The Cayman Islands Development Bank will likely have to refinance large amounts of debt or accept major cash infusions from government to stay afloat in the next three years.
Financial Services Minister Wayne Panton said Monday in Legislative Assembly that the bank has tens of millions of dollars of debt, payable in what are known as “bullet loans” or “balloon payments” starting in 2015. A bullet loan is one where the entire principal becomes due at one time.
“It’s important to note that due to the refinancing of outstanding debt, the CIDB now has debt totaling CI$30.5 million which becomes due and payable in 2015,” Mr. Panton said.
According to previously released government records reviewed by the Caymanian Compass, there are five “bullet” loans taken out on behalf of the development bank that have maturity [due] dates listed as: April 2015 ($20 million), June 2015 (two payments totaling $11.8 million), July 2015 ($5 million) and January 2016 ($5 million). That equates to $41.8 million due between the last quarter of the 2014/15 government budget and the first half of the 2015/16 budget.
The first two payments of $20 million and $11.8 million are due during the government’s 2014/15 budget year, next year’s budget. The remaining $10 million in payments are due during the 2015/16 budget.
“[This] leaves a very tight timetable and time line for strategies and actions for the bank,” Mr. Panton said.
The debt is significant, according to the financial services minister, not just because it will come due in the next fiscal cycle, but also because of the impact it can have on the interest expense of the bank.
“The bank has a history of high interest cost which prevents it from offering true concession rate lending to any of its customers,” the minister said. “This is a challenge that must be addressed for the bank to truly deliver on its mandate as a development finance institution.”
Concession rate lending is a borrowing arrangement that typically involves a lower interest rate loan based on an individual’s financial circumstances.
The development bank, founded in 2002, is a statutory authority of the Cayman Islands government. It’s primary function, according to its website, is to “promote, facilitate, mobilize and provide financing for the expansion and strengthening of the economic and social development of the Cayman Islands through lending”.
The agency is mandated to lend to anyone of Caymanian birth or status who qualifies for a loan in Grand Cayman, Cayman Brac or Little Cayman.
Mr. Panton said his ministry would be looking into the services provided by the Cayman Islands Development Bank in the future.
“It will be important…to become strategic in the way in which the bank serves the needs of the community and the way in which it is used to facilitate government initiatives.”
Minister Panton said the development bank had made significant progress in a number of areas, including improvements in loaning and human resources processes. However, funding remained its significant challenge, he said.
According to financial statements for the government’s 2011/12 budget year, the most recent statements available, the development bank’s operating costs were nearly double its income.
Total administrative expenses for running the bank during that year were nearly $1.6 million, according to the financial statements, while total income from operations was about $831,000.
The banks total assets were $41.9 million for the 2011/12 year; total liabilities were $38.6 million for the year.
Cash equivalents held by the bank by the end of the year were $4.7 million.