The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank is targeting "early fall" for simplifying exchange control's involvement with foreign residential real estate purchases as a means to eliminate unnecessary red tape.

John Rolle, its governor, confirmed during a briefing on 2019 first half economic developments that there were sufficient checks in place at other government agencies to justify removing an "additional layer of process".

"It's something we're targeting for early fall," he confirmed. "The proposal is to simplify and remove the exchange control process around the foreign purchase of residential real estate in the country.

"The law has some fairly clear definitions with regard to real estate and how the process goes through other government agencies to acquire real estate.... We want to ensure these transactions are not taken through and additional layer of process."

Tribune Business reported last year the complaints from multiple realtors, attorneys and others about how exchange control "red tape" had dramatically slowed approvals for real estate deals involving foreign investors, and was threatening to undermine investor confidence in this nation.

They argued then that The Bahamas was "shooting ourselves in the foot" by causing multi-month delays that was resulting in "uncertainty and anxiety" among the foreign investor community, with many "wanting to get out" of this nation.

The requirement for a conveyance that has been lodged with the Registry of Records, and proof this has been done, as confirmation of sale was adding four to six weeks to the Central Bank approval process.

And the requirement for board minutes and resolutions was also said to have been contributing to delayed approvals, with clients and attorneys viewing this as unnecessary and possibly beyond the remit of the Exchange Control Regulations Act.

Mr Rolle, in a January 2018 interview with Tribune Business, said the Central Bank was "ceasing" its demand for proof that title has been recorded via the transaction being entered into the Registry of Records as well as the request for foreign-owned corporate entities, which are selling/purchasing Bahamian real estate, to provide Board approvals and resolutions relating to the deal.

Meanwhile, Mr Rolle said The Bahamas' foreign currency reserves "grew at double the pace" of 2018's first half to end June 2019 at just over $1.5bn. "Driving this performance, there was a more than doubling in the net amount of net foreign exchange purchased by commercial banks from the private sector that were subsequently sold to the Central Bank," he added.

"A part of this, though, was also that the private sector's spending on imports appeared to be reduced in comparison to 2018. The subdued spending on imports would have reflected continued reduction in total credit to the private sector, which is an important financier of imports. Another probable factor, not directly measured, was that the VAT rate change increased the cost of imports."

Mr Rolle also told the Government and large corporate entities that any "large-scale transactions", involving either equity or debt, should include foreign currency as an "essential" component so that Bahamian households and small firms are not crowded out of local currency credit.

The Central Bank governor added that there needed to be a reduction in surplus bank capital, as most institutions were well above the regulator's reserve requirements, and any excess could potentially be used to fuel a risky credit boom.

However, the payment of dividends by the Canadian-owned banks to their parents - one way to effect such a reduction - needed to be managed against the need to maintain healthy external reserves.

"We note that there are no pressing risks to financial stability, but there are vulnerabilities that need to be tackled. One is the Central Bank's assessment that it is in the Bahamas' interest to manage a gradual reduction in surplus capital from within the banking system," Mr Rolle said.

"Capital levels are comfortably in excess of our minimum requirements, and more than adequate to absorb extreme, surprise loses that the average bank might encounter from severe shocks.

"Continuing to tolerate such excesses, in the Central Bank's view, would only increase the medium-term likelihood that lending institutions would take on riskier activities to generate comfortable returns on these surpluses. Unwinding would involve a multi-year outflow of dividends by foreign banks that must be factored into our projections for healthy external reserves balances."

And, with excess commercial banking liquidity of $1.837bn representing a similar threat in terms of fuelling "too rapid a pace of credit growth in the future", Mr Rolle said the Central Bank will continue to sell-off its government debt holdings to help soak this up.