The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Finance Corporation of the Bahamas (FINCO) saw the value of impaired loans increase by 12.7 per cent year-over-year to $117.591 million in 2014, providing further evidence that this nation’s mortgage crisis appears to be deepening.

The mortgage lender’s financials for the year to end-October, which have been obtained by Tribune Business, show that non-performing loans have risen to a sum equivalent to 12.75 per cent of its $848 million credit portfolio.

This represents a jump from the 11.45 percentage recorded at the 2013 financial year-end, but FINCO’s non-performing loan ratios remain in line with the Bahamian commercial banking system’s average.

Royal Bank of Canada’s (RBC) Bahamian mortgage lending arm added that loan impairment provisions had increased from 4.65 per cent of its total loan portfolio to 7.61 per cent in 2014.

These provisions are now also equivalent to 59.66 per cent of the total impaired loan values, compared to 40.59 per cent at the 2013 year-end.

FINCO’s full year financials provide further insight into why the mortgage lender elected to take a four-fold increase in loan loss provisioning of $35.595 million at the 2014 year-end. This dropped its profits by 91.4 per cent for the year to $2.603 million.

The increase in loan loss impairments, from $7.468 million the prior year, will again have been driven by the increasing difficulties many homeowners have in meeting their loan obligations, plus the declining collateral values that the banks have as security.

The key now is whether 2014’s loan loss provisioning is a one-off event, or start of a trend, but the mortgage lender remains well-positioned to cope with the continued housing market fall-out due to its strong balance sheet and capital base, plus RBC’s support.

Still, FINCO wrote-off some $8.146 million in loan losses during its 2014 financial year, with its cumulative allowances for impaired loans standing at $70.16 million at end-October.

The figures put the Bahamas’ continued housing/mortgage crisis in a financial context, and show how the economy’s struggle to recover from the 2008-2009 recession and provide the necessary employment/increases incomes continues.

Elsewhere, FINCO’s financials showed that the 28.2 per cent jump in its operating expenses year-over-year to $14.776 million was largely driven by non-staff costs.

‘Other operating expenses’ rose by 61.5 per cent, growing by over $3 million to $8.1888 million from $5.071 million the year before.

This was equivalent to the more than $3 million total jump in interest expenses from $11.523 million in the prior year, and is likely an issue upon which FINCO’s 22 per cent minority shareholders will ask questions of the mortgage lender’s management and Board at the upcoming annual general meeting (AGM).

The financials reveal that shareholders still received some reward for their risk capital in 2014, with FINCO paying out total dividends worth $6.667 million over the 12 months.

The mortgage lender also paid $2.611 million to its parent during 2014 under licence and technical agreements between the two parties. FINCO was also dealing with $20.785 million worth of mortgage commitments at the October year-end.

The regulatory issues surrounding FINCO’s in-house mortgage broker, FINCO Insurance Agency, were resolved prior to Christmas, with the Insurance Commission approving its registration as a foreign intermediary.

This approval was conditional on the broker’s capital increasing from $10.000 to $50,000 by January 31 this year, along with it changing is legal name and reaching agreements with Bahamian broker partners.