Dec 2009 Financial News

CL Financial pushes Republic’s bad loans to $446M

Dec 18, 2009

BAD LOANS expenses for the now partially State-owned Republic Bank Limited increased from $34 million in 2008 to $446 million in 2009 due largely to the expected impairment of loans to the CL Financial Group, the bank confirmed this week.

According to the company’s consolidated statement of income, released this month for the year ended September 30, 2009, loan impairment expense shifted from $34 million in 2008 to $446 million, a thirteen-fold increase. The bank recorded a profit of $984.4million in 2009.

“This is a fairly large sum,” economist Mary King said of the loan impairment figure in an interview with Newsday this week. She explained that “a loan is impaired when given all the information available, it is probable that the creditor will not be able to collect all of the amounts due in a given period according to the contractual terms of the loan.”

Note 4 (b) (ii) to the financial statement further explained that the bulk of the gross amount of loans determined to be impaired fell under “individual impairment”, under the category of “commercial and corporate lending.”

Republic Bank group marketing and communications general manager Anna Maria Garcia-Brooks yesterday explained that the $466 million loan impairment expense was a combination of estimated impairment of CL Financial loans, as well as loan impairment from other Republic Bank branches in the Caribbean. She noted that CL Financial accounted for almost half of the loan impairment provision.

“Essentially the provisioning was for amounts due from related parties – in this case, CL Financial was in the amount of $199 million,” she said in response to emailed questions from Newsday. “As you would realise this was almost half of the total amount provisioned.”

“The remainder of the provision was for what we perceived to be the possible risk of default in other Trinidad and Tobago accounts, as well as the other territories in which we operate subsidiaries including, Grenada, Guyana, Barbados, Cuba and Cayman.”

According to Republic Bank’s financial statements, the main considerations for the loan impairment assessment, which is thought to reflect prevailing economic conditions, include, “whether any payments of principal or interest are overdue by more than 90 days or there are any known difficulties in the cash flow of counterparties, credit rating downgrades, or infringement of the original terms of the contract.”

This year the State took control of CLICO and other CL Financial subsidiaries. The move triggered widespread concern over the impact of the State takeover given the fact that CL Financial holds the largest block of shares in Republic Bank Limited. The Government has said that State intervention in the affairs of Republic Bank are unlikely.

Garcia-Brooks yesterday noted that the loan impairment expense is not expected to increase for 2010.

“We stress tested our entire portfolio this year to determine those accounts which we considered to be at risk and made provisions for them this year. We do not anticipate that the provisioning that might have to be made in 2010 would be anywhere near the level of 2009,” she said.

The impact of the State takeover of CLICO is likely to be a key point of discussion amidst Republic Bank shareholders who are due to hold an annual meeting on January 6, 2010 at the conference centre of the Hilton Trinidad, St Ann’s. The meeting had originally been carded to take place on Wednesday but was subject to an adjournment due to the death of former non- executive director Bernard Dulal-Whiteway whose funeral was held on that day.


Source:
By ANDRE BAGOO
Trinidad Newsday
Friday, December 18 2009

http://www.newsday.co.tt/business/0,112770.html