By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Development Bank (BDB) was yesterday said to be "in the early days of exploring" whether private investment and public deposits are feasible alternative funding sources.

Dave Smith, the BDB's managing director, told Tribune Business it was assessing numerous options to recapitalise and expand its lending activities after non-performing loans declined from two-thirds of its total portfolio to around 54 percent.

Confirming that the continued "clean up" of this high delinquency ratio was a key priority for 2019, Mr Smith said BDB's loan book ultimately needed to expand from the current $38m to between $40-$60m to cover "ongoing expenses".

Revealing that credit portfolio growth targets also depended on determining an "acceptable" non-performing loan rate, the BDB chief said the institution was focusing on making its systems and processes "more agile" to eliminate any bureaucracy encountered by Bahamian entrepreneurs and businesses with their credit applications.

He revealed that the BDB had also converted some of its existing bonds held by the National Insurance Board (NIB) to a loan, which had released extra monies for lending, while talks with the Government to determine the best method for its recapitalisation were continuing.

"We're looking at alternative forms of funding, where the goal is to reduce the cost of funding which will improve the bottom line," Mr Smith told Tribune Business. "If we can reduce the cost of funding, where we get better rates, that will help to expand the loan book.

"We may look at a traditional bond issue, and we may look as well to - and these are early days - whether the bank could accept private funding and take deposits from the public. It is something we are exploring."

There have been frequent calls for more private investors, and capital, to become involved in debt and equity financing for Bahamian entrepreneurs and small and medium-sized enterprises (SMEs) beyond what the Government provides through entities such as the BDB and Bahamas Entrepreneurial Venture Fund.

However, few have responded in any significant public way, given that lending to start-ups is perceived as "high risk" and many local investors are averse to taking such chances. Thus the BDB may face a tough task in attracting venture capital and angel investor-type funding itself.

It will also likely face an uphill struggle to obtain customer deposits from the public, given that few will want to place their money with a loss-making institution - the "red ink" was expected to reduce by 38 percent from $1.878m in 2016 to around $1.2m in 2017 - that also needs recapitalisation.

Lynden Nairn, the BDB's chairman, told this newspaper in late 2017 that the institution's ability to meet the Government's target for it to become self-sufficient within three years was entirely dependent on its ability to restructure its then-$64m long-term debt.

Besides $21m owed to the Government, the bulk of this debt featured some $43m in bonds held mostly by NIB, with the Central Bank of The Bahamas owning the balance.

Mr Smith yesterday indicated there had been progress over the debt, disclosing: "One of the things we did with the bonds was we converted the part particularly with NIB to a loan. That freed up some monies for lending.

"In terms of recapitalisation of the bank, we're in conversation with the Government but don't foresee any immediate decision."

Confirming that the BDB's current outstanding loans are worth a collective $38m, Mr Smith told Tribune Business: "The non-accrual loan rate has come down. It was at 64-67 percent, and now it's at 54 percent.

"We have an aggressively persistent programme where we can realise and recoup the outstanding book, and it's something we're going to have a major focus on for 2019."

He warned delinquent BDB customers that it was "important to get that cleaned up" as much for the borrowers as the institution, revealing that it was one of those that will be supplying credit history data to the proposed Credit Bureau.

Agreeing that its arrival "will pose a challenge for a lot of Bahamians", Mr Smith said loan portfolio expansion still remained critical for the BDB. "In order to cover ongoing expenses, the loan book really needs to hit $40m-$60m depending on what is assessed to be an acceptable non-accrual loan rate.

"If that is 25 percent, we have to hit $40m in new loans. It might not have to hit that, as we are focusing on quality and efficiency. Efficiency will play a part, and the deployment of existing personnel - moving employees from administratively burdensome activities to cognitive revenue tasks.

"We're doing a lot on the infrastructure side to make sure systems and processes are agile. No one likes delays and bureaucracy."

While a 25 percent non-performing loan may seem high compared to the commercial banking industry average, Mr Smith said BDB's government mandate meant its risk focus and appetite were different.

Emphasising that the "development" in BDB's name was the critical word, he added that its contribution to economic growth and diversification, plus job creation, was a more important measure of its success than profitability.

"I want to see the bank as being the first port of call when the Government is seeking to do anything on any island, and in any sector, where the bank plays a significant role," Mr Smith told Tribune Business, "bringing the private sector together, helping to manage infrastructure activity.

"The real measure for me would be from a more quantitative standpoint: How many jobs did we create, how did we impact the import values of products. That's a measure of our contribution to the economy. My focus will not really be on the profit and loss, but more how did we contribute to the development of the economy."

Mr Smith said the BDB was also reviewing its own founding legislation, given that the Act has been in existence since 1974 with little to no change. He added that it had tended to focus almost exclusively on lending during its history, making little use of its ability to provide guarantees, take equity positions in start-ups and get involved in leasing activities.

The BDB chief revealed that technology, including app development, together with renewable energy and boutique hotels had been identified as potential new areas of lending activity beyond the BDB's traditional focus on manufacturing and agriculture.

"The BDB is focusing on renewable energy and working with persons in that space to create micro grids in the Family Islands that facilitate a lower cost of energy, which is a hurdle to economic development in any country," Mr Smith said.

"We're hoping we can have some traction on that in terms of having something substantial before the end of the year." Mr Smith also pointed to the BDB's involvement in trying to develop a cascarilla industry on Acklins, Crooked Island and Samana Cay, and the Grand Bahama-based apiary programme, as other initiatives beyond its traditional focus.