By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Bahamian commercial banking industry booked $145m in collective provisions last year to cover expected COVID-19 loan losses, the Central Bank’s governor revealed yesterday.
John Rolle, pictured, addressing the 2021 Bahamas International Financial Services Strategy Summit, said the fact loan loss provisions exceed the sector’s current delinquent loans “adds confidence” that the surplus capital carried by the commercial banks pre-pandemic leaves them well-positioned to cope with the fall-out.
Disclosing that the Central Bank wants its licensees to reduce this surplus capital further over the medium-term, despite difficulties many borrowers now face in servicing their loans, Mr Rolle added: “Domestic banks have already considerably positioned themselves for losses out of the pandemic.
“Approximately $145m of such expected losses were charged to profits in 2020. This reversed trends of gradually reducing provisioning levels since 2015. In addition, as a fraction of the non-performing loans, the provisioning coverage levels gradually increased to more than 100 percent in 2020 from a low of 40 percent of the non-performing loans a decade ago.
“This adds confidence to our assessment of the level of preparedness that institutions have already made for losses...... Institutions have maintained significant excess capital. These are more than adequate to even to absorb potential loan losses that the pandemic could produce,” the governor continued.
“In addition, the Central Bank maintains that the medium-term posture should be one of encouraging banks to reduce their capital levels. This is so that pressures are not exerted to take on riskier lending to generate returns on the surpluses.”
Pointing out that commercial banks are also well-poised to withstand any large deposit withdrawals, Mr Rolle said: “The domestic banks remain highly liquid, being able on average to withstand simulated large deposit withdrawals without difficulties.
“Indeed, the Central Bank also has a medium-term objective of extracting liquidity from the system. The risks are more amplified that, in the medium-term, such liquidity could generate faster credit expansion than would be desirable for financial stability.
“Beyond these extracts, the Central Bank also tracks a banking stability index that amalgamates various individual financial stability indicators. It is projected that this indicator softened in 2020, and possibly in 2021, because of the pandemic. Nevertheless, the starting levels of capital and liquidity give confidence to the overall shock absorption capacity of the system.”
Mr Rolle said the Central Bank is currently focused on strengthening The Bahamas’ financial stability mechanisms, having last year extended deposit protection to the credit unions and giving the Deposit Insurance Corporation “a stronger mandate” to build-up its funding.
Noting that the financial services industry’s foreign exchange earnings had “held up” through COVID-19 compared to the sharp decline in tourism’s contribution, the Central Bank governor added: “The very short-term resilience of financial services exports reinforces the importance of increasing the sector’s contribution, starting with stabilising what has otherwise been a gradual decline, particularly in international banking activities.”
While the domestic segment was estimated to contribute two-thirds of the financial services industry’s estimated 15-20 percent gross domestic product (GDP) share, he said the continued roll-out of technology and increased efficiencies were “expected to slow and even reduce employment levels”.
As for international banking services, the sector’s total assets have dropped from a near-$600bn peak in 2011-2012 to just below $200bn in June 2020 as international regulatory initiatives continue to bite.
“Changes in the tax compliance landscape resulted in a reduction in the size of the aggregate balance sheet, as predominantly business of European origin retreated,” noted attached to Mr Rolle’s presentation said.
The Governor, meanwhile, added: “Policies and strategic interventions must converge to bolster the medium and longer-term growth potential of international services. We must create space for private innovations to thrive within operations that measure up to robust global standards for financial integrity and tax transparency.
“Today, the international sector is still adjusting to powerful headwinds, with continued incremental losses in employment and economic benefits...... The indications are that the international sector’s employment and contribution share have fallen gradually, for at least the last half-decade, driven both by efficiency adjustments and a decrease in the banking sector’s physical footprint.
“Other global pressures have also been important in the international sector, such as the re-domiciling of clients and operations to regularise their tax compliance with OECD home country requirements. In addition, The Bahamas has had to absorb the global political fall-out from threats of sanctions in the context of EU and OECD initiatives on anti-money laundering and tax transparency,” Mr Rolle said.
“As a result, The Bahamas has experienced steady business declines from European markets that are still occurring faster than the emerging growth opportunities in Latin America. How both of these trends evolve will determine the medium-term outcome for the sector.”
Turning to the future, Mr Rolle added: “To strengthen the export potential of financial services, our interventions will have to be effective in reducing growth suppression and shrinkage from financial integrity and international tax policy risks. That is, addressing how the Bahamian jurisdiction maintains proactive engagement with multilateral bodies in the standards-setting arena on anti-money laundering and other issues.
“Indeed, with good reason, fiscal recovery and consolidation are already a global priority in repairing the economic damage from the pandemic. It will shape new international tax policy offensives, such as which characterised the recovery efforts from the 2008 global recession. The experience has shown that tax initiatives do not easily disentangle from financial integrity matters.”
Comments
Clamshell 3 years, 8 months ago
I often toss and turn at night, worrying that bankers are suffering losses.
tribanon 3 years, 8 months ago
I detect from your cynicism that you enjoy being on the asset side rather than the liability side of their balance sheets. lol
tribanon 3 years, 8 months ago
Plenty of waffling on by Rolle about the continued decline of our financial services sector, but no disclosure of the present level of our country's foreign currency reserves. And he's pressing the domestic banks to take on more risk. Doesn't sound good to me.
Sign in to comment
OpenID