a.m. Suggest removal

Corruption, Crony's, Could not care less about the people or what they think. "WE ARE THE PEOPLE!" they roar, we shall look out for ours, them, and theirs. Yet that was just a certain few, and most silently stew.

Posted 2 December 2014, 6:54 p.m. Suggest removal

pablojay says...

I must admit that i didn't read the article,just the headline because it doesn't matter as it
would change nothing! All she had to say is that McWeeney has to go and even that would cchange nothing as he is" one of the boys". Sometimes i wish i were PLP because i think it
would feel good to be inept and know that Perry has my back ( i don't mean like what y'all
might be thinking).

Posted 2 December 2014, 8:03 p.m. Suggest removal

ThisIsOurs says...

I'm glad that she did raise some objections behind the scenes,I'm told she is an extremely bright individual. It is sad to see our best and brightest like Wendy Craig and John Rolle sullied by the gutter slime they have to wade through to do their jobs.

Wendy Craig needed to be more public in her statements, not calling BOB out publicly, but just subtlety letting the public know she has a watchful eye on financial institutions. her silence amounted to nothing. It allowed these men to ignore her and drag the money bags out the front door

I'm still at a loss as to how they accumulated all this debt...did they grant all these million dollar loans in one day so that no one noticed?

Posted 2 December 2014, 8:35 p.m. Suggest removal

duppyVAT says...

Wendy Craigg is an accessory to the BOB money laundering & pilfering crimes .................... she has the capacity to deal with the incompetence of a bank ............. not sit back wring her hands and say "oh my".

Posted 3 December 2014, 10:44 a.m. Suggest removal

CrystalR says...

Posted 11 February 2015, 6:32 p.m. Suggest removal

Wendy Craig is a staunch PLP

Posted 3 December 2014, 11:47 a.m. Suggest removal

Wendy Craig is not a crony. This is the sad part about our politics, we want the country to change and we recognize that we need good bright people at the top but when they get there, they have to battle a bunch of dummies and slimy people in a really dirty game. My understanding is she was keeping her head low, biding her time, that could be incorrect, but if it's correct it's still wrong. The political forces took advantage of her "stick to the work and no PR" stance. As long as she didn't make noise publicly, they were able to ignore everything she said in private. Look no further than the shame of a Prime Minister, using her name for his cowardly legalization of the web industry, he ~*"didn't know they were creating a wreck of the financial system until she made a PUBLIC statement"*. It doesn't matter how many times she sent letters, warnings, conversations in PRIVATE, he's able to get away with that stupid statement because no one can say he was ever warned publicly by the Central Bank.

Mrs Craig, take a note of the character of the people around you, defend the system and in turn your legacy. Make a regular address to the public, just like they do in the US. PR MATTERS.

Posted 3 December 2014, 12:20 p.m. Suggest removal

Mrs is Craig is one of the people around her ,,

Posted 3 December 2014, 1:21 p.m. Suggest removal

Tink so? I give her the benefit of the doubt....

Posted 3 December 2014, 2:32 p.m. Suggest removal

Why , did she go to anyone w/ the report , prime minister ,shareholders ,police financial unit ??Die hard PLP

Posted 4 December 2014, 1:43 p.m. Suggest removal

Baha10 says...

In most "regulated" jurisdictions, the Directors in question would face criminal prosecution and be banned from holding future Directoships. Can The Tribune do us few remaining businessmen a favor and publish their names again so we can make sure we do not appoint any of them to managerial positions or otherwise do business with them. Thnak you.

Posted 2 December 2014, 9:18 p.m. Suggest removal

Check the web site, https://www.bankbahamas.com/about-us/di…
Mr. D.S. Davis related to Brave Davis and E. Gibson Jr. is related to Shane Gibson.

Posted 4 December 2014, 2:15 p.m. Suggest removal

And Davis daughter Philice Albury is Corporate Manager, Enterprise Risk Management, https://www.bankbahamas.com/about-us/ma…

Posted 11 February 2015, 6:28 p.m. Suggest removal

John says...

THE major press kept quiet about this for sometime. When the Punch was reporting on it persons were skeptical to believe that things were that bad because the other newspapers kept quiet. Now the mud has hit the fan and shareholders stand to lose hundreds of thousands. Christie removed the two directors who were protesting how the bank was being operating so now we are left with the dirty dozen..Paul McSweeney included. Does anyone in the PLP feel shame for scandal after scandal after scam? That building on JFK millions is likely to be pocketed while the Bahamian people are being saddled with more taxes.

Posted 2 December 2014, 9:19 p.m. Suggest removal

I don't like the Punch it's too much gossip. The only page that seems to have substance us the front page where they actually seem to be doing what the two major dailys aren't. **investigating and reporting**. I would like the PUNCH to write a story on every time they were threatened with a lawsuit, over what and whether the suit was brought forward. Alfred ?Gray, Bradley Roberts, BOB...anyone else?...

Posted 3 December 2014, 8:04 a.m. Suggest removal

PGC was going to sue them ,Obie was going to sue CCN and Larry King over the 'not so Pleasant Bridgewater thingy .

Posted 4 December 2014, 1:46 p.m. Suggest removal

happyfly says...

Whoever leaked this information. Hooray. Lets keep it up until there is enough national outcry to demand a commission of enquiry. One that is empowered to strip the shirt off these scumbag pep's.

Posted 3 December 2014, 8:28 a.m. Suggest removal

WE need a whistle blowers protection act more people would sound the alarm but we could hardly get a freedom of information act

Posted 11 February 2015, 6:31 p.m. Suggest removal

Sickened says...

Do people still have cash/deposits (other than the numbers guys) at BoB? Certainly there was a run on the bank and all of the depositors have left.

Posted 3 December 2014, 8:58 a.m. Suggest removal

The best part is the fact that the people that did this will get a bonus this Christmas and you and I will get a lump of DEBT to pay off. As a Bahamian taxpayer you are required to open your wallet and bend over so the political elite and their crony's can rip you off and bugger you one time. The nation is broke so you ain't even going to get no vaseline even with VAT. Feels good hey Birdie?

Posted 3 December 2014, 9:13 a.m. Suggest removal

Didn't the McSweeny brothers (lawyer and accountant) pull another dirty deed that left someone who was in partnership with another of their kin being left responsible for a million plus dollar loan that was supposed to be the joint responsibility of the person and their kin? Something to do with a radio station.

Posted 3 December 2014, 9:47 a.m. Suggest removal

WOW!!!!!!!!!! Now thats a serious concern. Again the Pingdomites are bleeding our country and the barons are doing all they can to save face.
We need a FOIA to find out about VAT, BOB, BEC, BTC,BAMSI and UR 2.0.

Posted 3 December 2014, 10:03 a.m. Suggest removal

Is this GEMS where, allegedly, the family member of the managing director was not required to put up collateral unbeknownst to her partner? Her partner was then allegedly held 100% responsible for the failed loan...?

We've been funding the piggy bank for them and all their friends apparently...The Central Bank should keep a close watch on the suitability of everyone granted a mortgage for the Venetian, though that may be pennies in the long run.

I don't understand how he keeps his job today...

Posted 4 December 2014, 4:15 p.m. Suggest removal

jlcandu says...

Hey didn't Birdie write in to say he/she had a loan at BOB as well and wasn't planning on paying it either?!

Welcome to the Gold Rush!!!

Posted 3 December 2014, 1:28 p.m. Suggest removal

SP says...

BOB fired the whistle blowers and promoted the pirates in the bank? Sounds ass-backwards!

WTF is up with that one?

Posted 3 December 2014, 3:56 p.m. Suggest removal

One of the Central Bank's roles as regulator is to protect the deposits of bank customers, does the Central Bank have any power to recommend the removal of a senior executive who is obviously not working in the best interest of deposit holders?

Posted 4 December 2014, 4:27 p.m. Suggest removal