Cayman Development Bank holds $20 million in delinquent loans

Wednesday's Legislative Assembly meeting may be the first time a government has not attended after being summoned to parliament. - Photo: Brent Fuller

A government-funded development bank held $19.9 million in delinquent loans as of last year, and the amount of those unpaid loans was on the increase, according to a report provided to the Legislative Assembly.

The Cayman Islands Development Bank reported to the Legislative Assembly in its financial statements for June 30, 2015 that its delinquent loans [more than three months past due] had risen from $18.3 million to nearly $20 million in one year.

The delinquent loans made up about 56 percent of the bank’s total loan portfolio.

“The high levels of delinquencies are mainly attributed to loans underwritten under outdated policies and the high-risk nature of the loans,” the bank’s annual report for the year noted.

Business loan delinquencies and home mortgages granted in past years by the bank were increasing, according to the report. Also, the bank noted that student loan-holders were struggling to make payments.

“The student portfolio has also suffered as jobs are not readily available for returning students and guarantors themselves are facing financial hardships,” the annual report stated.

For the past year, the bank reported that it had approved loans totaling less than $1 million, the vast majority of which went for 33 separate student loans. Other loans were paid out largely for legal fees and property valuations associated with home foreclosures.

Loans for home mortgages and business ventures were put on hold in 2015.

A government consultant’s report in 2014 urged government to consider three options with regard to the operations of the development bank. The first option was that it could be sold to the private sector; the second, that government could recapitalize it; and, third, that it could be shuttered permanently.

The Progressives-led government decided later in the year to inject more resources into the loss-making loan operation and refinance some $30 million in debt that it held.

“There is no long-term benefit to [the development bank] continuing to operate in this existing state – which is effectively a run-off of the historical loan book with a very small amount of new lending,” the Ernst & Young consultant’s review opined.

In last year’s financial statements, the bank said depending on continued government funding could lead to losses if another economic downturn occurs in the local economy.

“It can be questioned whether or not depending on capital injections will make the bank survive as a viable institution,” the 2015 report stated. “A prospective instrument towards self-sustainability is becoming a depository institution.”

The bank also posted about $670,000 in operating losses for the financial year ended June 30, 2015, although officials said they hoped to put that figure back in the black within the next three years.

About $4 million was injected by the bank board into two new loan programs during the year. One program aimed to help civil servants refinance higher-interest debt at more favorable rates. The second effort sought to provide “bridge funding” for local businesses that had shown a record of profitability and which had been in operation for at least two years.

“These two programs are expected to generate an additional $400,000 in interest income once fully availed,” the bank estimated.

Bank law amendments

Proposed changes to the Development Bank Law were made public Wednesday seeking to ensure that appointed bank board members have certain financial expertise and that both board members and politicians stay away from loan decisions. The development bank bill states that five of the nine board members under the new law would have to have relevant experience in accounting, banking, finance, economics and industry.

In addition, the bill seeks to prohibit members of the Legislative Assembly, bank board members or senior bank officials from acting as a “personal guarantor” in support of a loan from the bank.

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