The Tribune

By NEIL HARTNELL

Tribune Business Editor

THE Bahamian business community has its "work cut out" with more than $302 million worth of loans to it in arrears, a leading private sector official saying this showed companies were "not recovering as we had hoped".

Describing the commercial loans arrears data, disclosed by the Central Bank of the Bahamas' March economic report, as "concerning", Winston Rolle, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) chief executive, said it was vital that the numbers start "going in the opposite direction".

He also noted the Central Bank's disclosure that debt consolidation loans - usually the 'Last Chance Saloon' for hard-pressed borrowers - showed the first year-over-year decline for 19 months (one-and-a-half years) in February 2012.

The previous year-over-year reduction, according to the Central Bank, was in May 2010, and Mr Rolle said this was evidence of just how over-extended many Bahamian households and consumers were, finding themselves heavily over-leveraged when the global recession hit.

And, while Bahamian banks saw a slightly improved 2012 first quarter, "sustained loan write-offs and debt restructuring" helping to reduce their total loan arrears by $15.7 million or 1.3 per cent to $1.192 billion- a figure equivalent to 19 per cent or almost $1 out of every $5 lent - commercial loans to local businesses were going in the opposite direction.

"Commercial loan delinquencies advanced by $15.5 million (5.4 per cent) to $302.2 million, owing to the $15.7 million (17.9 per cent) gain in the short-term category, which outpaced the modest $0.2 million (0.1 per cent) decrease in the non-performing segment," the Central Bank said of the 2012 first quarter.

Given that there were some $962.6 million in commercial loans outstanding at end-March 2012, this means that 31.4 per cent of credit advanced to the Bahamian private sector is either in default or non-performing.

March itself was not encouraging, with commercial loans again being the main driver of the month's increase in total private sector loan arrears. "The growth in arrears was occasioned by a $24 million (8.6 per cent) gain in commercial delinquencies to $302.2 million, led by a $24.6 million (31.3 per cent) increase in the 31-90 days category, which outpaced the $0.6 million (0.3 per cent) decline in non-accrual loans."

The timing of the March increase in bad commercial loans to Bahamian companies, coming as it does soon after the Christmas season and being concentrated in the 31-90 day segment, indicate that an increased number of businesses are struggling to meet their obligations, having failed to receive the anticipated holiday season bounce.

"It means that businesses are not really recovering," Mr Rolle told Tribune Business, when asked for his interpretation of the data. "That's concerning. That means the business sector is not recovering as they had hoped they would, and we'd like to see those numbers go in the opposite direction."

The BCCEC chief executive added that the timing of March's commercial/business loans arrears spike "probably points directly" to Bahamian companies failing to enjoy the hoped-for Christmas season.

"It also makes you wonder what the outlook is like as we move forward, as basically we're in the summer months pretty soon, which tends to be the low point of the business cycle in any event," Mr Rolle said.

With economic recovery "not happening as it should", he added: "It just goes to show a lot of work needs to be done from the private sector and government standpoint, as both have a role to play in relation to recovery."

Credit demand, meanwhile, remains anemic - again, not a great sign when it comes to economic upswings. For March 2012, the Central Bank noted: " The contraction in credit to the private sector eased to $3.2 million from $10.5 million a year earlier, as the decline in consumer credit slowed by $12.1 million to a mere $2.5 million.

"In contrast, commercial and other loans decreased by $1.9 million, a turnaround from a marginal $0.6 million advance in 2011, while mortgage growth slackened to $1.1 million from $3.5 million."

This mirrored the 2012 first quarter performance, the Central Bank noting: "The private sector's liabilities fell further by $12.9 million, relative to the prior year's $3.7 million. Underlying this development, commercial credit decreased by $3.7 million, a turnaround from a $15 million advance in 2011; and mortgage growth slowed by over 50 per cent to $6 million. However, the contraction in consumer credit was more than one-half to $15.2 million."

Mr Rolle attributed the private sector declines to weak credit demand and the "more prudent lending habits" of Bahamian commercial banks, who were only taking on projects that had "greater success opportunities".

As for consumers, the Central Bank report said: "A breakdown of consumer lending for the month of February - the latest available data - showed broad-based contractions among the various components.

"The most significant decrease was noted for credit card debt, which declined by $4.4 million, followed by debt consolidation loans, by $2.1 million - the first reduction since May 2010."

"That was two years' worth of increasing consolidation," Mr Rolle said. "That just goes to show that, in many instances, we're spending well above our means from a consumer standpoint."

And, with the Bahamas still challenged to attract the foreign direct investment (FDI) levels it is used to, the BCCEC chief executive added: "We still have our work cut out for us. Going into the summer months, when things tend to slow down, is not a comfortable position for us."