Lawmakers hurriedly passed a bill on Friday designed to increase the government-owned National Bank of the Virgin Islands’ stock of capital, which is currently around $27 million.
Currently, central government is the sole shareholder in the NBVI, but the Social Security Board could soon be an investor, according to Health and Social Development Minister Ronnie Skelton, whose ministry oversees the SSB.
“I think both institutions would be a good match because they are financial institutions now. One is lending money and the other is collecting money,” Mr. Skelton said. “It is important for us to make this amendment so that the Social Security Board and the [NBVI] will help us to build our country.”
Before the bill was discussed, lawmakers voted in favour of a motion from Premier Dr. Orlando Smith to allow it to be expedited through the HOA in one day.
The rush did not sit well with Opposition Leader Andrew Fahie, who said he supports an expanded role for the bank but insisted that legislators should take more time to review such an important piece of legislation before they pass it.
One of Mr. Fahie’s concerns was a provision in the bill that apparently allows any of the roughly 430,000 VI-registered companies to buy shares in the NBVI.
“The BVI Business Company Act does not limit it to companies or persons of the BVI, whether belonger or otherwise; it’s for BVI companies overall, once you register here,” he said, calling for “safeguards” that would allow government to more tightly control who owns shares.
Mr. Fahie did say that he finds comfort in the fact that the bill stipulates that government will remain the majority shareholder of the institution.
Dr. Smith said that the bill — the Development Bank of the Virgin Islands Transfer of Assets and Liabilities (Amendment) Act 2017 — will allow the NBVI to expand and offer services such as internet banking and ATMs.
“In order to carry out its functions more effectively, the bank needs to be capitalised more heavily,” he said.
Current capital
The NBVI currently has an adequate stock of capital to meet regulatory standards, with a “risk weighted capital adequacy ratio” — a metric that measures how well a bank can absorb losses — of nearly double the minimum standard set by the Basel Committee on Bank Supervision, which provides recommendations on capital risk, market risk and operational risk.
However, a hefty non-performing loan portfolio has dampened its earnings, thereby limiting its ability to expand its stock of capital since retained earnings are a source of capital for a bank.
According to the latest audited financial numbers, from 2014, the NBVI had roughly $27 million in non-performing loans — loans that have been delinquent for at least 90 days — which amounted to 18 percent of the bank’s total loans. The industry standard is generally between two and three percent.
Hampered by the non-performing loan portfolio, the bank earned $480,386 in 2013 and $773,330 in 2014, which amounts to a return-on-equity ratio of 1.83 percent and 2.86 percent for those respective years, the reports state.
That ratio is far below than the 6.7 percent ROE experienced by US banks in 2015 — a number viewed as sluggish by publications including the Financial Times.
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