The Tribune

By Youri Kemp

CENTRAL Bank governor John Rolle said yesterday that banks should have comfortable amounts of capital to absorb losses from Abaco and Grand Bahama storm damage - but only "may" be able to withstand losses if a comparable storm was to hit New Providence.

Mr Rolle was speaking at the Exuma Outlook conference and said that in the Central Bank's opinion, there should be lower amounts of capital funds in bank savings in the medium term.

Mr Rolle said commercial banks "may" be able to withstand massive loan losses and withstand the setback a hurricane impact on New Providence generally, leaning on their existing levels of retained earnings. But he also warned that if we change the expectations in our modelling on the frequency of major storms these estimates may change as he noted "the system needs time to recover".

He added: "We are paying more attention to the immediate and long-term needs for planning and development around financial and economic resiliency; and on leveling the playing field of access for commercial goods and services. Post-Hurricane Dorian we are now more focused on strategies for financial resiliency for households, businesses and the public sector; and we are preoccupied with business continuity and recovery at the national level for critical financial services.

"The Central Bank intends to make to increase the preparedness of the banking and payments system, serious interventions will also be needed from a policy and cultural perspective to tackle the household sector's financial vulnerability. Critical evolution is also required in our tourism product model to make this leading foreign exchange earner more resilient."

Mr Rolle said storms have increased in frequency and intensity and have disrupted economic activity - reducing economic output and bringing a rise in unemployment, placing a heavy strain on government finances.

Mr Rolle detailed how the bank had responded to Hurricane Dorian. He said: "The Central Bank - consistent with actions taken after other severe encounters - relaxed lending guidelines for domestic banks on a temporary basis. Specifically, in relation to hurricane relief facilities, the 15 percent equity or down payment contribution and the 40-45 percent debt service ratio (for directly impacted borrowers) were waived in order to facilitate easier, flexible access to credit.

"Additionally, the bank endorsed temporarily relaxed due diligence procedures for money transmission businesses, given the loss of vital documents for customers in the impacted areas.

"Commercial banks suspended loan repayments for borrowers in the affected areas for a period of up to six months. In addition, with the absence of bank branches, the customary fees on automatic teller machine usage were voluntarily suspended on Abaco and Grand Bahama."

Mr Rolle said the credit portfolio for Abaco and Grand Bahama stands at $830m - about 15 percent of total private sector credit in The Bahamas. Half of this is in mortgages and Grand Bahama in particular accounts for 80 percent of the total credit. Non-performing loan rates are higher in these islands than that of the the national average prior to Hurricane Dorian.

Mr Rolle also said that the general economic outlook is positive for this year, but less than the growth projected prior to Dorian's impact. He expects a return to positive growth in 2021, as Dorian-related setbacks will continue to affect the Bahamian economy next year.

He noted that reinsurance totals add up to about $500m which he hopes would buffer our foreign reserves - but these are expected to be used in full and The Bahamas is expected to end up with a lower year on year foreign exchange total from last year.

Mr Rolle stressed the country have to focus on tourism marketing strategies to focus tourists away from the affected islands and he urged Exumians to pick up the vacation rentals slack due to their consistent third place slot in this market in The Bahamas.

Mr Rolle added that The Bahamas has made significant progress in the matter of securing direct insurance and pre-arranging emergency access to credit, pointing to the Catastrophic Risk Insurance Facility and the Inter-American Development Bank $100m credit line.

He did warn the private sector, however, of the high amount of under-insured or under-insured businesses and homes, and that government subsidies pose a significant financial risk to the government. He said: "This vulnerability needs to be meaningfully addressed through households and businesses taking more active responsibility for it and through intentional public policy to reduce the financial risk to government."