Bahamas government forced to take over troubled bank loans, says PM
Nassau, Bahamas — Bahamas Prime Minister Perry Christie said his administration did not want to create an entity to take over bad commercial loans from Bank of The Bahamas. He said he was forced to do so “by policy”.
Addressing the House of Assembly in response to a debate contribution by Free National Movement (FNM) MP Richard Lightbourn, Christie said the government was “obliged by policy to protect the bank and take $100 million of the accounts”.
On October 31, the government announced that it had created a wholly-owned government entity called Bahamas Resolve Ltd to take ownership of $100 million in non-performing commercial loans issued by Bank of The Bahamas. The bad debt had already wrecked the bank’s capital levels and represented a potential threat to its stability.
In exchange for the debt, Resolve issued $100 million in government-backed security bonds to Bank of The Bahamas. The bonds were backed by a letter of comfort.
The bailout – a term the government disputes – was noted by international ratings agencies as well as multilateral lending agencies.
“We didn’t want to do it. We were obliged to do it. And having done it, we are making it work. But we are not involved at all in that process,” he said.
“We created a board of directors and we hired an accounting firm (Deloitte & Touche). They run it, every day, all day – their decisions. That’s how it ought to be done. No political interference, no political determination.”
Former Central Bank Governor James Smith, who served as minister of state for finance in the 2002-2007 Christie administration, was tapped to head the board of directors.
Christie added on Wednesday that he is considering appointing “one or two” independent members to the Resolve board “because everything is confidence”.
“It’s being able to show the country, the people who invest and the shareholders that we are not involved in this process, but as the majority shareholders of Bank of The Bahamas we will do what we have to do to instill confidence,” he said.
“And the last people we expect to be demonstrating against the bank are the people who had the administration that caused the loans to be made. Whether they were made to PLPs doesn’t matter to me. The judgment was made by the bank to loan the money by a board they appointed.”
“And it is what it is. It was done as a banking decision: no politics.”
FNM chairman Michael Pintard told Guardian Business that Resolve, having been formed and tasked as it was “to avoid the appearance of any form of conflict of interest, it may have been wise to identify a completely independent person to help develop the policies that would guide the entire process of seeking to recover these funds.
“We firmly believe that the person appointed is an honourable and decent Bahamian, but having served before as a minister of state for finance, the government does not assist him in terms of eliminating all appearances of potential conflict,” Pintard said.
He added that while the choice to proceed with an accounting firm may be vindicated after careful analysis, it seems to the FNM that “it may have been more useful and less expensive to the shareholders and the taxpayers to have appointed a law firm. You cut out an entire layer in terms of the cost of recovering these funds.
“We also believe that there is a need for a forensic audit,” he added, citing the Central Bank’s request that accounting firm Ernst & Young validate the bank’s submissions to the regulator for 12 successive months.