The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian commercial banks have restructured $758 million worth of loans over the past six-and-a-half years, a figure that represents more than $1 out of every $10 lent to private individuals and businesses.

Wendy Craigg, the Central Bank of the Bahamas’ governor, revealed the depth of this nation’s ‘bad loan’ crisis during a presentation last week to Delta Sigma Theta Sorority, disclosing that 12.7 per cent of all private credit was ‘restructured’ between 2009 and end-June 2015.

And, for the first six months of this year, Bahamian commercial banks wrote-off a further $65.5 million of ‘bad loans’ that proved unrecoverable.

In comparison, they recovered $13.6 million or less than 25 per cent of the sum written-off, with the banking sector’s loan loss provisions now exceeding half a billion dollars at $504.8 million.

Mrs Craigg said that at end-June, some $1.2 billion or 19.9 per cent (almost $1 out of every $5 lent) was in default, with 15.3 per cent non-performing, meaning they were 90 days or more past due.

She used the data to illustrate the need for a Bahamian credit bureau, which would provide information to banks and other lenders to enable them to assess a borrower’s creditworthiness.

Mrs Craigg said that, currently, “borrowers know the odds of repaying their debt much better than lenders” - a situation that led to “adverse selection and moral hazard”.

This, she explained, resulted in borrowers having no intention of honouring the obligations to repay, with debtors “most likely to produce undesirable outcomes” receiving credit.

Credit Bureaus collect personal and financial information on persons and companies, and then issue this to client lenders via a credit report. A Credit Bureau’s clients typically include banks, mortgage lenders, credit card firms and other financing companies.

In the Bahamian context, such a facility will help borrowers improve their credit and payment behaviour, while lenders will have increased access to accurate and more comprehensive information about borrowers’ credit history and payment habits. This, in turn, would reduce their exposure to risky loans.

The Central Bank of the Bahamas is hoping that the legislation creating the Credit Bureau will reach, and be passed, by Parliament in 2016. The target is for the Credit Bureau to issue its first reports in 2017.

Mrs Craigg said the Credit Bureau would result in “safer lending and lower defaults”, as lenders would have a better knowledge of borrower characteristics, behaviour and repayment history.

She added that it would also “eliminate incentives to over-borrow” and promote a healthier credit culture in the Bahamas, while lenders would be better able to “price for risk” and reward good borrowers with lower interest rates.