The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FINCO has slashed staffing levels by 70 per cent over the past five years, as it continues to outsource back office functions to its parent in a bid to cut costs in a low growth environment.

The BISX-listed mortgage lender, which is 75 per cent owned by Royal Bank of Canada (RBC), revealed in its just-released annual report that staff numbers have declined from 97 in 2012 to just 29 at the 2016 year-end at October 31.

Last year’s employee headcount also represented a 54 per cent reduction on 2015’s 63, although it is unclear whether all were made redundant or merely transferred to RBC as its affiliate strives to generate efficiencies and shareholder returns.

“The significant decrease in the number of employees year-over-year was attributed to RBC FINCO continuing to leverage the relationship with the majority shareholder, RBC Royal Bank,” FINCO said.

“All of RBC FINCO’s branches are shared locations with RBC, and its customers can now do all their over-the-counter banking transactions at any RBC branch.

“Additionally, all of the background operational functions have been outsourced to RBC. Where there have been job losses, staff were treated fairly, with dignity and utmost respect, and there are no issues in this regard.”

Fanchon Braynen, FINCO’s managing director, said its core mortgage lending business would continued to be pressured by the absence of a Credit Bureau, plus the “uncertainty” created by the Homeowners Protection Bill.

“Our mortgage lending business in the Bahamas continues to be challenged by deteriorating economic conditions, strong competitive pressures, the impact of Hurricane Matthew, higher level of household indebtedness, the absence of a Credit Bureau and potential uncertainty associated with the proposed Home Ownership Protection Bill,” Ms Braynen told shareholders in the annual report.

Her comments further indicate that the legislation, recently introduced in the House of Assembly to make delinquent Bahamian borrowers more secure in their homes, could result in unintended consequences and make Bahamas-based commercial banks even more reluctant to engage in mortgage lending.

Ian Jennings, the Clearing Banks Association’s (CBA) chairman, recently told Tribune Business that the legislation, which inserts the courts into the contractual relationship between borrower and lender, had several areas of uncertainty that would need to be clarified by judicial rulings.

The Government has also opted to bring the more populist Homeowners Protection Bill forward first, ahead of the Credit Bureau legislation, which is also ready to go.

This will enable banks to better assess borrower creditworthiness and risk, and price loans accordingly, through an agency that will possess the necessary information to conduct an accurate assessment.

“In order to address these challenges, RBC FINCO has taken deliberate steps to maintain a leading market share while ensuring strong credit quality and competitiveness,” Ms Braynen wrote.

“In 2016, we improved our mortgage management processes, centralised insurance claims and centralised our customer inquiry process to increase efficiency and improve overall client experience.

“In addition, we were able to more effectively target our high-value clients by executing on a more focused retention strategy, leveraging referrals, campaigns and by strengthening key partnerships.”

Robert Johnston, FINCO’s chairman, said the mortgage lender’s earnings “continue to be volatile and under pressure” from “unacceptably high levels of delinquent and non-performing mortgages”, as well as low market growth and interest rates.

Mr Johnston said FINCO’s non-performing loan ratio was now slightly higher than the commercial banking industry’s average.

“Non-performing mortgages of $119.4 million (2015: $102.5 million) as a percentage of the portfolio was 13.95 per cent at the end of the fiscal year. This result is compared to 11.52 per cent at the end of fiscal 2015, and compared to the industry at 13.29 per cent as of October 2016,” he said.

“Operating in the context of the flat to low recovery in the economy and high unemployment rate, RBC FINCO would continue to be challenged with allowances for credit losses resulting from the stubbornly high level of non-performing mortgages.”

FINCO had previously blamed Hurricane Matthew for the $16 million increase in non-performing loans, as 2016 full-year profits slumped 54.7 per cent.

It 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.