By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of The Bahamas has “eliminated a lot of the external influences” that helped produce two taxpayer-funded rescues, its top executive has revealed, with the institution “on track” to hit this year’s $8m-$9m profits target.

Kenrick Brathwaite, the BISX-listed lender’s managing director, told Tribune Business the root causes of its bail-outs are firmly “in the rear view mirror” as it no longer needs the $171m government bond injected into its balance sheet to remain in positive net worth territory.

Bank of The Bahamas’ financials for the 2023 half-year to end-December show it would still have net equity, albeit modest, of $3.4m even without that bond’s inclusion as an asset. Still, despite Bank of The Bahamas ‘ net income for the six-month period increasing more than ten-fold year-over-year to $4.828m, compared to just $462,323 the year before, Mr Brathwaite said he was not yet satisfied it has achieved sustained profitability.

While still awaiting Central Bank approval to re-start commercial lending, which proved the source of much of the problems that led to the past rescues under prior Boards and management, he voiced confidence that Bank of The Bahamas is “ready” to enter a market that will enable it to fully diversify its loan portfolio.

And, with the entire commercial banking industry struggling for loan book growth, with qualified borrowers much reduced in numbers, Mr Brathwaite said the BISX-listed institution is poised to next month “launch an aggressive strategy” to attract new mortgage, personal loan and credit card customers. And it is also “in the final stretch” of launching its first-ever debit card, which will be made available to clients in March.

Bank of The Bahamas’ non-performing loans, as a percentage of its total net portfolio, still remain higher than the industry average despite falling by more than two percentage points - from 19.49 percent at end-June 2022 to 17.12 percent - during the final six months of 2022.

The latter figure remains almost ten percentage points higher than the commercial banking sector’s 2022 year-end average of 7.7 percent, but Mr Brathwaite voiced confidence that his institution’s ratio will “be in line with industry standards” by the time its 2023 financial year closes at end-June. He argued that Bank of The Bahamas’ numbers were skewed by several large loan delinquencies it is in the process of addressing.

“On the commercial side of things we’ve not yet been released by the Central Bank,” the Bank of The Bahamas chief said of the continued regulatory bar to commercial lending. “We’re just waiting on them with regard to their finishing and our responses. I think really a decision may have been made; it’s just not been conveyed to us yet. They’ve already done their review.”

“We’re just waiting on them to tell us what they’re thinking.”

Bank of The Bahamas was rescued via two taxpayer-funded bail-outs in 2014 and 2018, which resulted in ‘toxic’ commercial loans being removed from its balance sheet in exchange for government bonds worth a collective $267m. The bank has been barred from this loan segment ever since, and Mr Brathwaite said its re-entry would “do a lot of things for us”.

He added: “It allows a full diversification of the portfolio. It provides a certain sector of the economy, the business sector, an additional bank to deal with. From an economic standpoint, it’s critical we get there. We believe we can operate in that space and provide funding for a lot of small and medium-sized businesses.”

Many among Bank of The Bahamas’ 3,000 minority shareholders, as well as external observers, will be both sceptical and reluctant about its commercial lending ambitions given the recent past. Mr Brathwaite, though, had no such fears. “We’ve done a lot of things internally to at least mitigate some of those risks and issues we’ve had in the past,” he told Tribune Business.

“There’s been a complete separation of the business and risk. We’ve hired persons with knowledge of the risk side of things and the business side of things. We’ve changed and evolved our internal policies. We’ve removed a lot of the influences from external sources that may have impacted on what was done in the past. We’ve done a lot of things to make us ready. We’re prepared to enter the market.”

Mr Brathwaite did not specify what he meant in referring to “external influences”, although many observers will likely interpret it as meaning political pressures given that the Government - via the National Insurance Board (NIB) and the Public Treasury - own a combined 82.6 percent of Bank of The Bahamas. They also held the majority interest when the bank had to undergo its taxpayer-funded rescues, and the Government still appoints the majority of the Board.

“There were a lot of issues that had to be addressed, and we’re addressing all those issues that caused the bank to be in the position it was in,” the Bank of The Bahamas managing director said. “I’m confident we are at a point where we have put those things in the rear view mirror and understand the structure we have in place now will not allow a repeat.”

Meanwhile, the Bank of The Bahamas chief said the first-half performance had left the bank “on target” to hit its full-year 2023 financial projections. Describing the six months to end-December 2022 as “pretty good”, he added: “I think that as long as the economy continues to rebound, and we have the cost base we had prior to the pandemic, then we’re going to be fine.

“We’re on track for profits as per our budget at the beginning of the year. Our expectation is that we will achieve the budgeted figures for the year. It’s just about double what we have now. We’re looking at $8m-$9m for the year, and think we’re going to be on target for that.”

However, Mr Brathwaite conceded that more work lies ahead. “I think we have not yet reached a position of sustained profitability,” he told this newspaper. “There’s a few things in there affecting the financial figures that we continue to work on year in, year out. We are moving to a better place where, in the future, we expect sustained profitability based on recurring income.”

Bank of The Bahamas, in common with its competitors, saw a small near-$5m decline in its net loan book during the final six months of 2022 as its overall size decreased to $363.82m. Planning to reverse this, Mr Brathwaite said: “That market is very volatile and very competitive, especially the consumer side of things, but we are introducing a campaign to seek to address those numbers.

“Mortgages, consumer loans and credit cards, we are aggressively putting a strategy together to arrest those numbers. I would expect it to be launched by March. That’s going to be geared towards the consumer market, and will include all aspects as part of the package. Hopefully we will be able to address and arrest those areas while the numbers are still flat, while understanding the competitive market will have some bearing on us.

“We’re in the final stretches of launching a debit card. We’ve never had a debit card before. We expect that to be in full force by March.”

Mr Brathwaite said all banks faced the collective problem that the pool of qualified borrowers has not expanded from pre-COVID times, and “that’s the pot we’re all fighting for for consumer loans”. Being permitted to re-enter commercial lending, he added, was vital to reducing reliance on a consumer/personal loan space that all lenders are presently battling for.

Despite its steady improvement, Bank of The Bahamas’ non-performing loans at 17.2 percent of its net loan book continue to be much higher than the industry’s average of 7.7 percent at end-December 2022. This means that some $62.286m worth of credit was 90 days or more past due on loan repayments at end-December 2022.

“We expect those to be in line with industry,” Mr Brathwaite said. “The commercial side is out of line with industry. The other areas are falling more into line with industry standard. We expect to have them resolved in the near future. Our projections call for them to be in line with industry standards by the end of the financial year, June 30.

“With the commercial, we’re only talking a few large accounts. One account has a significant impact on the ratios. Once we address those, which we expect we will be able to, then you will see an immediate turnaround in arresting the ratios.” Mr Brathwaite said the more than two percentage point drop in the bank’s non-performing loan ratio during the six months to end-December 2022 had resulted from the sale of properties and other collateral linked to this credit.