Balloon payments are an agreed inflated final payment of a loan that is paid in full at the end of the loan agreement. Right up until the final amount due, the payments are relatively small, but then arrives the bullet – a huge oversized sum of money becomes due to pay off the debt in full. This is why balloon payments are also called “bullet loans”.

It is often very hard to pay the final amount due and it is therefore common practice to refinance the original loan near the balloon-payment date.

Unfortunately the government owned Cayman Development Bank is in this predicament.

As pointed out in today’s iNews Briefs the bank has debt totaling CI$31.8M that will become due and payable in 2015.

Financial Minister Wayne Panton disclosed this unwelcome news in the Legislative Assembly last Monday (18) and also said, “The bank has a history of high interest cost which prevents it from offering true concession rate lending to any of its customers. This is a challenge that must be addressed for the bank to truly deliver on its mandate as a development finance institution.”

The debt is significant he said.

It certainly is.

I wonder if the previous McKeeva Bush government, had they been returned to power, would have been so disclosing the Bank’s woes?

Although Panton said the bank had “made significant progress in a number of areas, including improvements in loaning and human resources processes”, the funding “remained its significant challenge”.

The government’s financial statements for 2011/12 budget year (the latest available) show the bank’s administrative expenses as almost touching $1.6M whilst income is only $831,000!!

I am no banker and neither was our previous Financial Minister – McKeeva Bush – but even I can see something very wrong with the Bank’s finances and its ability to at the very least break even. And what steps had he put in place to rectify the problem? I hadn’t heard of any. The Cayman Development Bank never seemed to be high on his list of concerns. Of course it was probably the previous government’s fault.

The figures we have are over a year old and I am pessimistic enough to think the situation is even worse.

And then there comes that bullet. Actually it feels more like an approaching ball about to be fired from a cannon!

Please get ready to duck – or fly away in a balloon.