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Bank of Bahamas sees 70%net income plunge

Net income for the Bank of The Bahamas(BOB)plummeted nearly 70 percent year-on-year for the quarter ended September 30, 2010, due largely to a change in accounting standards for general credit reserves.

The change resulted in a credit loss expense increase of$2.71 million, up from a credit position of$1.28 million for the three month period ended 30 September 2009 to$1.43 million for the comparative period this year, representing a 211 percent jump.

For the three month period ended September 30, 2010, representing the first quarter of the Bank’s 2011 fiscal year, net income of$1.11 million was earned on net interest income of$7.83 million, generating earnings per share of$0.07. The previous year’s first quarter generated net income of$3.67 million on net interest income of$7.08 million, for$0.24 earnings per share.

Despite the drop in net income, the bank reported growth in its total operating income of 10.5%, up to$9.31 million for the three months ended September 30 this year from$8.42 million for last year’s comparative period. Revenue growth for the period was attributed largely to higher yielding assets and modest growth in the bank’s loan portfolio, according to a statement from BOB Managing Director Paul McWeeney.

Nevertheless, the revenue gains made were not sufficient to overcome the losses generated from the change in accounting standards.

“Previously the general reserve was based on regulatory requirements, which kept no less than one percent of your total net loans as a balance sheet item–a contra-asset item,”McWeeney toldGuardian Business. He added that under fair value accounting the provisions for loan losses are carried as a reserve in the equity account.

The bank reported capital adequacy ratios above regulatory requirements, with its total capital to asset ratio coming in at 15.94%and the risk adjusted total capital ratio coming in at 23.69%at the close of the three month period. Last year The Central Bank of The Bahamas increased its requirements for these ratios to 14 percent and 17 percent, respectively.

“Our philosophy here was that the cost associated with keeping higher capital during this difficult time was certainly offset by the risk involved with not having it,”McWeeney said.

According to McWeeney, the bank set out to increase its capital ratios some eight years ago. He added that when the new standards were introduced, BOB’s risk adjusted capital ratio was already around 23 percent.

The bank’s balance sheet grew from$778.37 million at September 30, 2009 to$792.90 million at the same point this year. The September 30, 2010 balance sheet showed growth in net loans and advances to customers of$14.9 million or 2.4 percent, and a growth in deposits from customers and banks of$17.5 million or 2.9 percent.

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