The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RBC FINCO yesterday said that while its non-performing loan portfolio had “stabilised” at a total $104 million, this represented a sum up to six times’ the worth of pre-recession bad loans.

Nathaniel Beneby, managing director for RBC Royal Bank (Bahamas), FINCO’’s parent and 78 per cent majority shareholder, told Tribune Business that the mortgage lender’s bad loans - as a proportion of the total portfolio - were more than four percentage points below the industry average.

“Non-performing loans were $104 million as at October 31, 2013, and represent 11.45 per cent of the loan portfolio,” Mr Beneby said in e-mailed replies to Tribune Business questions.

“This level is still better than the industry average of 15.83 per cent.”

But, illustrating the much-changed economic and banking industry landscape, and how much work remains to be done with troubled borrowers, Mr Beneby added: “Pre-2008, non-performing loans were around $16 to $18 million.”

These figures show that FINCO’s non-performing loans have increased six times’ as a result of the poor economy, and Mr Beneby added: “Any reduction in non-performing loans will be contingent upon the customer’s ability to resume mortgage payments and/or a ready and qualified market to purchase the underlying homes. We continue to seek ways to work along with our valued customers to retain their homes.”

FINCO’s results for the year to end-October 2013 indicate that the worst appears to be behind it. Net income almost tripled, rising from $10.982 million in 2012 to $30.359 million.

Much of the improvement was driven by a 62 per cent drop in loan loss provisioning, which fell by more than $12 million - from $19.598 million to $7.468 million.

This indicates that FINCO elected to take the biggest impairment ‘hit’ in 2012, and while this accounted for more than 60 per cent of the improvement, the mortgage lender also saw improved net interest income of $45.514 million.

Most of the $5.5 million increase here came from a reduction in interest expenses, as FINCO likely reaped the benefits of high banking system liquidity and the low deposit interest rate environment.

“RBC FINCO’s results for 2013 met expectations,” Mr Beneby said. “The increase in net income is attributed to modest increases in interest income, reduced cost of funds and lower provisions for credit losses.”

He added: “While the impairment charge for 2013 is lower than the previous year, non-accrual loans remain elevated but stable.

“ The bank’s delinquency and non-accrual loan ratios continue to be better than industry averages, indicating effective management of the portfolio and adherence to prudent credit underwriting guidelines.”

Mr Beneby said the more than $1.5m drop in RBC FINCO’s non-interest expenses year-over-year stemmed from better cost management and “leveraging the capabilities” of its majority shareholder “to improve efficiencies”.

On the balance sheet side, sums owed by FINCO to its affiliates more than doubled - from $28.142 million in 2012 to $77.219 million at 2013 year-end.

“The bank has taken a deliberate strategy to increase its borrowing with RBC Royal Bank to support RBC FINCO’s liquidity and manage its cost of funds,” Mr Beneby explained.

“RBC Royal Bank extends an operating line of credit to RBC FINCO at the established market inter-bank lending rate.”

Mr Beneby added that he expected any issues with the licence renewal for FINCO Insurance Agency, the subsidiary that provides insurance to its mortgage customers, to be resolved with the Insurance Commission.

Looking ahead, Mr Beneby told Tribune Business: “It is our view that we will continue to experience consistent, moderate growth in our business as we effectively grow mortgages, manage costs and achieve operational efficiencies.

“RBC FINCO’s brand is strong and stable with an impressive legacy of 60 years operating in the Bahamas. This has enabled us to build strong relationships and trust with our clients. The bank’s performance thus far in 2014 is meeting expectations.”