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Clarien profit soars amid new lending growth

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Profits growth: Clarien made net income of $1.2 million last year but many borrowers continued to struggle to make repayments

Clarien Bank Ltd’s net profit more than doubled last year to $1.2 million as new lending grew strongly and operating expenses fell.

However, non-performing and impaired loans made up 15 per cent of the bank’s loan portfolio — up from 14 per cent in 2015 — evidence that some borrowers are still struggling to keep up with repayments.

Revenues fell 3 per cent to $55.1 million, year over year, while Clarien cut operating expenses by $2.4 million, or 5 per cent, to $44.7 million.

The bank is owned by the Gibbons family through Edmund Gibbons Ltd. EGL and Portland Private Equity invested $12.6 million in the Clarien Group a year ago, a capital injection which enabled the bank to strengthen its total capital ratio — a key measure of financial strength — to 17.5 per cent as of the end of 2016.

The $1.2 million profit was up 133 per cent from the $0.5 million earned in 2015.

Clarien’s loan portfolio fell by $53.3 million to close the year at $809.7 million. The bank said this was due to a continuing trend of “clients using cash to pay down mortgages in order to avoid continued debt”.

The shrinkage in the loan book led to a 4 per cent decrease in interest income from loans, mortgages and credit cards, to a total of $52 million.

However, the accelerated payments trend was offset by strong growth in new lending, which more than doubled from 2015, climbing to $52.6 million — up by $30 million.

Around 9 per cent of the loan portfolio — around $79 million — is made up of “impaired loans”, the bank said, while a further 6 per cent of loans were “non-performing”, or past due by 90 days or more.

Ian Truran, Clarien Bank’s chief executive officer, said: “Although the continued general increase in Bermuda property prices is encouraging, the continued high level of non-performing loans is an indication that the island’s economy still faces challenges.

“Clarien’s approach is to continue to work with borrowers facing challenges and therefore the improvement in non-performing levels will take time while we conservatively increase our reserves against troubled assets.”

Clarien increased its provisions against bad loans to $26.1 million in 2016, up from $20.7 million a year earlier.

More than a third of the cut in expenses was achieved through a $0.9 million reduction in salaries and benefits, while the remainder came from savings on IT expenses through completion of debit and credit card initiatives, improved office efficiencies and disciplined budgeting, the bank said.

In the second quarter of last year, the bank launched a new electronic banking system called Clarien iBank, as well as Visa credit cards. Clarien Merchant Services was launched in the fourth quarter aimed at improving services for commercial clients.

“The successful launch of these projects resulted in a substantial reduction in technology costs that contributed to a $2.4 million reduction in our operating expenses,” Mr Truran said.

“It should be noted that the reduction was achieved at the same time as incurring $0.7 million in costs associated with the introduction of the Bermuda Deposit Insurance Scheme.”

Mr Truran added that last year’s capital injection had left the bank “well-positioned for strategic growth and we look forward to the coming 12 months with increased confidence and energy”.

Clarien Bank CEO Ian Truran