The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian commercial banks have recommended that the Government increase the $22,500 ‘Gap’ amount in a bid to have more struggling homeowners qualify for its Mortgage Relief Plan, Tribune Business can reveal.

High-level banking industry sources, speaking to this newspaper on condition of anonymity, said members of the Clearing Banks Association (CBA) had also recommended easing the time constraints that were preventing some homeowners from meeting the Mortgage Plan’s criteria, plus relaxing other qualifications.

Tribune Business was told that some banks had recommended expanding the programme to include Triplexes where at least one property was occupied as a primary resident. At present, the Mortgage Relief plan is restricted to duplexes.

The recommendations may come not a moment too soon for hard-pressed Bahamian homeowners, who are either struggling to maintain their mortgage payments or are already non-performing - meaning they are at least 90 days in arrears on their payments.

The Central Bank of the Bahamas’ report on monthly economic developments for December 2012, published on Friday, revealed that almost $700 million worth of Bahamian mortgage loans - some $699.5 million in total - were either in arrears or non-performing.

The latter figure accounted for 56 per cent of the total $1.25 billion worth of Bahamian commercial bank loans that ended 2012 past due. This means that 20 per cent, or $1 out of every $5 lent by the Bahamian commercial banking industry, is either in arrears (31-90 days past due) or non-performing.

“Banks’ credit quality indicators worsened over the review month, reflecting broad-based deteriorations in all loan categories,” the Central Bank said of September.

“Total private sector loan arrears grew by $26.2 million (2.1 per cent) to $1.25 billion, resulting in a 42 basis point rise in the ratio of arrears to total loans to 20 per cent.

“In terms of the average age of delinquencies, the short-term, 31-90 day, segment was higher by $15.1 million (4.1 per cent) at $382.9 million, and firmed as a percentage of total loans, by 24 basis points to 6.1 per cent. S

“Similarly, non-performing loans - arrears in excess of 90 days and on which banks have stopped accruing interest - advanced by $11 million (1.3 per cent) to $867.6 million, elevating the attendant loan ratio by 17 basis points to 13.9 per cent.”

Meanwhile, the Government has been moving to amend its Mortgage Relief Plan after the programme’s initial impact proved underwhelming to say the least.

While it was initially thought that 800-1,000 out of an estimated 4,000 delinquent mortgage borrowers might qualify, Tribune Business reported pre-Christmas that just 160 had done so.

Scotiabank (Bahamas), for instance, previously told Tribune Business that none of its 59 customers who applied for the Government’s Mortgage Relief Plan had actually qualified, with more than 50 per cent lacking the necessary incomes to sustain restructured loans.

“They [the Government] requested us to provide some input in terms of recommendations, which were channelled through Nathaniel Beneby [CBA chair and Royal Bank of Canada country head],” one banker told Tribune Business.

Under the Mortgage Plan’s current terms, Bahamian commercial banks assess what distressed borrowers can afford to service given their current income levels. They then look at the total mortgage debt outstanding (principal and interest) at the time of the application, and what figure the borrower can now afford to service.

The difference between the two is called the ‘Gap’. All eligible borrowers whose gap does not exceed $22,500 will qualify for participation in the plan. Eligible borrowers, whose gap exceeds $22,500, may qualify for consideration and participation in the plan at the sole discretion of the relevant lender.

Of that $22,500, the Government will kick in a maximum of $7,500 per borrower, or one-third. It has allocated a total sum of $10 million to the Mortgage Relief Plan.

However, due to the strict qualifying criteria, plus aggressive mortgage restructuring initiatives undertaken by Bahamian commercial banks in previous years, fewer borrowers than hoped have been qualifying for the Mortgage Relief Plan.

Tribune Business was told the banks had suggested several different ways of increasing the ‘Gap’, one involving the Government’s contribution increasing in line with its one-third share, and other varieties calling for no extra government contribution.

The latter is likely to be preferred by the Government, given the fiscal constraints it is operating under.

In addition, the commercial banks were recommending an ease to the stipulation that to quality for the plan, a mortgagor must have maintained a good credit history prior to June 2008, and involuntarily became unemployed, underemployed and experienced chronic illness.

There was also an August 2012 ‘cut-off’ date, meaning that mortgage holders who defaulted after that date could not qualify. That, too, could be targeted for relaxation.

The Mortgage Plan also stops at duplexes, and one banker said a recommendation had involved “increasing the participation of those persons who have triplexes”.

Michael Halkitis, minister of state for finance, did not comment on any of this when contacted by Tribune Business, but said he was meeting with the banks on Thursday and would be in a better position to say something afterwards.

But one banker, speaking to Tribune Business on condition of anonymity, told Tribune Business that the Government could not afford to push the banks too far, given that it was relying on them to finance economic recovery.

Constraints and regulations that altered the risk-reward calculation associated with lending, they warned, might force the banks to pull back even further - a move that would be detrimental to the overall Bahamian economy.

“The Government is anxious to be seen to support delinquent mortgage holders. We don’t know where the money’s coming from, but they want it to succeed,” the banker said of the Mortgage Relief Plan.

“We’re being encouraged to find people to help them succeed; get people in who might qualify.”

Yet they added: “No one wants to address the elephant in the room; people take advantage of government. The bottom line is the Government over-promised and under-delivered, so they’re trying to find a way of delivering. They’re providing a fraction of the money.

“The Government seems to be oblivious to the fact it needs banks to prop up the economy and fund the recovery. If they impose upon the banks a certain standard that makes profitability difficult, they will withdraw. They need to find a way to work with the banks that helps the economy.”

Another banker said international accounting standards requirements “don’t help this much”, along with the regional and head office requirements of the Canadian-owned banks.

Even if Government serviced interest payments on delinquent loans, the banker said these would still be considered impaired credit under international accounting standards.

For December 2012, mortgage arrears rose by $5.8 million (0.8 per cent). Both the short-term and non-performing categories were higher by $3.7 million (1.9 per cent) and $2.1 million (0.4 per cent), respectively.

For the full year, the Central Bank said: “Mortgage delinquencies increased by $49.4 million (7.6 per cent) to $699.5 million, with both the 31-90 day and non-performing segments higher by $2.1 million (1.1 per cent) and $47.3 million (10.5 per cent), respectively.”