Eighty percent of Resolve loans unrecoverable
Deputy Prime Minister and Minister of Finance Peter Turnquest revealed yesterday that 80 percent of the loans purchased by the government’s special purpose vehicle (SPV) Bahamas Resolve Limited from Bank of The Bahamas (BOB) are unrecoverable and therefore have to be written off.
Last year the government paid out $100 million in promissory notes to Resolve – a non-regulated SPV that is wholly owned by the government and created by the Christie administration – to purchase toxic loans. The redemption of the promissory notes began in August 2017 and would have continued to May 2018.
Turnquest blamed the unrecoverable loans for a slight increase in projected capital expenditure.
“Capital expenditure during the 2017/18 fiscal year was also subjected to restraint and is expected to come in at $153 million, down from the budgeted $230 million. However, during the year a detailed review by the Ministry of Finance, the Central Bank and advisors determined that a modification of the accounting treatment of payments to Resolve was necessary,” Turnquest said during his presentation of the 2018/2019 budget in the House of Assembly Wednesday.
“These payments related to the payout of the initial $100 million in promissory notes issued by the previous government to the Bank of The Bahamas to transfer non-performing loans. By treating the toxic loans as receivables, they were considered investment assets and as such, the payments were not considered an expenditure item.
“Based on Resolve’s own conservative estimates for recoverability, it now would be more appropriate to treat only 20 percent of the loans as assets. As such, $80 million of the full payment of $100 million has been reclassified as a capital expenditure. Consequently, the outturn for capital expenditure in 2017/18, at $233 million, is largely in line with the budget projection.”
BOB continues to struggle with bad loans as the bank recorded net interest income of $2.2 million and net non-interest of $0.8 million for the year ending June 30, 2017 according to the bank’s 2017 annual report tabled in Parliament yesterday.
This resulted in a $3 million positive in the bank’s total operating income from $33.6 million the previous year to $36.6 million.
“Operating expenses continued to decrease year on year from $32.5 million during the prior year to $31.2 million for the year ended June 30, 2017. Consequently, the bank’s net income before credit loss expense was $1.1 million and $5.3 million for the years ended June 30, 2016 and 2017 respectively,” the report states.
“However, due to the significant amount of net credit loss expense, the bank’s results of operations reported an increased net loss from $23.4 million for the year ended June 30, 2016 to $46.5 million for the year ended June 30, 2017.”
The report further adds that the bank’s year end results and financial position are indicative of the challenges with systematically high loan delinquencies coupled with slow repayment, recoveries and asset realization, while credit losses directly affect the bank’s overall profitability.