The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An outspoken businessman yesterday slammed the Government’s continuing Mortgage Relief promises as “the most asinine policy I have ever heard”, arguing that its approach to jump-starting the housing market was all wrong.

Dionisio D’Aguilar, Superwash’s president, told Tribune Business that the Christie administration’s focus on implementing a Mortgage Relief programme acceptable to all parties was causing the commercial banks to “completely shut down” on new lending.

He argued that it should instead be working with the banks to develop a viable scheme for getting the current $700 million worth of non-performing mortgages off their balance sheets, so liquidity for new loans could be freed up.

And the Government’s insistence that it deliver on a key 2012 election campaign focus, coupled with the prevailing economic and housing market climate, had encouraged commercial banks to concentrate their credit activities on consumer loans as opposed to the Bahamian economy’s more productive sectors.

Mr D’Aguilar said the Bahamas needed to combine faster growth with the initial progress made in reducing the fiscal deficit, but the banks’ lending reluctance had robbed the economy of much-needed “juice”.

Arguing that the Government’s proposed solution was misguided, and that it was treating the symptoms rather than the root cause, the Superwash president urged it to instead tackle an anemic GDP growth rate that had averaged around 1 per cent for the past five years.

“The country has high unemployment, high crime, poor education and low growth,” Mr D’Aguilar told Tribune Business. “The country has 1 per cent growth. Why is the economy not growing, when the US economy is growing by leaps and bounds?

“The biggest problem is people cannot get funding. Banks are not lending because they got burned so badly in the last four to five years.”

He suggested that the Government focus on growth and job creation to aid the estimated 4,000 Bahamian non-performing mortgage holders, while simultaneously working with the banks on a strategy to get bad credit off their balance sheets and encourage renewed lending.

“Right now, they’ve got all of those bad loans on their balance sheets, and it’s very hard for them to lend,” Mr D’Aguilar said. “That’s a real problem. You may have a great idea as an entrepreneuer, but cannot get funding.”

He suggested that a plan be devised where bad mortgage loans were “collateralized” or securitised, and then sold to a buyer for around $0.50-$0.60 on the dollar. The purchaser would then have responsibility for ‘working out’, or collecting, these ‘bad’ loans.

The Government has already employed a similar solution for Bank of the Bahamas, transferring $100 million of its ‘bad’ commercial loans to the Bahamas Resolve special purpose vehicle (SPV).

This effectively transferred the liability for these loans from the bank and its shareholders to the Bahamian taxpayer, and Mr D’Aguilar is advocating something similar – although in his case, the burden would be born by another private sector entity.

The Superwash president is not alone in his thoughts. Senior Bahamas-based commercial bankers have privately outlined similar solutions to Tribune Business in recent weeks, amid concerns that it will take the sector almost a decade to deal with its $1.2 billion troubled loan portfolio.

These bankers, though, said the Bahamas lacked the necessary expertise to deal with such mortgage ‘work outs’ and recovery, suggesting it would have to be imported.

But the Government’s continued emphasis on developing a Mortgage Relief Plan “just scares” the banks and other legitimate lenders, Mr D’Aguilar warned.

“In their attempt to protect mortgages, and provide some mortgage relief, they’ve caused the banks to completely shut down,” he told Tribune Business.

“The more the Government talks about mortgage relief, the more difficult it becomes for people to buy homes and get funding for their businesses.

“It’s slapdash. It’s the most asinine policy I’ve ever heard. Stop talking about it. Think about how to get these bad loans off the banks’ books. Expedite that process and get some money coming back in. The whole system is freezing.

“The economy has no juice, and we need juice. We need juice in the economy to get things going. The Government shouldn’t put it up. We need to be more creative in freeing up some liquidity,” Mr D’Aguilar said.

“It’s hard to foreclose on mortgages, it’s hard to get bad loans off the balance sheet, and these dead assets are sitting there. We’ve got to get this economy moving again.”

Prime Minister Perry Christie used his Budget address to give a vague statement to the effect that the Government and commercial banks were still in talks attempting to come up with a viable Mortgage Relief Plan beneficial to all parties.

No timetable was offered, and Mr Christie was careful to balance the ‘pros and cons’ and concerns of all parties in his comments, so as not to offend anyone.

The Government’s first Mortgage Relief Plan, billed as helping 1,000 troubled borrowers, flopped as it ended up helping less than 10. The Christie administration attempted to blame the failure on the banks, suggesting they did not understand how indebted their borrowers were.

Mr D’Aguilar, though, warned that the Government was increasing ‘moral hazard’ among mortgage holders by keeping Mortgage Relief hopes alive.

He explained that it was encouraging borrowers, who could afford to pay, to not do so in the belief they would access the Government’s promised relief.

“This is forcing the banks to shift from mortgages and commercial loans into consumer loans,” Mr D’Aguilar said. “These $3,000 loans don’t do a Christ thing for anybody.

“People blow through that in three to four months, and can’t borrow any more due to the very high interest rates. As people shift to consumer loans, they become tapped out.

“You have to incentivise banks to lend, and you are disincentivising them to lend, especially in the critical areas of your economy. While business ideas and mortgage borrowers are simply not happening because the qualifying threshold is so high, ain’t nothing happening in the economy.”

Mr D’Aguilar said reviving the Bahamian housing market’s domestic segment was vital, because it generated the greatest ‘trickle down’ effect for the economy.

Apart from contractors, it provides work for realtors, attorneys, engineers, landscapers, architects, landscapers and a host of professional trades, as well as semi-skilled and unskilled labour.

The International Monetary Fund (IMF), in its Article IV release on the Bahamas yesterday, agreed with Mr D’Aguilar that action was required to deal with the banking sector’s ‘bad’ loan pile.

“Directors recommended that the authorities adopt policies that will address persistently high non-performing loans to allow the banking system to play a more effective role in supporting growth,” the IMF release said.