The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading banker believes there is “no evidence” to show the almost-$10 million May increase in mortgages between 31-90 days in arrears was produced by moral hazard relating to the political parties’ relief plans, adding that data indicates the bad credit situation is “bottoming out”.

Paul McWeeney, Bank of the Bahamas International’s managing director, told Tribune Business that there was no data to show the $9.4 million, or 5.4 per cent, increase in mortgage loans between 31-90 days past due during May 2012 had resulted from persons halting their payments in the belief that the new government would ride to their rescue.

“I see no evidence of that,” Mr McWeeney told this newspaper. “There was no empirical data to suggest that; none whatsoever.”

Defaulting mortgage loans were largely responsible for the $9.7 million, or 0.8 per cent increase, in total private sector credit arrears to $1.209 billion by end-May 2012.

Total mortgage delinquencies rose by $9.9 million or 1.6 per cent to $644 million, the balance accounted for by a $0.6 million increase in non-performing home loans - those more than 90 days past due.

Although 19.3 per cent of all private loans made by the Bahamian commercial banking sector - close to $1 out of every $5 lent - is in default, Mr McWeeney said the rate of deterioration was much slower than in 2011 - bad credit having grown by $50.6 million in May 2011.

‘I think it’s an indication that things could be bottoming out,” he told Tribune Business. “The problem is not getting any better, but it’s not getting any worse.

“The longer those arrears remain in a negative state,it affects the banks in terms of provisioning. The fact we’re having to hold them [distressed properties] for longer does impact provisioning. We have chip away at it in terms of provisioning, providing proper insulation against future shocks.”

In its report on monthly economic and financial developments for May 2012, the Central Bank of the Bahamas said: “As the average age of delinquent loans continued to lengthen, arrears in the short-term, 31 to 90 days category, fell marginally by $0.3 million (0.1 per cent) to $370.4 million.

“However, the relevant ratio firmed by two basis points to 5.9 per cent. For the non-performing component, arrears over 90 days and on which banks have stopped accruing interest, the stock rose by $10 million (1.2 per cent) to $839 million, elevating the attendant ratio by 22 basis points to 13.4 per cent.”

Mr McWeeney told Tribune Business that while Bahamian commercial banks’ own internal policies, and International Financial Reporting Standards (IFRS), meant they had to write-off loans once they reached a certain date past due, the process of trying to collect on them never stopped.

And he pointed out that if the economy and mortgage borrowers recovered, provisions previously taken could come back into a bank’s income statement as deferred profits.

Explaining Bank of the Bahamas International’s own internal workings, Mr McWeeney said an increase in loan loss provisioning was automatically made whenever the unemployment rate increased.

“It’s another buffer for the balance sheet,” he explained.

Analysing other credit market components, the Central Bank report for May 2012 said: “The commercial segment [loan arrears] rose by $2.3 million (0.8 per cent) to $300.7 million, reflecting a $7.1 million (3.5 per cent) growth in non-performing loans, which overshadowed the $4.8 million (5 per cent) fall-off in short-term delinquencies.

“In contrast, consumer loan arrears declined by $2.5 million (0.9 per cent) to $264.7 million, due to a $4.9 million (4.9 per cent) decrease in the short-term category, which outstripped the $2.4 million (1.4 per cent) gain in non-performing loans.”

And the Central Bank added: “Despite the increase in arrears, banks’ loan loss provisions were unchanged at $343.3 million, leading to a decline in the corresponding ratio of provisions to arrears and non-performing loans, by 22 and 48 basis points, to 28.4 per cent and 40.9 per cent, respectively. Banks also wrote-off an estimated $18 million in bad debts and recovered approximately $3.2 million in May.”