The Tribune

By NEIL HARTNELL

and YOURI KEMP

Tribune Business Reporters

Just under $1bn of commercial bank credit remained on deferral at end-September 2020, it was revealed yesterday, as new loan applications slumped by almost 60 percent in the 2020 first half.

John Rolle, the Central Bank's governor, in unveiling its third quarter economic assessment disclosed that the total value of credit placed on deferral by Bahamian commercial banks to aid COVID-stricken borrowers had more than halved compared to the pandemic's start when around $1.85bn was in such schemes.

"There also remains an interim focus on encouraging forbearance on delayed repayments of loans for borrowers," Mr Rolle said. "However, as banks compile better information about borrowers who might become permanently unemployed, they are expected to classify these exposures as non-performing and to begin to provision for losses.

"Banks have also been required, since the end of the three to six-month period of blanket deferrals, to have those borrowers who are still earning income resume payments. With such adjustments already occurring, approximately 15.8 percent of private credit remained in deferred repayment status as of September, compared to about 37 percent at the onset of the economy’s closure.

"Also, the non-performing rate for private sector loans, which could still rise more significantly in the year ahead, has only shifted slightly higher since April. That said, the Central Bank’s stress testing still gives us confidence that commercial banks have adequate excess capital to absorb any extreme losses that the sector might experience.”

While non-performing loans currently account for around 8 percent of the Bahamian commercial banking industry's total outstanding portfolio, or some $465.2m, Mr Rolle agreed that this will inevitably rise due to the high unemployment rate and loss of incomes caused by the COVID-19 pandemic.

However, the Central Bank governor added that the commercial banks were well-positioned to absorb any loan losses and write-offs as their capital levels are double the minimum requirement set by the regulator, currently standing in the 30 percent range.

“On average the banks in our system have about 30 percent more capital than they are required to hold, and in the Bahamian system the requirements for capital already build in a lot of precaution," Mr Rolle said. "In terms of at the international level, the comfort level is at least 8 percent capital relative to the risk exposures of that bank balance sheet.

“In The Bahamas we set our tolerance at the mid-teens. On average the banks have surpassed that, and in many cases are holding at least double the required level of capital. So we know that in that context, and the amount of the exposures that they have to persons who are impacted by the pandemic, the losses that they can potentially sustain - even on the upper end - are not going to put their operations in jeopardy.”

Mr Rolle added that the current economic environment, plagued by COVID-19 restrictions, lockdowns and curfews that have resulted in business closures and job losses - both temporary and permanent - meant there was little demand from businesses and households for new loans.

"Outstanding private sector credit has fallen slightly over the first three quarters of 2020," he said. "Moreover, as the latest lending conditions survey reveals, demand for credit as seen from new loan applications was almost 60 percent lower in the first half of 2020.

"However, the applicants' success rate in obtaining credit was only slightly reduced from prior survey periods. Being turned down for credit continued to be influenced by the weak financial state of loan applicants, most commonly being assessed as having insufficient capacity in earnings or job security to afford the loan.”

The 60 percent drop referred to by Mr Rolle compared new loan applications during the 2020 first half with those submitted during last year's second half prior to the COVID-19 pandemic. Some 10,979 total loan applications were received during the six months to end-June 2020, which was down 44.3 percent on the 2019 first half.

Still, some 9,349 applications, or 85.2 percent of the total, were approved - a ratio that matched the prior five years. "Appetite for consumer credit maintained its dominance. However, the volume of such request still declined broadly, except for interest in purchases of commercial vehicles," the Central Bank said.

"Despite the downturn, the average approval rates remained elevated at 87.2 percent, the highest since the second half of 2016. In the mortgage sector, financing demand for already-built homes remained dominant, but interest in new construction was the only category with overall increased applications.

"Commercial credit requests reduced by 9.7 percent year-on-year, although increased applications were measured compared to the six months to December 2019. A lesser fraction of the applications were approved vis-à-vis the first half of 2019, but the acceptance rate held steady in comparisons to the second half of 2019."