By Betty Vedrine
Bahamas Information Services
NASSAU, The Bahamas – The Minister of State for Finance, the Hon. Michael Halkitis expressed his confidence and optimism in the success of Bahamas Resolve Ltd., the government’s response to debt collection for delinquent accounts at the Bank of The Bahamas.
During his contribution in the House of Assembly on Wednesday, December 10, Mr. Halkitis said he was ‘confident’ about the team tasked to recoup outstanding debts to the government, to the tune of $100 million dollars.
With former Central Bank Governor and former Minister of State for Finance, Mr. James Smith, at the helm of the board of directors, coupled with a portfolio manager, the Minister said that ‘Resolve’ should be effective in carrying out the government’s mandate.
“I am confident that this combination of the Board and portfolio manager will allow Resolve to maximize its collection on the portfolio of assets over which it has taken charge,” said Mr. Halkitis.
As a consequence of the economic downturn, which plagued every facet of the economy, commercial banks including Bank of the Bahamas (BOB) found it necessary to realign their activities to reflect the economic climate.
“The end result of the economic downturn has been that most of our commercial banks, faced with the protracted nature of arrears, have had to make significant provisions for loan losses–in some cases having a negative impact on overall profitability, when the adjustments were made.”
These provisions were also made at BOB in order to mitigate a more negative impact.
After early consultation with the Central Bank, he said it was necessary for the government, as the combined majority shareholder with the National Insurance Board, to intervene to help recapitalize the bank. In addition, the bank’s leadership was directed to reform the institution.
Consequently, Bahamas Resolve Limited was formed, with the objective of removing the outstanding debts on the bank’s balance sheets and managing those debts separately from the banks other operations. Resolve was formed in October 2014.
To ensure the bank’s liquidity following the transfer, the government made deposits totaling some $43 million to the bank over the period of June to October.
“In July we also assisted, as the major shareholder with the payment of a preference share dividend of$1.1 million. This approach was also endorsed by the Central Bank, in view of the recapitalization needs which were evident at the time,” said Mr. Halkitis.
“As payment to BOB, Resolve issued the bank with a $100 million promissory note. The note which has a maturity of to 10 years, pays interest at a rate of prime less one half of a percent — or -4.25% percent in today’s term. The promissory note is also backed by a letter of comfort from the Government,” he added. He said that this asset exchange results in the reversal of $49 million in loan loss provisions.
At the end of October, Mr. Halkitis said that the bank’s capital ratios were ‘within the regulatory limits established by Central Bank.’
“Now, as majority shareholder, we have charged the leadership of the bank with developing a plan to steer the bank in a new strategic direction,” he said.
“We are giving close attention to bolstering the capital position even further, and to how other strategic reforms can be launched, to which we would provide a further update to this Honourable House in the coming days.”
Mr. Halkitis said that the entire exercise was carried out in order to safeguard the stability of a Bahamian-owned commercial bank, and was conducted with the endorsement of the regulator (Central Bank).
“We will ensure the public sector stays intimately involved in doing business with the BOB, and that we find ways to deepen this relationship. It is our Bank. It is the people’s bank. The Bahamian public can expect to see and hear more from us on this matter.”