BOB gains $56.7m Treasury Bill boost


Tribune Business Editor

Troubled Bank of The Bahamas (BOB) has received a further $56.7m boost from the Government in the form of Treasury Bills, as it recorded its first full-year of profitability since 2012.

The BISX-listed institution's unaudited financial statements for the year to end-June 2018, now published on its website, reveal that its balance sheet has been bolstered by the injection of $56.618m worth of Treasury Bills that are described as "cash equivalents".

As short-term government debt, Treasury Bills are regarded as highly liquid and akin to cash, but BOB's financial statements provide no explanation for where these securities have come from or the rationale for their injection.

Some Tribune Business sources, speaking on condition of anonymity, last night suggested that the Government had asked the Central Bank of The Bahamas to help strengthen BOB's balance sheet by selling - or transferring - some of its Treasury Bill holdings to the struggling commercial bank.

Besides aiding BOB, which is 82.6 percent majority-owned by the Government through a combination of the Public Treasury and National Insurance Board (NIB), this move would also have achieved the objective of reducing the Central Bank's public debt holdings.

However, another plausible explanation is that the Treasury Bill increase, together with the 26 percent year-over-year increase in cash on hand at lodged with the Central Bank to $123.538m, relates to the redemption of the $100m in promissory notes that were used to shore up BOB's balance sheet during the first Bahamas Resolve bail-out in October 2014.

These bonds were injected into the balance sheet in exchange for the toxic commercial loans that had to be removed to save BOB from collapse. BOB's 2018 financials confirmed that the first $100m worth of bonds were redeemed on schedule, with the last $12m payment made on May 18 and, given that the Government is strapped for cash, the Treasury Bills may have been used to effect part-payment.

Still, without the Treasury Bills and remaining $167.7m in promissory notes from the second Bahamas Resolve bail-out, BOB's financials show the bank would be insolvent with liabilities exceeding assets to leave it in a "negative net worth" position.

The extent to which Bahamian taxpayers continue to remain exposed to BOB through the Government's continued financial support is starkly illustrated by the financials, which show that the loans acquired from the bank by Bahamas Resolve are worth just 37.6 percent of the principal amount paid.

The Government-owned special purpose vehicle (SPV) paid $134.5m, and another $33.7m for "accrued interest", to obtain toxic commercial loans that BOB's statements concede had "a total net book value of approximately $50.6m".

The $117.1m "net difference" between the $50.6m "net book value", and $167.7m in promissory notes, was also written back into BOB's balance sheet as "special retained earnings". Not only did this wipe out BOB's $139m accumulated deficit, but these "earnings" are treated as equity and regulatory capital, enabling the bank to now far exceed Central Bank-mandated ratios it previously had trouble meeting.

Besides the collective $267.76m promissory notes injection, and subsequent $100m "redemption", Bahamian taxpayers have also picked up the entirety of BOB's $40m rights issue and a further $10m in convertible bonds. The end result has been that rescuing BOB has cost taxpayers over $300m and counting.

However, this "investment" at least appears to have returned BOB to profitability - thanks to the removal of its toxic commercial loan portfolio and associated loss provisions. The BISX-listed institution generated $2.532m in total comprehensive income for the year to end-June 2018, compared to a $46.494m loss the year before.

The "red ink" in 2017 was related entirely to the $51.957m in loan loss provisions that were incurred, a figure that was cut to $7.568m for the 12 months to end-June 2018 as a result of the second Bahamas Resolve transaction.

Interest income, though, was down compared to 2017 at $36.791m, with the improved operating improvement driven by greater fee and commission income coupled with lower interest expense stemming from a reduced Prime and deposit rates.

Despite BOB's improved financial performance, virtually no details have been provided to its 3,000 minority shareholders on how the institution plans to maintain profitability or develop a sustainable business model for the future.

Jihanne Hosmillo-Williams, BOB's chief financial officer, said the bank was focused on improving collections, corporate governance, operational efficiency and customer care, as well as reducing costs, as part of its turnaround plan.

Yet her comments did not go beyond broad-brush statements. "Achieving optimal operating efficiencies and increased value creation for all stakeholders remain our primary emphasis," Ms Hosmillo-Williams said.

"The bank continues on its path of rebuilding, and we are working steadfastly to a period of sustained profitability."

The effects of the Bahamas Resolve