By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas is bracing for a $2.4 million fourth quarter hit from the 3 per cent ‘bank tax’ unveiled in the 2013-2014 Budget, its managing director yesterday expressing “cautious optimism” it would return to profitability in its 2015 financial year.

Paul McWeeney told Tribune Business that the BISX-listed institution’s results for the quarter to end-March 2014, in which the net loss for shareholders was cut by 53.5 per cent to $2.533 million, were again hit by high loan loss provisions.

This took the net loss for Bank of the Bahamas International shareholders for the nine months year-to-date to $9.88 million, a 150 per cent increase over the $3.947 million worth of red ink incurred in the same period during the 2013 financial year.

Mr McWeeney said Bank of the Bahamas results were again being impacted by the weak overall economy and high unemployment/non-performing loan rates, telling Tribune Business that a 0.7 per cent growth rate “doesn’t cut it”.

“We just have to recognise the weakness of the economic climate” he said. “A GDP growth rate of 0.7 per cent is not going to cut it. What is that when technically you need GDP growth of 7 per cent to get out of this? With a softening real estate market we have to make a decision. It is where it is.”

Bank of the Bahamas incurred a further $2.311 million in loan loss provisions during the quarter to end-March 2014, and Mr McWeeney hinted that more were to come.

In his message to shareholders, he indicated that the tepid economy, coupled with the difficulty in finding new buyers for delinquent properties, meant the BISX-listed institution was set to become even more conservative on its lending and loan loss provision policies.

Mr McWeeney said: “Given the fragile state of the economic recovery and a deepening softness in the real estate markets, the bank is taking an aggressive look at its current provisioning models with the view of taking an even more conservative approach to recognising realistic recovery values.”

Suggesting that any changes would occur this calendar year, the Bank of the Bahamas chief said its tighter policies would also apply to the extension of credit/loans as well as provisioning.

Still, sounding an optimistic note, Mr McWeeney told Tribune Business that he could see ‘light at the end of the tunnel’ when it came to the bank’s emergence from two successive years of net losses.

“We’re optimistic it will be in the next fiscal period,” he told Tribune Business of the recovery timeline. “We’re cautiously optimistic it will happen then.

“We’re confident we’re making the right decisions now to accelerate the return to profitability. Every bank has done what we have done. We have to take an outward look, leapfrog over it and make the necessary decisions. Once the market returns, the recovery is going to be great.”

After suffering a $6.217 million net loss in 2013, Bank of the Bahamas’ investors are currently staring at a collective $16 million-plus net loss over the past 21 months.

Most of that loss has been absorbed by the Bahamian taxpayer, via the National Insurance Board (NIB) and the Public Treasury, which hold a combined 65 per cent equity stake in the bank. The remaining 35 per cent is held by Bahamian institutional and retail investors.

Bank of the Bahamas may find it tough to reverse the loss-making trend in the quarter to June 2014 that has just ended.

Mr McWeeney disclosed that as a result of the new 3 per cent Business Licence tax imposed on the commercial banks in the 2013-2014 Budget, the bank was facing $2.4 million of extra costs prior to the year-end.

“That’s coming in the next (fourth) quarter,” he told Tribune Business. “It was recognised after the previous period. It’s significant. You have to adjust your business model, and don’t have advance notice to do that.”

While Bank of the Bahamas was doing that now, Mr McWeeney said business model adjustments were not as easy as “switch and click”.

Increasing charges and fee-based income had to be done against the backdrop of a competitive commercial banking sector, and Mr McWeeney said much of the loan loss provisions booked by the bank had resulted from the weak economic environment.

He added that Bank of the Bahamas would only resume dividend payments to shareholders once it returned to “sustained profitability”, but pointed out that last year’s capital injection by its government shareholder had enabled it to repay debt worth $24 million, including its mortgage-backed bonds.

In his message to shareholders, Mr McWeeney said: “Total operating income for the quarter and year-to-date decreased from prior year by approximately $2.7 million or 21.44 per cent, and $7.1 million or 19.18 per cent, respectively, and is primarily owing to a net decrease in interest income and interest expense.

“Despite an increase in license fees, the bank was able to contain the growth in operating expenses to 3.81 per cent over prior year-to-date, and we recognised loan loss provisions of $13.3 million year-to-date.”

Mr McWeeney said Bank of the Bahamas’ capital ratios remained strong and ahead of regulatory requirements, with net equity standing at $128.639 million. Deposits were down by just over $12 million for the nine months to end-March at $710.954 million.

On the operational side, Mr McWeeney told Tribune Business that the bank’s e-notifier service had been “a hit”, while it was “making really good progress” with the roll-out of its mobile card merchant terminals.

“We’re pleased with the direction of the electronic arm of the bank,” he added.