Bank loan

Snapshot: Regulation of Bank Lending Facilities in the Bahamas

Regulation

Equity and liquidity requirements

Describe how capital and liquidity requirements affect the structure of bank loan facilities, including the availability of related facilities.

Banks licensed in the Bahamas are supervised by the Central Bank of the Bahamas (the Central Bank). The Central Bank requires banks to adhere to the Basel III protocols with respect to capital adequacy. In light of this, banks licensed in the Bahamas are required to maintain minimum capital that aligns with the capital adequacy ratio of at least 8% (excluding the capital conservation buffer) at any time, as prescribed by Basel III. The capital adequacy ratio is calculated by dividing a bank’s eligible capital by its total risk-weighted exposures. A bank’s total risk-weighted exposure is partly calculated by reference to its outstanding loans. Bearing this in mind, generally a bank licensed in the Bahamas, when extending a facility, will consider the impact of extending that loan on its capital adequacy ratio. This may affect the terms on which the bank would be willing to make the loan, including the total amount of the facility, the interest rate and the maturity date of the loan, so as to manage the exposure of the bank. Typically, the bank will seek to reduce the risk weighting of the facility through security enhancements including, where possible, insurance.

Disclosure requirements

For public enterprise debtors, are there any disclosure requirements applicable to bank loan facilities?

There are no specific requirements for public disclosure of bank loan facilities for public enterprise debtors in the Bahamas. However, for public issuers, there are requirements for the publication of annual audited financial statements and quarterly interim financial statements, each prepared in accordance with generally accepted accounting principles, as well as an annual report, including a management report and an analysis of the company’s financial situation. . In addition, disclosure requirements may be imposed on such debtors in the jurisdictions in which the loans are made, the company operates or in which the stock exchange on which its shares are traded is located.

Use of loan proceeds

How is the debtor’s use of bank loan proceeds regulated? What liability could investors be exposed to if the debtor uses the product contrary to the regulations? Can investors mitigate their liability?

There are no direct regulations on the use of proceeds from bank loans in the Bahamas. If the Obligor is a Bahamian Entity, subject to any provision of the Loan Documents, such Entity shall be free to use such Proceeds for any lawful purpose. However, if the proceeds of the loan or property derived from such proceeds are the proceeds of a criminal offense or are used for terrorist purposes, the debtor would be subject to prosecution under Bahamian anti-money laundering and the financing of terrorism. , namely the Proceeds of Crime Act, the Financial Transactions Reporting Act and the Anti-Terrorism Act. Investors could be subject to fines, imprisonment or administrative sanctions if they knowingly or recklessly facilitate the commission of an offense or fail to report a suspicious transaction. However, these risks will be mitigated by implementing effective due diligence/know your customer procedures with respect to the borrower before and periodically after a bank loan is granted and by reporting any suspicious transactions to the financial intelligence.

Cross-border loans

Are there regulations that limit an investor’s ability to extend credit to obligors organized or operating in particular jurisdictions? What liability do investors incur if they lend to these debtors? Can investors mitigate their liability?

Yes. Under the provisions of the International Obligations (Economic and Auxiliary Measures) Act of 1993, the Government of The Bahamas may, by order, prohibit, among other things, the provision of financial services or any other services to or for the benefit of or on the instruction or order of a foreign state or any person in that foreign state. An investor who violates or willfully fails to comply with any such order or regulation commits an offense and is liable on summary conviction to a fine not exceeding B$10,000 or to imprisonment not exceeding one year, or both. Investors can mitigate their liability by researching and obtaining confirmation that the persons to whom credit is extended are not restricted or can apply to the Governor General for a permit to conduct particular transactions with a restricted person.

Debtor leverage profile

Are there limits to an investor’s ability to extend credit to a debtor based on the debtor’s debt profile?

There are no such limitations under Bahamian law. These limitations will be prescribed by market practice and the laws of the lender’s jurisdiction.

Interest rate

Do regulations limit the interest rate that can be charged on bank loans?

No. The interest rate applied to a bank loan is not regulated.

Under the Interest Rates Act, the maximum interest rate that can be charged on loans in the Bahamas is 20% if the loan is over B$100, or 30% if it is it is a loan for an amount of B$100 or less. The Interest Rates Act does not, however, apply to loans made in a currency other than Bahamian currency or in Bahamian currency by a Bahamian-licensed bank.

Currency restrictions

What are the limits on investors funding bank loans in a currency other than the local currency?

In accordance with Bahamian exchange control regulations, a Bahamian resident may only borrow in foreign currency if he has received approval from the exchange control. Investors wishing to fund a Bahamian debtor who is “resident” for exchange control purposes should first obtain approval from the Central Bank of the Bahamas. However, companies incorporated in the Bahamas are not subject to Bahamian exchange control regulations if they are considered “non-resident”. This will generally be the case when their business activities are conducted exclusively outside of The Bahamas.

Other regulations

Describe any other regulatory requirements that impact the structuring or availability of bank lending facilities.

There are no other regulatory requirements to consider. The regulatory regime applicable to the lending transaction will depend on the jurisdiction in which the investor is located and the market practices of that jurisdiction.