BOB faces forensic audit with Gov't 'open to a sale'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government is planning a forensic audit into Bank of the Bahamas' lending practices, the Deputy Prime Minister yesterday saying the Government is "open" to selling the troubled lender.

K P Turnquest, kicking-off the mid-year Budget debate, told the House of Assembly that the Minnis administration planned to probe both the 'toxic' loans transferred off the bank's balance sheet as well as credit that had been 'written off'.

He argued that political interference, coupled with shoddy lending practices, had been key factors in the demise of the stricken BISX-listed institution which is only now showing signs of returning to profitability after two taxpayer-funded 'bail outs' and a rights issue that have cost the Government a combined $300 million-plus.'

Mr Turnquest said winding-up Bank of the Bahamas, as many have called for, would be more costly for the Government than continuing to 'prop up' the institution and hope it returns to profitability under the new Board.

Addressing the extra $100 million borrowing required to redeem the bonds injected into Bank of the Bahamas' balance sheet to replace the 'toxic' credit transferred to the Bahamas Resolve 'bail out' vehicle, Mr Turnquest warned that the Government was not done investigating the causes of the bank's demise.

He argued that the bank's financial difficulties, which saw it rack up around $150 million in losses over a five-year period, were heavily linked to "the very large loans that it extended to certain persons with appropriate connections, or so-called politically exposed persons (PEPS), without doing the due diligence or securing the necessary collateral that prudential" lenders do.

Mr Turnquest specifically mentioned one $28 million loan, which is thought to refer to former Cabinet minister and MP, Leslie Miller, although there is nothing currently to suggest he has defaulted.

The Deputy Prime Minister, though, said multi-million dollar loans to so-called PEPS were involved, and he warned: "Our investigation into this travesty is far from complete, and we will have more to say in due course.

"We are commencing a forensic audit not only of the loans transferred to Resolve, but those loans written off. We're borrowing to replace the $69 million paid from recurrent revenues to pay the promissory notes of Resolve."

The $100 million borrowing will redeem the 'promissory notes' injected into Bank of the Bahamas in the first bail-out transaction. The second bail-out, which took place last summer, saw Bank of the Bahamas take possession of a further $167.7 million in promissory notes, which Mr Turnquest said will also have to be redeemed by the taxpayer/government at a future date.

"The Government is of the view Bank of the Bahamas can be returned to profitability under the new Board of Directors as it implements its transformation strategy," the Deputy Prime Minister said.

He added that the Minnis administration's primary goals in dealing with the BISX-listed institution are to protect depositors, preserve jobs for its several hundred staff, and prevent its problems from becoming a systemic risk for the wider banking sector and economy.

"Some people say we should sell the bank, and we are open to such a move," Mr Turnquest said, "and some people say shut the bank down. We went through this analysis, and the reality is it would cost more to shut it down than support it."

He emphasised that the Government was determined to "keep politics out" of how Bank of the Bahamas is run, and Board and management decisions. However, the Deputy Prime Minister confirmed that the bank, which is around 82 per cent owned by the Government, had been asked to explore replacing Royal Bank of Canada's presence in Andros and Long Island.

"We have asked Bank of the Bahamas to look into those markets to see if they can provide services," Mr Turnquest said. "They've come back with a proposition, and we have to see how far we want to go in supporting that" from the Government side.

This implies that Bank of the Bahamas has requested taxpayer support to establish branches in both islands, recognising they are potential loss-makers due to the relatively small populations and customer bases.

"We do not want it to go into a jurisdiction where it cannot support itself," Mr Turnquest said. "Our intention is that if Bank of the Bahamas cannot do it, we will find a way for some private sector entity to go into those markets and provide that service.

"We cannot leave those communities unbanked. Something has to happen. If Bank of the Bahamas cannot rationalise its costs, we're going to have to engage a private sector entity to go in there. We're working through the dynamics."

Mr Turnquest added that the Government had urged Bahamas Resolve to "quicken its pace" in selling-off collateral assets that secured the former Bank of the Bahamas' 'toxic' credit, thus recovering funds for the Bahamian taxpayer.