The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The proposed Bahamas Credit Bureau will “not make any difference” in the near term, a top Bahamian banking executive yesterday suggesting it would take four-five years from inception to become an effective tool in assessing borrowers.

Ian Jennings, Commonwealth Bank’s president, told Tribune Business that the Credit Bureau would likely require three years post-creation to build up a comprehensive database on borrower histories.

And he warned that it was merely “one part” of a more comprehensive solution to Bahamians over-extending themselves by taking on too much debt, which had contributed directly to the 20 per cent delinquency ratio on commercial bank 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.

“The legislation, as I understand it, is at the Attorney General’s Office. It then has to get on the agenda for the House of Assembly and move up,” Mr Jennings told Tribune Business.

“It [the Credit Bureau] then has to start accumulating data. I understand we’re going to build data from where we’re starting, so that it’s not tainted by the recession, when good-paying people lost their jobs through no fault of their own.

“It’s going to take several years to make a difference,” the Commonwealth Bank chief continued. “You have to build up three years’ history before it starts becoming effective.

“You’re talking four to five years maybe. It’s not going to do anything in the short-term.”

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.

Wendy Craigg, the former Central Bank governor, last year 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.

Bahamian commercial banks are still sitting on a stubbornly-high $1.2 billion delinquent loan pile, equivalent to around $1 out of every $5 lent, with around $670 million of the former figure representing distressed mortgages.

Mr Jennings, though, warned yesterday that the Credit Bureau would not be a panacea by itself to the problem of Bahamians over-leveraging themselves, and the difficulties lending institutions are having in assessing their true indebtedness and what they can afford to borrow.

He added that while the Central Bank required Commonwealth Bank and other commercial banks not to go beyond a debt service ratio of 40 per cent when lending to borrowers, the likes of pay day lenders, user car dealers and furniture retailers were under no such restrictions.

Calling for Central Bank oversight and lending benchmarks to be extended to such firms, Mr Jennings said: “We see funds advanced to people with very high debt service ratios. Then they come back to us to consolidate their loans and get the debt down to something they can manage.

“We’ve got to look at how do we stop this thing happening again.... It’s a painful fix we have to go through. We have a history of, in this economy, I was going to say over-consumption, but it’s that we don’t plan our consumption properly.

“As opposed to saving and getting, we want to get and then pay off. We see divorces, unemployment and people then don’t have enough income to service the debt and go into delinquency.

“These are some of the things that we need to address from a structural basis. The Credit Bureau is an important part, but it’s not the only part.”

Bahamian commercial banks restructured $758 million worth of loans in the six-and-a-half years to end-June 2015, a figure that represents more than $1 out of every $10 lent to private individuals and businesses.

For the first six months of 2015, 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 exceeding half a billion dollars at $504.8 million.

Mrs Craigg said then that “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 their obligations to repay, with debtors “most likely to produce undesirable outcomes” receiving credit.