The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FINCO yesterday confirmed that the Bahamas’ mortgage crisis is far from over, blaming Hurricane Matthew for a $16 million increase in non-performing loans as profits slumped 54.7 per cent.

Royal Bank of Canada’s (RBC) BISX-listed mortgage lending arm said the net income decline to $11.604 million was driven by a 56.7 per cent year-over-year increase in loan loss provisions.

These rose from $15.967 million to $25.017 million at end-October 2016, the close of FINCO’s financial year, with most of the provisioning increase taken in the fourth quarter.

Loan loss provisions for the three months to end-October 2016 more than tripled, rising from $4.419 million in the 2015 comparative period to $14.501 million. This produced an $11.4 million ‘swing’ into the red, with FINCO recording a $5.804 million loss for the fourth quarter.

FINCO’s management said “lower interest income in a highly competitive market, increased provisions and higher operating costs” were responsible for the drop in full-year net income from $25.606 million the previous year.

“The bank was challenged with new credit origination, and non-performing loans increased by 15.5 per cent from $103 million to $119 million,” FINCO told its 25 per cent Bahamian minority shareholders.

“A significant amount of this increase occurred during the 2016 fourth quarter, and is attributed to Hurricane Matthew.”

FINCO’s results provide the first evidence on the extent of Matthew’s impact on the ability of Bahamian mortgage holders to service their debt.

It now remains to be seen whether Matthew created a ‘timing impact’ for FINCO and its borrowers, given that its year-end was just three weeks after the storm, and if they were subsequently able to ‘get back on track’ and resume debt servicing.

It is likely that monies normally earmarked for mortgage payments were instead used to fund emergency home repairs and other unanticipated needs in Matthew’s aftermath.

FINCO’s executives added: “The other contributing factors were the aging of the non-performing portfolio beyond five years attracting an additional provision, and adjustments to the general provision made to recognise the continued weak economic performance and high unemployment in the country.”

No detailed explanation was given for the sharp rise in FINCO’s non-interest expenses, which jumped year-over-year by 26.1 per cent to $15.092 million, compared to $11.963 million the year before.

The mortgage lender also hinted at its intention to outsource more services to its majority 75 per cent shareholder, RBC, saying it “continues to seek opportunities for efficiency and leverage the operational expertise” of the parent.

FINCO’s financials added that existing outsourcing arrangements with RBC were altered in 2016, with “the underlying fees adjusted to better align with the level of service being received”.

Shareholders were also informed yesterday that no dividend will be forthcoming, as FINCO bids to conserve capital in an uncertain mortgage market environment.