History and Operations of Barbados National Bank Inc.

Barbados National Bank was established on 20th March 1978 by an Act of Parliament and subsequently reincorporated as Barbados National Bank Inc, as a limited liability company under the Companies Act, cap 308, on 14th November 2000.

It was originally an amalgamation of Government-owned financial institutions, which had been in operation for a number of years prior to the coming into existence of the Bank. These predecessor organisations are:

Barbados Savings Bank – 1852; Sugar Industry Agricultural Bank – 1907; National Housing Corporation (Public Officers Housing Loan Fund) – 1958.

The amalgamation of the above-named institutions and their functions is a unique experience in the history of the Caribbean and is a relatively novel idea overall. The three functional divisions of the Bank provided services for commercial banking, agricultural credit and mortgage financing.

The Bank commenced its operations on 21st March 1978 and on 1st April 1978 acquired the branch assets of the banking business of Bank of America whose operations were carried on at Lower Broad Street in the City of Bridgetown.

A Trust Division of the Bank was established in 1981, to provide, inter alia, mortgage finance mainly to the middle and upper income groups. Barbados Mortgage Finance Co. Ltd. (BMFC), a subsidiary of the Bank, provides mortgage financing mainly to the lower income group.

In 1995, significant modifications to the Agricultural and Trust Divisions occurred during the reorganisation and restructuring of the Bank whereby the management of the agricultural portfolio and that of the Trust Division were substantially transferred to the commercial branches of the Bank.

Reorganisation and Restructuring of the Bank

In June 1992, following a review of the Bank by the Central Bank of Barbados, and during negotiations between the Government of Barbados and the Inter-American Development Bank for an investment sector loan, the Central Bank of Barbados noted that the Bank was faced with an unacceptable level of loan losses and an illiquid situation.

The International Monetary Fund, at the invitation of the Central Bank, provided a consultancy to investigate the Bank’s circumstances and recommended that certain actions should be taken. The review recommended inter alia:

A restructuring of the Bank from top to bottom in order to achieve objectives of being a customer-oriented, competitive, profitable commercial bank utilising modern technology and having a professional staff; the streamlining of reporting structures and the recruitment of experienced commercial bankers to fill key management positions.

The IMF also recommended that the Bank’s portfolio should be managed according to prudent commercial lending principles.

The report indicated that the lack of any credit strategy, poor credit decisions and follow-up over many years had resulted in a loan portfolio, which was generally poor in condition.

On the question of finance, the recapitalisation of the Bank by the shareholder through the payout in full of Government-related debt and agricultural loans was recommended.

The disastrous state of the agricultural portfolio could be attributed to the Bank’s execution of government policy to support the sugar industry during a period of massive losses. The subsidy and support to the industry were masked in loans extended by the Bank on a non-commercial basis.

Restructuring Process

During 1993 the main part of the agricultural portfolio was transferred to the Barbados Agricultural Credit Trust. The volume of loans transferred was $249.7 million comprising $111.5 million for plantations and $138.2 million for Barbados sugar industry. The Government of Barbados issued bonds to purchase these loans to the tune of $208.9 million; $53.2 million bore an interest rate of 6% per annum and $155.7 million bore an interest rate of 4% per annum. The shortfall of $40.8 million represented provisions and write-downs for losses in the agricultural portfolio which the Bank had suffered and for which it received no tangible consideration.

Consequent upon the change of Government in October 1994 a new Board of Directors, under the chairmanship of Mr. Grenville Phillips, was appointed in October 1994.

The Board reviewed the recommendations and progress that had been made in pursuance of the restructuring exercise and made a number of strategic decisions to further implement and deepen the restructuring process of the Bank.

On the issue of debentures and treasury notes, which the Bank had received for the agriculture and state-owned corporation loans, the Board noted that the coupon rates of 6 and 4 per cent respectively were substantially below the rate of interest which the Bank found necessary to pay its principal depositors. This threatened the net interest margin and because of this, profitability of the Bank had become a remote expectation.

Negotiations were successfully concluded during the year 1995 with the Government for an adjustment to the rate of interest payable on the investment securities held by the Bank under the terms of settlement for the sugar industry and state-owned corporation loans. This interest rate adjustment laid the foundation for financial viability of the Bank, as without an adequate return on the Bank’s investment portfolio, enhanced corporate profitability was not an attainable goal.

During 1995 and 1996, the Board of Directors strengthened the managerial capability of the Bank by approving the appointment of a senior professional banker as Managing Director, in addition to Managers in the areas of Credit Administration, Banking Operations, Human Resources and Retail Banking.

The Bank also embarked on an internal retraining programme to put eligible staff through a retraining process with a view to assigning them to other management positions. This was particularly applicable in situations where departments were being restructured.

The Board also appointed a Productivity Emoluments Compensation Committee, with the full co-operation of staff and their representative body, to study and devise a plan for the remuneration of employees and to narrow the disparity gap between its employees and their counterparts in the banking industry. Significantly, however, this was not to be achieved by merely creating a fixed overhead cost to the Bank, but based in part upon sharing of profits derived from real productivity gains and the attainment of performance targets.

In 1995, the Board of Directors also completed its review of Management’s proposals on the nonperforming loan portfolio of the Bank. The non- performing loans then represented more than 30% of the Bank’s loan portfolio.

To efficiently handle this non-performing portfolio, which consisted of more than 1,200 accounts, a Special Loan Recovery Department was established. Since that date many of the non-performing loans have been restructured and/or paid out and the Bank’s delinquent portfolio has been reduced to less than 7% of its total loan portfolio.

In respect of the financial years ended 1993 and 1994, the Bank had to make loan loss provisions aggregating to $20.0 million resulting in consolidated losses of $9.0 million for 1994.

In 1995, the Bank recorded a modest profit of $525,000, after making further loan loss provisions aggregating to $8.0 million. During the course of the year, Management completed its detailed review, which commenced in 1994 of all loans of significant values on the books of the Bank and was of the view that the accumulated loan loss provision on the Bank’s non-performing loan portfolio reflected a fair and reasonable assessment. The Bank’s card products were also launched during the year.

During 1996, the overall position of the Bank was encouraging, following the restructuring process during the previous two years. Net profit increased by $2.7 million to $3.2 million compared to $525,000 in 1995. The quality of the loan portfolio improved and as a result, provisions for loan losses for 1996 amounted to $3.8 million in contrast with $8.0 million in 1995 and with $13 million in 1994.

During 1996, the Bank’s capital base was increased from $20.6 million to $58.2 million as a result of successful negotiations with its shareholder. This placed the Bank in a position to meet the capital adequacy ratios required by the Central Bank of Barbados and enabled it to position itself to be a significant player in the domestic financial market.

In the course of the year the Bank continued to broaden its supply of services to its customers. The repackaging of a number of existing services and new retail banking products were launched under the brand name Pinnacle.

Throughout 1997, the Bank experienced a positive change in most areas that had been identified for improvements. Following a further review of its loan portfolio it made additional provisions of $2.0 million and the Bank’s consolidated profits for the year, increased to $9.7 million.

The Bank’s position in 1998 continued to improve as a result of a continuation of the four core areas of Product Development, Customer Service, Productivity and Risk Management resulting in a profit of $15.6 million after loan loss provisions of $2.3 million and productivity payment to staff of $1.2 million.

At the end of 1998 the consolidated capital base of the Bank was $92.6 million and the total assets were $816.2 million compared to $29.1 million and $635.6 million respectively at the end of 1993.

The Bank has continued its positive performance throughout 1999 and recorded consolidated profits of $18.3 million and now has a capital base in excess of $110 million and total assets of just over $879 million. The following five-year summary highlights the Bank’s performance for the period.

The bank continued its positive performance through out the years. At 31st. December 2001, it recorded consolidated profits of 19.6 million with a capital base of $136 million and assets in excess of $1.16 billion and at 31st. December 2002 recorded consolidated profits of 26.1 million with a capital base of $157.6million and assets in excess of 1.259 billion.

In March of 2003, Republic Bank Limited (RBL) was successful in its bid to acquire 57 per cent of the shares of Barbados National Bank Inc. (BNB) from the Government of Barbados.  On Wednesday July 16, 2003 the signing of the Sale and Purchase Agreement took place between The Rt. Honourable Owen Arthur, Prime Minister of Barbados and Ronald F. deC. Harford, Chairman and Managing Director of Republic Bank.  The transaction was completed on July 31st 2003.

In September 2003, RBL acquired a further 7,807,561 ordinary shares increasing their share holding from 57% to 65.13%.