BOB chief: Bahamas ‘long way from default’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of The Bahamas’ top executive says the country is “a long way away from a debt default” even though constant sovereign downgrades are “taking their toll” on the banking industry and wider economy.

Kenrick Brathwaite told Tribune Business the frequent downgrades by Moody’s and Standard & Poor’s (S&P) cut his bank’s profits for the 2023 first quarter by “in excess of $1m” as he voiced concern that these actions were painting a misleading position on the nation’s financial health.

The Bank of The Bahamas managing director expressed optimism that a sovereign debt default “is just not going to happen”, given that the country still has multiple tools it can employ to stave off such an outcome such as new and/or increased taxes and selling-off public assets such as Crown Land and state-owned enterprises (SOEs).

The Government also has access to borrowing at much cheaper rates in the domestic Bahamian capital markets, but Mr Brathwaite told this newspaper that gaining access to capital - with system liquidity standing at $2.254bn at end-September 2022 - was not as easy as it appeared.

Pointing out that Bahamian commercial banks, which are major purchasers of public sector debt, already carry significant holdings on their balance sheets that place them close to their regulatory and prudential limits, he added that the industry must always guard against the potential “imbalance” caused by the Government’s demand for long-term funding with depositors wanting short-term access to their funds.

Speaking after Bank of The Bahamas’ posted a more than 13-fold rise in total comprehensive income for the three months to end-September 2022, hitting $2.742m compared to $207,859 for the prior year, Mr Brathwaite said the increase would have been even more impressive if not for the Moody’s downgrade of The Bahamas’ sovereign credit rating which occurred during the period.

This forced Bank of The Bahamas, in common with its fellow commercial banks and other government debt holders, such as insurance companies and pension funds, to take a haircut or provision on the value of these investments as a result. Tribune Business understands the impact for the BISX-listed institution could have been close to $1.5m of the $1.6m hit that the BISX-listed institution took on non-loan financial assets.

However, Mr Brathwaite said: “I would just say for the record that it [Moody’s impact] was in excess of $1m. The results could have been better if we didn’t have the downgrade. The entire industry has a lot of government debt. We’re restricted based on our relationship, so we don’t have as government debt as the others.

“But we still have quite a bit, and it’s taking its toll on everybody in the industry. Moody’s, their timing is always impeccable. Hopefully we can get this thing turned around.” Bank of The Bahamas is collectively owned more than 82 percent by the Public Treasury and National Insurance Board (NIB), meaning that as a related party with common ownership it is more restricted in the amount of government debt it can acquire.

Moody’s main concern, in its latest downgrade of The Bahamas’ sovereign further into ‘junk’ status, was whether this nation can access the international capital markets at reasonable costs (interest rates) should it need to do so for refinancing and other purposes.

Mr Brathwaite, while pointing out that the Government can obtain much cheaper financing in the domestic capital markets, said: “Whether they can is another thing. There’s a lot of liquidity in the system, but that liquidity belongs to our customers - the depositors - and not the bank. There’s always an imbalance between the Government wanting long-term funding and depositors wanting their money short-term.

“All the banks have agreed to do what we can, but we have sovereign risk, debt ceilings. We have large exposure ceilings, we have as a related party ceilings which impact Bank of The Bahamas. I don’t think anyone won’t participate out of fear or lack of confidence in the Government, regardless of which government it is.

“But everybody looks at it, liquid asset ratios of 200 percent, and everybody says the banks have money to lend. Based on that, everybody says there is a lot of money in the system, but that money is depositors’ money. We have to make sure we balance the books and not create an imbalance where we have long-term government debt and short-term depositor monies. That may create issues for you down the line.”

Voicing hope that Standard & Poor’s (S&P) will not follow Moody’s lead, and downgrade The Bahamas again when it issues its report before year-end, Mr Brathwaite said the rating agencies’ persistent actions were creating a misleading impression that this nation stands on the brink of a debt default.

“We cannot deal with another downgrade,” the Bank of The Bahamas chief said. “The overriding factor all economists need to understand is that when you downgrade someone they may be at risk of default, but The Bahamas is very far away from that. There’s a long way before we get to the point of default. When they downgrade you, they anticipate a default. When you analyse what the potential of default is in The Bahamas, it’s minimal.

“When you downgrade you increase costs to the Government, you increase costs to the banks as we have to recognise a provision on government debt. You’re not doing what downgrades are supposed to do, which is determine what is the point of default? Most economists will say to you that The Bahamas is not in line for any kind of default. There’s no way any international agencies will allow The Bahamas to default. It’s just not going to happen.”

Despite the jump in total comprehensive income, Mr Brathwaite said Bank of The Bahamas has yet to hit the sustained profitability it is striving for. It will receive a vital boost towards this ambition if the Central Bank clears it to resume commercial lending, which was the market segment chiefly responsible for prior woes that resulted in two taxpayer-financed bail-outs of the institution - plus a $40m rights issue - that collectively cost over $300m.

“We have not reached the level of sustainability we’ve been targeting in terms of overall profitability, but are working towards that,” Mr Brathwaite told Tribune Business. “The last piece of the puzzle is for the Central Bank to release us, and allow us to engage in the commercial market and diversify our books. Without that, the numbers are skewed because we really want to participate in all the markets.

“They’ve done their review, we’ve responded to their review, and are just waiting on their decision. Then we can really embark on what we’ve laid out in our strategic plan in terms of full diversification and ensuring that the risk carried is in line with what the risk appetite document says.”

Comments

DDK says...

Yack yack yack. Bahamas Governments are unable to stop spending and unable to pay their debts. It is simply not in their DNA. Even the poor potcakes on the streets should comprehend this simple fact.

Posted 21 November 2022, 1:17 p.m. Suggest removal

Porcupine says...

The rich potcakes should also comprehend it.

Posted 21 November 2022, 1:24 p.m. Suggest removal

John says...

Which bills are they not paying? Isn’t spending a necessary component to running a successful economy? If you want criticize, do it with substance. Else your comments sounds like those of an idiot.

Posted 22 November 2022, 7:30 a.m. Suggest removal

Porcupine says...

Let's be honest. BOB is struggling. It was not just poor management. It was theft and corruption, by our own people. $300,000,000.00 is no laughing matter to have lost.
On our Family Island, we have only BOB two days a week, for a total of 9 banking hours a week. This morning, 25 -30 people in line before the bank opened. We have complained about this, and many other issues with BOB management for years now. Hire another teller, for God's sake. Lunch time only one teller? We must do better for our people. BOB is costing our community in too much lost productivity just standing in line. This is our national bank?
Come on BOB. You can and should do better for the Bahamian people. Have you ever been to a bank in the US? Ok then. What's our problem?

Posted 21 November 2022, 1:21 p.m. Suggest removal

tribanon says...

BOB's losses from fraudulent lending practices when Paul McWeeney was its managing director ended up exceeding $500 million by the time all was said and done.

Posted 21 November 2022, 3:11 p.m. Suggest removal

Porcupine says...

And nobody went to jail.............

Posted 21 November 2022, 3:42 p.m. Suggest removal

tribanon says...

No, not even Paul McWeeney. In fact, Sir Snake had his insurance company give Paul McWeeney a big time executive position in exchange for him agreeing not to spill the beans about all the fraudulent lending activity that went on while he was BOB's managing director. LOL

Posted 22 November 2022, 9:59 a.m. Suggest removal

John says...

You complain about BoB’s limited hours on the island and the number of people waiting in line. So how many other banks are on that same island and how many customers are in their lines? I’ll wait!

Posted 22 November 2022, 7:32 a.m. Suggest removal

tribanon says...

You obviously do not understand why the other banks have been shutting down their foot print in our country, especially the Canadian bank cartel. All of the corruption that has existed within BOB, and may still exist there, is just a shining example of the reason why. And that reason is rampant corruption accompanied by theft of every kind imaginable.

The domestic banks are even finding it increasingly difficult to hire decent, honest and hard working Bahamians these days, thanks in large part to too many Bahamians having received a D- education and having been raised in broken homes, typically in poverty by a single mother or grandmother.

The Canadian owned domestic banks are trying to fight all of this by moving as many of their customers as they possibly can to a more secure online banking environment. This allows them to have good cyber security and other internal controls in data centres located far away in much less corrupt countries, like Canada.

Suggest you wake up and start seeing the big picture before you spout off worshipping BOB. As I said, BOB is just a shing example why Bahamians and their businesses are finding it increasingly difficult to find a domestic bank that meets all of their banking needs, especially on the family islands.

Posted 22 November 2022, 9:21 a.m. Suggest removal

bahamianson says...

Yeah, I believe you.

Posted 21 November 2022, 4:44 p.m. Suggest removal

John says...

BoB vs FTX with over a million creditors left holding empty bags.., any questions ?

Posted 22 November 2022, 7:40 a.m. Suggest removal

John says...

Why was the bailout of the US banking system necessary in 2008? Because they were multiple clones of Paul McSweeny who stole multiple Buildings of what went misappropriated or unaccounted for under his watch. So Peter ain’t no better than Paul or Enron.

Posted 22 November 2022, 7:46 a.m. Suggest removal

John says...

Should read ‘Billion$‘ and not ‘buildings’

Posted 22 November 2022, 8:57 a.m. Suggest removal

tribanon says...

The 2008/9 bailout of the U.S. banking system was a bailout of the unregulated shadow banking system that corrupt U.S. politicians, controlled by greedy Wall Street criminals allowed to develop and flourish. And then when the wheels came off, a very corrupt U.S. Congress decided to use U.S. taxpayer dollars to bailout the very same greedy Wall Street criminals who ultimately greatly and most unjustly enriched themselves by nearly toppling the entire global banking system. In stead of going to jail, the Wall Street criminals, many of them muliti-billionaires today, got rewarded for their criminal activities in the shadow banking system, which to this day remains largely unregulated.

Posted 22 November 2022, 9:32 a.m. Suggest removal

John says...

The question is not that The Bahamas is able to meet its financial obligations, but t the concern should be, ‘who owns the wealth (economy) of The Bahamas?’ Whilst consecutive Bahamian governments are being instigated to pile up more and more taxes on Bahamians, foreigners still come and get exemptions from these taxes. So when one compares Bahamian ownership present vs past or Bahamian ownership vs foreign ownership or Bahamian economic participation vs foreign economic participation, these ratios are concerning. The carpet is being pulled from under the feet of Bahamians, even as their economy appears booming.

Posted 22 November 2022, 7:56 a.m. Suggest removal

tribanon says...

This comment was removed by the site staff for violation of the usage agreement.

Posted 22 November 2022, 9:51 a.m.

LastManStanding says...

Lol. These people stay selling dreams.

Posted 22 November 2022, 9:32 a.m. Suggest removal

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