Development Bank has $16+M in bad debt

| 18/06/2019 | 57 Comments
Cayman News Service
Cayman Islands Development Bank

(CNS): The Cayman Islands Development Bank continues to battle a mountain of bad debt that represents more than half of its entire loan portfolio. According to the Office of the Auditor General (OAG) the bank’s financial statements showed it holds more than $16.3 million in loans that are not being repaid. The bank received one of the largest equity injections for any authority from the government in the 18-month financial period from June 2016 to the end of 2017, totalling $9.8 million. It also has a near $20 million debt guaranteed by the government.

The latest report from the OAG on the state of public finances and public reporting noted that the Development Bank is entirely dependent on the government to remain a going concern. It depends on it for cash injections, loan guarantees and output payments for the services it provides.

While Auditor General Sue Winspear did not qualify the bank’s financial report for 2016/17, she did emphasise a number of matters that need to be addressed, including the size of its bad debt and reliance on the government. But another major issue was the lack of a board.

Despite the significant problems faced by the financial institution, it was without a board of directors for a whole year between March 2017 and March 2018, which falls foul of the law. In addition to raising concerns about the constant restructuring of loans, Winspear noted the findings of an inspection by the Cayman Islands Monetary Authority, which included poor record keeping as well as the mismanagement of collateral requirements for loans.

Other issues going beyond the ability of the bank to continue operating were the weaknesses identified around the bank’s anti-money laundering regimen, which could have a serious negative impact on the wider financial sector. The bank was found to have failed to screen its clients properly or document the screening, as well as failing to check them against sanctions lists or to conduct business risk assessments.

In its response to the auditor general’s concerns, officials from the bank explained that they were working on recovering its bad debt but were struggling with the deterioration in value of foreclosed properties that the bank was struggling to sell. They also said they were seeking more conducive ways of collecting debt via salary deductions and working with those in debt rather than taking legal action, which could be more costly. However, the bank has said it is looking at using debt collectors.

The board, which has now been appointed, is meeting monthly and addressing the other issues raised by the OAG. Bank officials also said that it has now employed an anti-money laundering compliance officer.

See the full report in the CNS Library

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Category: Banking, Business

Comments (57)

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  1. Anonymous says:

    WTF constitutes acceptable risk collateral for these public-subsidized loans? If a borrower defaults, you simply call the loan per the loan agreement. Every grownup seems to know how loaning works…everyone accept the originating CIDB loan officers and profligate Cabinet past and present.

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    • Chris Johnson says:

      This reminds me of the old Housing Development Corporation of years ago. It was started by our national hero and the first mortgage was to a good friend of his at the maximum value of $50,000. Notwithstanding that the manager one Mrs Angela Miller was brilliant as were the staff. The board met regularly and the accounts audited on time and never a problem. I believe we were always the first to produce the annual accounts. Sadly I left the board prematurely as a certain politician was not my most ardent fan. i read about my departure in the gazette. Nice way to be told.Still 16 years was not a bad innings. I recall Nick Duggan served on it as well as many others including John Collins, Rupert Ackerman and Jimmy Powell. Their fees were $75 per annum which was usually given away to charity.

      But guess what? I do not recall a single bad debt. Dan Scott, former chairman and Ezzard,, correct me if I am wrong.

  2. Da-wa-u-get says:

    I feel sorry for the employees of CIDB, they’re trying to clean up a mess that someone else made!

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    • Anonymous says:

      KYC and AML doesn’t mean debt will be repaid. The bank only lends money to Caymanians so their AML risk is minimal AND IT DOESN’T TAKE DEPOSITS IT IS PURELY A LENDING INSTITUTION SO EVEN LESS RISK!!!! The bank has not been actively lending so the findings from previous audits are based on loans that have been on the books for years and issued under older policy. No one is mentioning the good loans on the books and how the bank has helped Caymanians. The commercial banks foreclose after 90 days and your file is transferred overseas so you cant plead your case. I hope all the haters writing these emails never meet with loss of a job or family tragedy that changes their personal financial situation with no recourse.

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      • Anonymous says:

        AML risk doesn’t disappear just because you transact with Caymanians. Just think, if you are Bank would you be happy transacting with Jeff Webb or Canover Watson, or some guy whose stated occupation was as a blue collar worker but seemed to have tons of cash to deal in? And the rules cover lending as well as accepting deposits because otherwise you become part of a chain of transactions used to layer and launder. Where did you get all this cash from? Oh CIDB gave me a loan! Except you spent the clean money, repaid the loan with the dirty, and told 6 other financial institutions the amount you were depositing with them was from CIDB. Try and understand the subject before lecturing on it.

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  3. Ron Ebanks says:

    How can a Bank survive when the loans are not payed back ??
    Is this Bank another way to support an other kind of clientele .

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    • Anonymous says:

      Ron, send Mac an email from Miami. Likely most of the nonperforming loans came on his watch.

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    • Anonymous says:

      Ron

      just in case your question isn’t rhetorical, the answer as to how the bank survives is quite simple. The shareholders (i.e. us the tax payer) put more money in. This is what has been happening. The government funds CIDB, they use that money to pay their staff and overheads and lend the rest, then they lose 50% of the money lent, the interest on the successful loans isnt enough to pay either the operating costs or replace the money lost, then they get more capital injected by Government, and so the cycle continues.

      To be fair, the concept of a development bank is not to make huge profits – its to bill economic or social development by being prepared to lend to those who wouldnt get private sector support but have solid business ideas. However, it should ideally break even, and it certainly shouldnt be writing off 50% of its loans -that shows either very bad judgement on risks or so called “directed lending” – the curse of any state owned bank – by which the politicians dictate the lending decisions rather than the guiding principle of economic growth support. Unfortunately directed lending is often used for political advanatge. Now KYC and AML checks in any bank should help protect against that, but coincidentally it seems the bank is really bad on that front! You decide what the balance is between bad judgment and directed ending in this case! One thing is for sure – in addition to costing the taxpayer an absolute fortune, the continued operations of this bank without proper controls in process are a dead albatross around the neck of the Islands as we try to persuade CFATF we are an honest and trustworthy jurisdiction.

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      • Ron Ebanks says:

        Anonymous 1:56pm
        If the Bank support people who the private sector wouldn’t loan money to , what makes the Bank think that they are going to get the Taxpayers money back .
        They might as well say that they are giving them the money.
        Honesty in that bank is a under statement .

  4. Anonymous says:

    Bad news sells. When the media only publishes half the story, it creates unnecessary hard feelings and misunderstandings. The $16 million in bad debt that is on the bank’s balance sheet is an accumulation of bad debt that has been on its books for over 15 years. The bank has already expensed this debt and needs to pass entries to remove it from its balance sheet as it does not represent current operations.

    One only needs to pick up a copy of the bank law that clearly articulates that MLAs and their immediate family are not allowed to borrow money from the bank nor directors.

    The fact that the bank has been receiving unqualified audits speaks to the integrity of the record keeping by management.

    Perhaps next time CNS you could produce a two sided story as many are affected by negative backlashes in a small community.

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    • Anonymous says:

      That means that financial statements are not accurate and not in compliance with international accounting standards. Bad debts are not kept on balance sheet for 15 years. I’d gladly accept if you prove I am wrong.

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      • Anonymous says:

        If you know accounting then you know that the bad debt is removed from the asset and even if provision was made, it can remain until it is written off. Other entities provided for bad debts too but have not written them off in hopes of collection. It is a book entry. Accounting standards require that the entry is made on a regular basis but it doesn’t mean that the financial statements are wrong otherwise the auditor would provide a qualified opinion.

        • Anonymous says:

          “…an accumulation of bad debt that has been on its books for over 15 years…”
          Bad debts can not remain on books for 15 years. I’d love to read notes to FS.

      • Anonymous says:

        Bad debts can be kept on the books for 15 years if approval from government is not received due to the possibility of public back-lashing when it becomes time to fight for their seats back during the next elections.

    • Anonymous says:

      Is it in compliance with Statement of Financial Accounting Standards 114 (FAS 114), “Accounting by Creditors for the Impairment of a Loan,” to keep bad debts on books for 15 years?

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    • Anonymous says:

      The facts are that it has lost over a $1.0m per year (as far as we can trust, from sources). That is money misspent that could be used for other things OR left in people’s pockets by reducing our taxes.

      There is a reason the private sector does not do this. WHY? Because the private sector has shareholders to answer to – not an unlimited tab on future generations, to draw upon.

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  5. Anonymous says:

    I’m surprised that only half of their portfolio is non-performing.

    CIDB was created by politicians with the express purpose of funneling cash to a select list of their “supporters” who had become too frequent a drain on their palm-greasing personal stash.

    Once elected, the politicians appoint the CIDB Board Members and tell them which of their supporter are to receive loans. There are no checks on their ability to repay the loan or any valuations of any collateral offered. After the cash recapitalization has been voted from LA to CIDB, and quickly passed on to their supporters, the CIDB Board Members who were there to see that the loans were approved resign and move on.

    If you have any doubts on the process then try to name one single CIDB Board Member who sat on the board the first year after a general election who wasn’t also a prominent member of a campaign committee of one of the successful candidates.

    Publish the list of non-performing loans and see if there is one single person on the list who was not a vociferous supporter of one politician or another, and who constantly spoke about how people like them were being discriminated against by the banks, insurance companies, utilities etc.

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  6. Anonymous says:

    They say Makeeva broke the Bank.
    But let’s be clear. He did not break the bank as alleged. He might have been a pawn in it by trying to be (what ole people used to say) “Kind heartedness”, while those that he assisted did not have any intentions to payback, but was taking him for a fool. Bet he learn real soon to trust his own, since the furthest they will get is East End. or Little Cayman.

    The example of the music boy is the perfect example.
    When the legit long established small business owners turned to CIDB for help there was every excuse, but yet they were still throwing away the cash.
    All depends who yoh daddy is.

    One idea to throw over to CIDB. It is a waste to pay people to just sit there all day saying there is no money and watching the interest grow on those outstanding loans. They can look till they eyeballs drop out they head. Those loans not gonna pay themselves.
    Seek out good business owners and entrepreneurs. Assist with loans that include purchasing properties. Set a cap on the loans. Work with an independent accounting firm to evaluate the business. Trying to starve off the Bank will result in more loses. Learn from the previous mistakes. And hopefully jump start the economy. Worst case scenario, the CIDB end up with a lot of properties.

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  7. Anonymous says:

    cat chasing his own tail…govt trying to side track reality of huge problem they created…how can a govt make money from encouraging the economy not to employ their own people…eg work permits? taxing its people to pieces and trying employ whole of cayman population? just will not work…but i think they knows…..it wont😢

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  8. Anonymous says:

    Here is another example where independence would open the flood gates to these types of slush funds and other dubious money transfers ect. Wonder why the ethics law has not been enacted?

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  9. Anonymous says:

    Believe me when I say that many of these bad debtors are civil servants and MLAs! Hopefully now that some MLAs are employed they have started paying on their loan. Yes, they are known to the Cabinet but nothing is done because of friends, family and conflicts of interest. If the list ever became public some of the names would shock you. Even some of those now petitioning against the cruise dock are on the list for very large sums. Imagine that, both sides are robbing the people. Can you trust any of them?

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  10. Anonymous says:

    OK this is a problem now and Government really should not be involved in running this kind of business. It best to do it through social service if you want to help the people. I wasn’t born here but the hypocrisy of some of the expats who comment on here is incomprehensible. The UK for example is in shambles with its social services, corruption, hand outs, people in charge taking cuts; you name it and its there. Most countries struggle with this but as the UK will tell you they are happy that there is at least a program to help. It is certainly better than not helping your people at all. To add to this, the UK as I am using in my example has had centuries to perfect such dealings while Cayman has a modest few decades of “self leadership” all in context. On the other hand we must get this under control as it is not a good luck both locally and in the international media. We are already fighting demons in this area.

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  11. Anonymous says:

    Wow. Although I agree this is a clear case of mismanagement of public funds, the anti Caymanian bigotry in some of these comments is really disturbing. How about putting your names to your racist comments? Nah – unnah is too ‘fraid of the immigration boards fah dat – nah true? Makes me sick – I bet all of you calling us idiots will apply for your status or residence when the time comes – and low key hating us all the while. Disgusting. You despise us but love the cushy lifestyle we have structured for you. And the mealy mouthed government keep welcoming you all with open arms as long as the permit fees are paid.

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    • Anonymous says:

      Actually, we are your only hope.

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    • Breath of fresh auir says:

      11.03pm What about all the Caymanian bigotry against expats, what about putting your name to your racist comments. As for the “cushy lifestyle” which is enjoyed by Caymanians as well, this was structured by expats who built our financial industry and built our homes along with a lot of other positive contributions. As far as status is concerned how many Caymanians are now British citizens?.

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  12. Anonymous says:

    And that information was as at Dec 2017 – whats the situation now 18 months later?

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  13. Anonymous says:

    Just another slush fund designed to keep alden & moses in power.
    Disgusting.

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  14. Anonymous says:

    Cayman Islands Development Trough

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  15. Anonymous says:

    classic cayman wonderland stuff….
    the useless civil service is put in charge of giving nonsense loans to poorly educated locals and thier mickey mouse schemes….

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  16. Anon says:

    What more could we ask for – run by Caymanians for the benefit of Caymanians.

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  17. Anonymous says:

    Damn expats again!

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  18. Anonymous says:

    Does any sector of our public service function properly???!!!

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  19. Anonymous says:

    Candy Crush in the office won’t pay off those bad debts !

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    • Advisor says:

      I have worked as an appraiser in Cayman for over a decade, for several firms. I don’t recall ever doing work with CIDB. Do they get appraisals prior to lending? For anyone wanting to criticise valuers, this may be the counterpoint – what happens if valuations are (maybe) not utilised.

      Also, what it costs to build something is not what something is ”worth”. That is indicated by what it can sell for. Given many properties can’t sell for many years, for anything approaching what they cost to build, people would be advised to understand this.

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  20. Anonymous says:

    Shut the thing down and stop wasting the people’s money. Government should NOT be running a business (for profit) when it has no clue what to do and suffers not the consequences of its mis & incompetent management – it just borrows from future generations to throw money at the problem it created in the first place.

    Again, this is not the “Governments” money. It is not “their” money. It is “our” money. The Peoples money. Stop misspending it and using it as vote buying fund.

    Apply the same rigours to CIG and it many arms as they do to the financial services industry. CIMA inspection? Fines and Penalties (only we’d end up paying twice!)?

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  21. Anonymous says:

    Makes you wonder how CNB will fare with the same leader at the helm?!

    50% delinquent loans??? that’s not a loan…

    Call it what it is… Free Handouts

    – Maximus

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  22. Anonymous says:

    Only in Cayman, can there be so much in need of help, but CIG allows millions to disappear, then claim there is no help available.

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  23. Anonymous says:

    No surprise there. We applied with a legit business idea and plan, complete with revenue projections, everything. Submitted the mountain of paperwork, and we were refused. Yet, someone teenager trying to jump start a music career got funded.

    We did end up with institutional investment, and we’ve been quite successful since. Still haven’t heard one song off that kid’s “music career”.

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    • Anonymous says:

      Yes/ they made it very hard to get approved even with all the correct paperwork and business performance documents. / Congrats to whoever got “theirs”.

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