Former Minister of State for Finance and Chairman of the board of directors of Bahamas Resolve Ltd. James Smith yesterday stated that while it "might make sense" in the short term for Bank of The Bahamas (BOB) to move an additional portion of its non-performing loan portfolio over to Resolve - which Smith suggested was a possibility given the Christie administration's insistence on the bank's survival - far larger and more comprehensive changes need to be made regarding BOB's daily operations if the bank hopes to stay afloat.
The administration announced the creation of Bahamas Resolve on October 31, 2014. Resolve was designed as a special purpose vehicle to assume $100 million in non-performing commercial loans. However, the government has offered little information on Resolve's progress in evaluating and possibly liquidating its inherited assets in the first year of Resolve's operations.
Speaking with Guardian Business, Smith stated that Resolve was wrapping up the valuation process for the assets contained in the 13 "bad loans" but suggested that Resolve could receive further bad BOB loans given the government's insistence on BOB's survival.
When asked if Resolve could receive further toxic loans due to the unclear progress of BOB's reforms, Smith stated: "They could possibly, if the government is so minded, remove some more loans but the effect of that is the same as what's happening now: The government incurs an additional debt that ultimately would have to be paid by the taxpayer.
"It might make sense to move more of the loans off but again that's only one element, I think, of a larger plan... At the end of the day to put the bank back on good footing and profitability you would have to take more steps than just cleaning up the balance sheet. There are some operational things: training, personnel, and information technology," said Smith.
"It's one of many things that can be done. Mind you if the government is acting as the major shareholder and it refers to work on the liabilities side of the book by removing bad loans - taking them out of the bank as opposed to putting capital into the bank - that's a policy decision that the government takes," Smith added.
In September, The Tribune published a list of 13 names tied to Resolve's toxic commercial loans that threatened to BOB's ability to comply with the Central Bank of The Bahamas' liquidity requirements. Shortly after the names were published Smith told Guardian Business that Resolve's managers had reported "difficulty" in obtaining information from the bank regarding those loans.
According to Smith, Resolve's mangers (Deloitte and Touche) had requested all documentation on the 13 loans from BOB. However, Smith said that the bank was "not forthcoming" with the information, leaving Resolve in search of relevant documents for months.
One year after Resolve's formation, questions remain over BOB's ability to stabilize and take advantage of the transfer. BOB last week announced that it would push back publication of its annual financial results to December 31. When asked whether the decision to transfer the toxic loans had helped BOB's medium term financial position, Smith said that more needed to be done to stop the "hemorrhage" at BOB.
"The government has declared its intent to keep the bank alive and to do the things that are necessary to make it profitable again. Resolve only plays one minor role in that by being a reservoir for some of the toxic loans," said Smith.
"I gather it must be just a first step that would have permitted Bank of The Bahamas to come back in line but then the day to day performance of Bank of The Bahamas will determine what would happen moving forward and if they continue to make losses then eventually they will be back in the same position where you're running down your capital and it has to be replaced. Other things will have to be taking place, I think, to stop the hemorrhage over there," he said.
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