Cayman Development Bank turns around financial results

New loan programs, efficiencies, lead way to profit

The Cayman Islands Development Bank has posted a net profit of about $53,000 in its 10-month interim results compared to a loss of nearly $670,000 in the previous full year.

The results were presented by Minister for Financial Services and Commerce Wayne Panton during the budget debate in the Legislative Assembly last week.

Minister Panton said that in the past, ineffective credit policies had resulted in loan default rates of up to 70 percent, which caused the bank financial difficulties and required a capital injection by government to ensure that the CIDB was appropriately resourced.

With proper loan loss allocations, the bank generated income from new loan programs and reduced its operating expenses by 7.6 percent this calendar year. The bank also lowered its interest expenses from debt consolidation by $513,000.

In its 18-month budget, the Development Bank plans a dual loan program of approximately $5 million, in addition to the continuation of its student loan program. The expected net profit for the period is $160,000.

Last year the bank launched two new loan programs. The first program was designed to assist civil servants who had previously taken out high interest rate, unsecured loans from commercial banks. The rates of these loans were in many cases as high as 19 percent, Minister Panton said.

The CIDB program allowed civil servants to consolidate their loans at a much lower rate.
While the program still generated a very good return for the bank, it halved the interest costs for borrowers, Mr. Panton stated.

“This support of CIDB by government has helped a lot of civil servants with crushing debt costs.”

In one example, a single mother of three reduced her aggregate monthly loan payments from $850 to $350 after consolidating them with the Development Bank.

“The take-up of this program was significant, and the cap was eventually extended from $20,000 to $25,000,” he added.

Tracy Ebanks, managing director of the Development Bank, explained that the debt consolidation program is aimed solely at civil servants, because as a government-owned bank, CIDB is in a position to obtain a salary deduction to effect the monthly loan payments by borrowers, which mitigates repayment risks. This is not possible in the private sector.

Minister Panton noted that commercial banks had marketed unsecured, high interest rate loans almost exclusively to civil servants for similar reasons. A specific government policy to accept binding instructions to make payments on all salaries in relation to such loans effectively reduced the risk for the commercial banks, he said.

The second program launched by the Development Bank was a small business facility up to a maximum loan of $50,000, which required at least a two-year track record from the borrower to minimize risk.

This program did not attract a significant number of businesses, but Mr. Panton said it had the effect of commercial banks responding to the competitive pressures and improving their terms with some of their clients.

“So businesses that initially were in contact with CIDB eventually did not continue because they had positive responses from their own banks,” he added.

Ms. Ebanks said, “We are trying to make the best use of the limited resources we have, being cognizant of our role as a development bank and at the same time improving performance.”