By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Scotiabank (Bahamas) yesterday said it had gained $7 million from the sale of non-performing mortgage loans, which helped to drive a 266 per cent increase in 2016 profits.

The Bahamas-based commercial bank, in e-mailed responses to Tribune Business questions, said the removal of these ‘bad loans’ from its balance sheet accounted for 92 per cent of the year-over-year reduction in non-performing credit.

It added that it was “making strong progress” in tackling the ‘bad credit’ legacy created by the 2008-2009 recession, with “performing loans” increasing by $31 million or 3 per cent year-over-year in 2016.

“Scotiabank is making strong progress in addressing non-performing loans,” the bank said in its e-mailed response to Tribune Business.

“During the year, the bank sold several non-performing loans, which are included in this [loan loss impairment]line, as well as the subsequent impact of avoidance of additional losses due to these sales.”

Noting the positive financial impact, Scotiabank (Bahamas) added: “The sales accounted for 92 per cent of the reduction in our non-performing loans, and resulted in gains of approximately $7 million.

“Performing loans have increased year-over-year by $31 million or 3 per cent. A number of rate-driven campaigns have also contributed to the bank’s growth.”

The removal of non-performing loans from its books drove a 55.3 per cent reduction in Scotiabank’s loan loss impairment charges in 2016, which fell from $41.502 million the year before to $18.569 million.

With income and operating expenses relatively flat year-over-year, the near-$23 million drop in loan loss provisioning resulting from the ‘bad mortgage loans’ sale was almost solely responsible for Scotiabank (Bahamas) more than tripling its bottom line.

The bank’s net income jumped from just $8.407 million in 2015 to $30.776 million, a result it will use to justify its strategy of selling-off non-performing mortgages for which there were slim recovery prospects.

Scotiabank (Bahamas) did not identify the purchaser of its non-performing mortgage loans, but it is likely to have been Gateway Financial, the company owned by Sunshine Holdings entities, Sunshine Finance and RoyalStar Assurance.

Sir Franklyn Wilson, Sunshine Holdings’ chairman, confirmed to Tribune Business last August that Gateway had acquired a portfolio of “several hundred” delinquent home loans, all more than 90 days past due, from a then-unnamed commercial bank.

He added that Gateway’s efforts to subsequently restructure these loans had already proven “very effective”, and would allow many borrowers to remain in their homes on terms better aligned with their financial circumstances.

Entities such as Gateway have been viewed as part of the solution to the Bahamas’ entrenched mortgage/housing market crisis, as they can reduce the pile of ‘bad loans’ weighing down commercial bank balance sheets.

Selling such distressed loans enables commercial banks to recover some of their previous provisioning, and releases capital for lending to better-qualified home purchasers.

The Central Bank’s report on December 2016 economic developments revealed that total non-performing Bahamian mortgage loans declined in value by $150.6 million or 28.9 per cent in 2016, due largely to the transaction between Scotiabank and Gateway.

But, despite its improved profitability, Scotiabank (Bahamas) confirmed it also remains in consolidation mode, as it seeks - like its many commercial bank counterparts - to extract further efficiencies and reduced costs in a low growth environment.

While not providing a figure for how many Bahamian jobs may ultimately be shed, Scotiabank (Bahamas) said it was still transferring back office functions, including its collections units, to its Caribbean south services hub in Trinidad.

Promising that it would seek to move affected employees into other roles within the bank, Scotiabank (Bahamas) said: “The bank is in the process of transitioning certain back office support functions and its collections units into the Caribbean South Shared Services hub.

“It is difficult to say exactly how many people will be affected as the bank works diligently to fill upcoming positions with affected individuals

“Some positions will be left in these units in order to perform services in support of collateral administration, insurance and processing activities, site visits, client field calls, and other on-the-ground activities.”

Explaining the rationale for its continued consolidation, the bank added: “This change is consistent with the bank’s strategy of being better organised to serve our customers while reducing structural costs.

“Also, the bank will improve quality of support, achieving a consistently high customer experience level, and will increase efficiencies with a quick adaptability to market changes and changes in process to better serve the customer.”

Scotiabank (Bahamas) added that the Central Bank’s 0.5 percentage point interest rate cut just before Christmas 2016 would temporarily narrow interest margins, as deposit rates would take longer to adjust than their loan counterparts.

“The reduction in Prime will have a significant impact on the bank’s overall net interest margins. While deposits rates will not be impacted, loan rates have been reduced for clients with variable rate loan facilities,” it added.