The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Bahamas had a negative return on investments in 2020 despite having forbearance and financial support measures for non-performing loans during the COVID-19 pandemic, says an Inter-American Development Bank report.

The IDB in its Caribbean Quarterly Bulletin said that despite financial systems being “well capitalised” going into the COVID-19 pandemic in 2019, “Forbearance, moral suasion, and financial support measures might have prevented non-performing loans from increasing more during the pandemic.

However: “Profitability, in terms of the return on assets and the return on equity, declined in most cases, and even turned negative in The Bahamas,” it also said.

Credit to the private sector also hit negative digits through 2019 to 2021, further solidifying the bank retrenchment due to lack of private sector investment brought on by the closure of businesses during the bulk of the pandemic.

The bulletin added: “The proportion of arrears and non-performing loans (NPLs) to total credit has increased during the pandemic. Although loan moratoria were put in place to provide relief to individuals negatively impacted by the COVID-19 shock, as the pandemic extends over time the ratio of arrears and NPLs keeps growing, reaching 5.5 percent and 8.7 percent of total loans to the private sector, respectively, in the first quarter of 2021.

“It is worth noting that efforts undertaken prior to the pandemic were fruitful in lowering arrears and NPLs, so ratios are currently not significantly above those observed in 2018. Higher unemployment and an overall worsening of economic conditions in 2020 led domestic commercial banks to increase provisions. The ratio of provisions to arrears and NPLs in the first quarter of 2021 stood at 72 percent, compared to 62.3 percent in the same period of 2020.”

The bulletin also predicts The Bahamas could achieve double digit increases in public debt into year 2026, further warning that fiscal consolidation efforts were “uncertain”.

Another crucial indicator of the implications of this crisis for economies in the region is the shock to external balances. The bulletin added: “The current account deficit deteriorated by over 20 percentage points of GDP in The Bahamas and that pre-COVID-19 current account balances are not likely to occur during 2021-2026.”

The bulletin also noted the on-going impact of the COVID-19 fourth wave producing more deaths, increases in cases and pressure on health services. “Lockdown measures have been put in place on an island- by-island basis, as specific family islands saw a significant rise in COVID -19 cases during the fourth wave.”

As a result of all of this the Bahamas economy is “still struggling,” the bank said. “

The COVID-19 pandemic has represented a major shock, with real GDP falling 14.5 percent in 2020. Both the tourism and construction sectors were severely affected by travel restrictions and by lockdowns and social distancing measures. However, the rollout of the vaccine in The Bahamas as well as in important source markets such as the United States has allowed for more flexible restrictive measures.

“Real GDP in the last quarter of 2020 fell less than in previous quarters. Compared to the same quarter of 2019, real GDP in the fourth quarter declined by 14.8 percent, while in the second and third quarter s it decreased by 30 percent and 16.5 percent, respectively.”

On the tourism front the bulletin did note the positive upturn in tourism arrivals with the country reporting 115,874 for Q1 of 2021, which however is still “well below” the 2020 Q1 comparison of 1.7m for the same period. Tourism also saw the largest contraction for 2020, falling by 76.4 percent the bank said.