Bahamas Development Bank: Close to 500 businesses owe $41M
Just one-third of the Bahamas Development Bank’s (BDB) loan portfolio is currently performing, with potentially around 500 businesses owing a total of $30 million in principal and $11 million in interest to the institution, according to its Managing Director and Chief Executive Officer Arinthia Komolafe.
Averaging out to around $82,000 owed per business, Komolafe said that the bank is now committed to becoming more “stringent” in its loan management practices.
Having spent the first few months of her time at the head of the institution getting to grips with the composition and quality of the loan portfolio, as well as what has led it to be in the position it is today, Komolafe said the BDB has already made strides in recent months in improving collections.
This has followed an ongoing media campaign in which the BDB called upon its delinquent clients to make contact with the bank.
“Certainly for the first quarter we are ahead of our projections for revenue from non-performing accounts for payment plans. We’ve really been working with the customers, calling them up and trying to get them to come in and improve their status with the bank,” said Komolafe.
Komolafe, an attorney and banker by profession, who took the reins of the institution in September 2013, added that the bank is now more committed than ever to using the “full extent of the law” to ensure it strengthens its balance sheet. 521 accounts are currently in arrears.
“We are doing that now, and in a lot of cases we have got judgment on the clients, so we are taking it beyond that step, to examination, to see what assets these clients have and if we can put a lien on those and therefore be able to recoup some of the investment based on the assets we find. We are going to work with the clients as the first order of business, because we want to help them as best we can, but if we have to resort to the last resort, and take it to the full extent of the law, then we will.”
At present, a minority of performing loans are providing “a couple of million dollars” in interest income for the institution.
The managing director said that it is primarily by repairing the institution’s balance sheet that it expects to meet its goals of lending around $250,000 a month, or $3 million this calendar year, to a number of newly-prioritized sectors, including energy efficiency, agriculture and manufacturing, in line with government’s priorities for the economy.
While over 50 percent of the bank’s present portfolio relates to loans to tourism and service-based businesses, Komolafe said that the bank is looking to “flip the script” by targeting these new sectors for the bulk of its future lending.
She said that there continues to be a heavy demand for funding from the institution, although at present a “minimal” portion of this demand is emanating from the sectors the BDB would like to fund, leading the managing director to suggest it needs to do more to market its new focus in this regard.
The BDB’s new strategy will be outlined in an upcoming strategic plan for 2014 to 2018, she added, noting that execution will be key. Follow-up on prior strategic plans has fallen short in this regard, with as little as 20 percent of the bank’s goals having been successfully executed.
Komolafe added: “We’ve been looking at getting a strategic plan out as soon as possible that would look at positioning the bank for future success. What that encompasses is looking at the existing policies and procedures, updating them where necessary, and looking at the types of sectors that we’d like to invest in based on the government’s overall plan, and also based on the performance or non-performance rate in the portfolio – which projects have been proven to be more beneficial to the country over the years, and which projects are necessary to be the catalyst for the overall economy in terms of creating jobs and investing in businesses that have export potential.
“The current plan that’s before the board now for approval builds upon the previous plan, but takes into consideration some of the needs of businesses today and some of the plans of the government in terms of food security, energy efficiency and manufacturing as we move toward World Trade Organization (WTO) membership, creating the opportunities where local business owners would have access to the global market; to be able to give to the global market rather than just taking from it.”
It was the traditional focus on tourism and service-based businesses that fed off foreign direct investment coming into the country that contributed in part to the decline in the BDB’s portfolio in recent years, suggested the managing director.
“Normally the portfolio of the BDB thrived off of the foreign direct investment coming in, because wherever those investments went the bank followed. If you were here on this island, or that island, and you came forward with a business we’d say, ‘okay, we could probably help you out’. So historically the BDB fed off those businesses. But with the Bahamian economy and the slowdown in foreign direct investment, that contributed to the problems we’ve been experiencing,” she said.
In addition to the effect of the global economic downturn, Komolafe said that the need to update the BDB’s policies and procedures, and ensure staff are properly placed and trained, are two other factors which have played into the financial challenges the BDB is experiencing today.
She said that a “realignment” of the BDB’s staff, numbering just under 40, is currently underway.
“I think there also needs to be an update of the bank’s policies and procedures and ensuring we have the right staff in the right places to ensure persons are performing to the right standard and productivity, and also to ensure that where we do recruit we are getting the best expertise. Where there are shortfalls with staff we are doing training programs to address deficiencies,” she added.
The managing director also intends to place renewed focus on ensuring the businesses the bank helps to finance are properly equipped with the skills to succeed.
“We’ve also found that the lack of business development support and technical assistance has also factored into the failure of many of our clients to have good record keeping, or being able to market themselves in a proficient way.
“We’re aiming for the re-engagement of our business advisory services, where we would like to engage private professionals who would be able to provide services at a concessionary rate to our clients.”
Komolafe added that the BDB would also like to expand the array of products it offers to clients, diversifying away from pure debt financing.