By Jack Danylchuk -- It would take a determined borrower, someone convinced their business plan is a sure-fire winner and desperate for some start-up capital, to track down the Nunavut Business Credit Corp. Ever since the territorial government moved the head office of the beleaguered lender from Cape Dorset to Iqaluit a year ago – under a cloud of controversy – the nearest thing the NBCC has had to a home address is Tim Brown’s desk in the finance department. “We are open for business, but we’re not opening the floodgates,” says Brown, who was acting manager for public agency operations in Nunavut’s finance department when, he says, “everything was hitting the proverbial fan” at NBCC. He was then called on to add acting chief executive officer of the corporation to his list of duties. But without a full-time CEO, a storefront, or even a website, small and mediumsized businesses in the territory that might access NBCC funds to start or expand their enterprise are being left behind.
The troubles at the NBCC were first brought to light in a scathing report on the organization by federal auditor general Sheila Fraser in November 2007. Her audit revealed records kept so poorly that she could not give an opinion on financial statements for the 2005-2006 and 2006-2007 fiscal years and said the agency had mishandled millions of dollars in loans.
“We found a serious breakdown of basic financial controls, such as approving transactions, authorizing payments, and confirming that what is being paid for has been delivered,” Fraser wrote in the report. “We also noted numerous transactions by the Corporation that contravened laws and regulations to which it is subject.”
Fraser’s report prompted hearings by the Nunavut legislature’s committee on government operations and accountability, which served as a primer on how not to balance business interests and politics in the sparsely populated territory.
The glare of public disclosure shone most harshly on David Simailak, minister of finance and economic development, who for a time was the minister responsible for the NBCC. Not only were the books in terrible shape, but Simailak had failed to disclose the full extent of his interest in a Rankin Inlet real estate business that received $2-million in loans from the corporation. According to the corporation’s governing legislation, one of the loans, for $1-million, should never have been approved.
Evidence at the hearings revealed that when responsibility for the lender passed to another minister, Simailak kept in touch with the Rankin Inlet loan file with telephone calls and e-mails to Mel Orecklin, the CEO of NBCC, who urged senior finance department officials to approve the loan. Orecklin, who was named CEO when no else could be found for the job, at first denied knowledge of the loans, then defended them. He testified that the risk-averse behaviour of Nunavut’s chartered bank branches – the Royal Bank of Canada and the CIBC – made NBCC “not only the lender of last resort; it is the lender of only resort.” It’s a point the two banks dispute.
The loans were made to Simailak’s companies to meet the demand for office space in Rankin Inlet, Orecklin said. The banks would not lend money to the companies without a signed lease. At the same time, the government would not sign a lease without a firm commitment to start construction. Lending the $2-million resolved a “Catch-22” situation, Orecklin says.
Robert Stanbury, Nunavut’s integrity commissioner at the time, recommended that members of the legislative assembly reprimand Simailak for failing to disclose his ownership interest, and that the disgraced politician make a statement in the house “apologizing to his peers, his constituents and all Nunavummiut.”
Simailak lost his spot in cabinet and Baker Lake voters turned him out in the last election a year ago, but his troubles may not be over. RCMP are continuing the investigation Simailak called for while he was still in government, and the cabinet could decide to recall the improper loans to his companies.
In the meantime, the NBCC remains largely rudderless and adrift. A committee of the board of directors began a search in March for a qualified candidate to lead the territory’s lender of last resort. A decision was expected in June, but Peter Ma, deputy finance minister and acting chairman of the board, says their choice wouldn’t be announced before the end of the summer.
“None of the candidates came through the trial buffers, so the question of the new CEO was put on hiatus for the summer,” says Brown, who is being kept out of the loop on the board’s decision because he decided to toss his hat in the ring for the job that pays up to $142,657 a year.
For most of the decade since NBCC was hived from the investment company that served the eastern and western Arctic before Nunavut’s division from the NWT in 1999, the corporation has struggled to find qualified managers who were willing to live in Cape Dorset, where the territorial government located NBCC in keeping with its policy of decentralizing jobs and services.
Phillip Bhagoutie, the last full-time CEO, never set foot in Cape Dorset, and lasted just nine months. He left in September 2008 when he was unable to persuade his family to join him in Iqaluit.
This month looms large on the NBCC agenda. Brown and the still-growing team of managers is cleaning up the book of accounts, obtaining updated financial statements from clients, and pulling together an annual report for the next sitting of the Nunavut legislature. “Our main focus is to have a policy and procedures manual up to snuff, in terms of the new board’s expectations,” says Brown. “The previous one was done in haste and not good enough.”
One of the issues being wrestled with is the policy on disclosing the identities of borrowers. In the midst of its probe into NBCC and its operations, the standing committee on accountability released the names of borrowers, “but that was not the expectation of the loan recipients; it caught clients off guard,” says Brown. “The last CEO was opposed to it because it runs counter to commercial lending practice, so it has been dropped until there is a new CEO.”
The NBCC loan portfolio is weighted heavily in favour of real estate and retail ventures, Brown observes, while the future direction is aimed at priorities of the Nunavut economic development strategy: harvesting, arts and crafts, tourism, and mining. “We want to get away from the easy construct-lease development formula,” he says. “But we’re at the mercy of clients. Without a marketing effort to target those areas, it will be difficult.”
NBCC has a score of applications in various stages of due diligence – up considerably from the previous two years. “We’re trying to cross T’s and dot I’s in terms of due diligence on these loans,” says Brown, who acknowledges there was a lack of attention to such details that characterized NBCC’s past lending practices. “We’re being a lot tighter on the requirements. We want to raise the standard above the level of, ‘You know me, and I know you.’”
Brown says the NBCC will be looking for partnerships with other lenders “to make larger deals … especially in mining. We can only lend up to $1-million, which on a major project is nothing. But if our loan can be combined with a grant, then maybe they can achieve some added leverage.”
And NBCC would like to draw major banks, such as the RBC and CIBC, into the mix, “but it remains a challenge to persuade them to take on more risk,” says Brown, noting that the banks profit from their business with the Nunavut government. “There should be a little more willingness to help the government in terms of its policies.”
Problems with obtaining financing for projects in remote communities are well known in the North, but banks either won’t discuss the issue or dismiss criticism like that made by Mel Orecklin that they are too averse to risk. CIBC did not respond to requests for a statement about its lending policies in the North. An RBC spokesperson characterized Orecklin’s statement as “an offhand comment.”
RBC opened its Iqaluit branch more than 50 years ago, and has a commercial loan officer based full-time in Iqaluit, says Jo-Ann Fraser, the bank’s senior manager of communications. Citing bank policies on client confidentiality, Fraser declined to go into detail on what projects it has financed or where those are located, and emphasized that RBC “works on a deal-by-deal basis. We have relationships with a lot of organizations in the North. We’re open for business.”
If NBCC has difficulty in getting the attention of the main chartered banks, it might have more success with a newcomer to Nunavut. Two years ago, Atuqtuarvik Corp., the Inuit lending agency set up with funds from the Nunavut Trust, took a 20 per cent stake in First Nations Bank of Canada, which will open a branch in Iqaluit later this year.
“Our commitment to Nunavut revolves around our shareholders,” says Arden Buskell, bank president and CEO. “Atuqtuarvik Corp. made a substantial investment and part of our strategy is to build business around our shareholders. It’s a cornerstone of our success, having shareholders help us enter new markets and build new business.”
“We like business North of Sixty. Our bank is committed to the North and we want to be an active, long-term lender into that marketplace. We have a branch in Whitehorse, and we plan to open a branch in Yellowknife,” says Buskell, who “would welcome the opportunity to develop partnerships with other lenders.”
Started with seed money from the TD Bank Financial Group, First Nations Bank has gradually replaced TD’s interest with investment from First Nations, but the larger institution’s financial muscle can still be brought in to partner on larger projects.
“It comes down to lending to credit-worthy customers. A project will get financed if it makes sense and meets the bank’s risk parameters,” Buskell says, citing the three Cs of lending: character, capacity and collateral. “Good deals will get done. Our shareholder is prepared to do the financing if we’re prepared to do the takeout financing. That’s a good relationship for developing our business in the North.”
