Cayman Development Bank: Vast majority of business loans delinquent

Bank is unable to find chairman and pursues close to 100 legal cases to recover funds 

Between 60 and 70 percent of business loans granted by the Cayman Islands Development Bank are delinquent, according to managing director Tracy Ebanks.  

Nearly 90 percent of the companies that are unable to make their loan payments are start-ups. These types of loans are extremely risky and therefore attract the highest rates of default, she explained. Many of the established companies that missed loan payments could not qualify for a loan from a commercial bank and typically needed additional capital to deal with the downturn in the economy. 

Responding to questions of the finance committee of the Legislative Assembly, Ms. Ebanks said delinquency rates for student loans and mortgages, the other main types of credit facilities offered by the bank, are “in the range of 30 percent” and 32 percent respectively. 

The bank currently has about $1 million of student loans in various stages of drawdown. Student loan policies were revamped in August 2012 to ensure the guarantors could provide sufficient collateral. However, as a result of the slowing of the economy, many students who graduate are unable to find employment, even if they have master’s or bachelor’s degrees, Ms. Ebanks explained.  

The high rate of mortgage defaults is also a consequence of the weakened economy, she added. “We also find that our customer base is having extreme difficulties paying for their homeowner’s insurance. As you can appreciate the rates are extremely high and we deal with the lower income families. So a lot of times we have to finance their homeowner’s insurance premiums and tack it on to their principal.” 

The development bank’s primary function is to facilitate and provide “financing for the expansion and strengthening of the economic and social development of the Cayman Islands through lending.” But while the bank continues a student loan program with funds generated from its operations, it has not granted new business loans for some time due to its fiscal situation. 

The development bank has total bond debt of $30.5 million, which becomes due and payable in 2015. 

“Until a decision has been made how we will proceed with retendering these bonds we cannot really answer when we will have the next tranche of funds available for lending,” Ms. Ebanks said.  

The bad debt in the bank’s loan portfolio, however, has no bearing on the bank’s ability to borrow, she noted, because all the bank’s bonds are guaranteed by the government. 

To recover some of the funds owed, the bank is now more often than ever seeking legal recourse. 

“We have close to 100 accounts in litigation, which is unprecedented for the Cayman Islands Development Bank,” Ms. Ebanks said. “As a development bank, we work with our clients as best as we can in view of the economic circumstances. But if we have recoverable security, we have to exercise our rights.” 

According to a 2013 report by Auditor General Alastair Swarbrick, the bank was the subject of political interference involving the approval of several loans during the 2010/11 budget year. “The bank’s credit policies, approved by the board of directors, are designed to ensure that loans are only disbursed to customers who are creditworthy,” the auditor general wrote. “When a breach occurs, this exposes CIDB to increased risk of losses due to delinquency.”  

No chairman 

The fallout of the report, which criticized the interference of boards in the operation of statutory authorities, as well as the bank’s lack of funding may have had a direct influence on the development bank’s inability to constitute a functioning board.  

The bank’s board has been without a chairman since May 2013. 

According to Minister for Financial Services Wayne Panton, there are enough candidates willing to take on the role of board members. However, before they commit to serve on the board, they first want to know who the chair will be and no suitable candidate for chairman has been found yet. 

A total of eight candidates for chairman ultimately decided against taking on the role or they have been disqualified by law. In the most recent case, a candidate found that she had a child with a loan at the bank, which would violate the bank’s policies, Mr. Panton said. 

Speaking about the inability to find a chair during the past year, Mr. Panton said, “there was perhaps too much honesty in respect of the financial situation of the bank and the history involved there.”  

He added that “it was difficult to say with accuracy” whether allegations of political interference in the workings of the bank had anything to do with the reluctance of candidates, but he stated “beyond doubt, there will be no attempt to bring political interference” by this government. 

Finance committee approved an equity injection of $1.5 million for the development bank.