$33 million in the red: Belize Bank records biggest loss in history

The country’s largest bank, the Belize Bank, has recorded its largest annual loss on record at the end of the 2010-2011 financial year due to a large pool of non-performing loans, especially large commercial loans, Deputy Group Chief Financial Officer of the Belize Bank, Michael Coye, confirmed to Amandala today.

The Belize Bank’s accounts for the quarter ended March 31, 2011, indicated that the bank lost $33 million, and the end-of-year report records $32 million “in the red.”

The year before, the bank showed a profit of just over $4 million. In 2009, when it wrote off the $20 million from the Venezuelan loan proceeds, put towards the $33 million debt of Universal Health Services, it registered a loss of $1.3 million.

BCB Holdings Limited, the bank’s parent company, has, for its part, reported a net loss of US$7.3 million for 2010-2011 and a net loss per share of US$0.07, according to the company.

The Belize Bank said that Financial Services reported an operating loss of US$21.9 million for the year after an exceptional charge of US$36.4 million in respect of loan provisions against a total loan portfolio of US$864 million.

The problem with loan performance has spanned at least the past two to three years, but it was highlighted in 2010, when the level of loan non-performance in at least two commercial banks in Belize remained more than five times above the prudential benchmark.

Coye had told us in the latter part of 2010 that the bank had set up a Remedial Management Unit (RMU), headed by Mario Sabido, to help bring back the accounts to a performing status and that definitive improvement was expected by the following quarter.

At the time, the rate of non-performing loans was 28%, but the situation had worsened slightly at last report, to a rate of nearly 30%.

Coye noted that when the loans become non-performing, it means that they stop accruing interest and so the bank does not earn the usual revenues. Coye said that he does not expect the bank’s financial position to turn around for at least another year.

As for the RMU, he said, “They are very active in trying to collect on these loans.”

Coye said that there have been some success stories where the bank has worked with clients to see whether they could bring their businesses back, but some are in receivership while others are facing foreclosure of assets. He told us that one loan for the banana sector was salvaged through the sale of an asset.

Whereas the level of non-performing loans in Belize is high, said Coye, the extent in the Turks and Caicos, where BCB Holdings also has a bank, is “a little worse” and the economy there is “struggling.”

For BCB Holdings, he said, the international banking services, which include those which cater to tourism businesses, are doing better than the others in their finance portfolio, he said.

“Should customers be worried about what they see in the bank’s financial statements?” Amandala asked.

“I don’t believe so,” replied Coye.

He told us that the Belize Bank is still heavily capitalized. The Capital to Deposit ratio as of March 2011 was 18%, higher than the 9% requirement.

Also, he said, the bank’s liquidity requirement is $175 million, and they have an excess of $55 million.   He explained that the bank is sitting on the deposits and not making money off them. Due to the excess liquidity, they are not taking any term deposits, he added.

“The bank is too liquid, because people are not borrowing” said Coye.

Money is there to lend, he said, adding that the bank plans to diversify its portfolio and pay special attention to retail services, such as residential mortgages, which may be as low as 11%.

Investments in treasury bills issued by the Government are limited and all the banks compete for about 2.4% interest, which is lower than the 5.5% paid out for deposits, said Coye, explaining why it is not profitable to hold on to large deposits at this time.

   

“What do you have to look forward to in the new financial year?” we asked.

“All the banks will start competing for the loaning clients,” he said, indicating that there would also be a “squeeze” on margins, resulting in lower mortgage rates.

“We are looking at this year to really get everything cleaned up,” Coye told us.

With increased lending, though, wouldn’t the bank run the risk of ending up with even more non-performing loans?

When we asked Coye this question, he said that with the Group Risk Unit, which manages all risk, especially credit risk, there are structures now in place that they hope will ensure the problem does not repeat itself. The bank is learning from their mistakes and spreading the risk, he said.

As for the continued impacts of the dampened economic climate, Coye said,

“I believe that recovery is coming. It is just going to be slow,” he told us.

We asked Central Bank Governor Glenford Ysaguirre about the consequences of the $33 mil loss of the Belize Bank.

He told us that, “One year of bad performance is not going to jeopardize the future of a bank; what is important is performance trends over a period of time. The continuation or arrest of a bad performance trend will be determined by how aggressive the bank management is in addressing the situation — what managerial action and administrative corrective measures it takes to address the high levels of non-performing loans.”

He said that as the regulator, the Central Bank tries to ensure that banks are on top of the matter and are implementing the appropriate self-cleaning measures; otherwise, the Central Bank issues directives and orders to keep them on a path of prudent management.

The 2010 International Monetary Fund (IMF) report on Belize cited concerns over the high rates of nonperforming loans in the commercial banking sector.

“In the banking system, nonperforming loans have risen sharply in the recent period, while provisioning remains low,” said the IMF.

The IMF directors also said that protecting the stability of the banking system is a priority.

“This will require an agreement on recapitalization plans for a few banks and their early implementation,” it added.

Amandala