The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A prominent banker yesterday urged The Bahamas “to get the economic engine moving a little more rapidly”, adding: “This is when executive management earns our keep.”

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, spoke out after the International Monetary Fund (IMF) warned in its concluding Article IV consultation statement that some unnamed banks and credit unions were “vulnerable” to COVID-19 related risks.

“The banking sector remains well capitalised, but some banks and credit unions are vulnerable to pandemic-induced risks, including an erosion of asset quality once loan moratoria expire, with negative implications for profitability and capital adequacy,” the Fund said.

“Directors.... urged the Central Bank to ask banks for regular loan portfolio reviews and risk assessments. They also noted the importance of further developing macro-prudential tools and strengthening interagency co-ordination.”

Mr Bowe said the IMF’s statement referred to the banking and credit union industry’s ability to withstand a prolonged post-COVID recession and economic downturn, where a significant number of borrowers defaulted on their loan repayments due to unemployment and/or income loss.

Arguing that the financial services sector had been the second greatest source of stability behind the government during COVID-19 to-date, with no lay-offs and reductions in spending, the Fidelity Bank (Bahamas) chief added that a growth focus was needed to ensure this situation continues.

“I think what they’re looking at is the entire banking sector, including co-operatives, and the ability to sustain the current workforce and operating expenses in the event of a protracted recession, Mr Bowe said.

While most commercial banks presently enjoy a risk-weighted assets ratio in excess of 20 percent, well above the Central Bank’s “trigger” threshold of 17 percent, he added that the losses already incurred by some institutions due to loan loss provisioning and other precautions highlighted how quickly capital buffers and reserves can be worn down by a sustained recession.

“We cannot sustain negative performance indefinitely. They’re really saying we have to do a few things,” Mr Bowe said of the IMF statement. “Up to this point in time, the banking sector next to the government has been the greatest stability in the country in terms of employment and spending. None of the banks have contracted their employment and spending.

“If we don’t have the reserves there’s only so long this can be sustained..... We need to get the engine moving a little more rapidly than it is because if we stay in a recessionary state for a long period of time what’s been sustained by the banks to-date may” run out of reserves.

Mr Bowe acknowledged that COVID-19 has plunged financial services in The Bahamas and worldwide “into uncharted territory”, with those institutions possessing “agility in management” likely to fare the best.

He added: “You’re no longer making choices about interest rates and which risks to take, but are making decisions about keeping operations open and safety, and adjusting to the reality that a large part of the economy is no longer productive. Executive management at all banks are now earning their keep.”

The IMF, in its statement on The Bahamas, added: “Risks around the baseline are high, reflecting the uncertain evolution of the COVID-19 pandemic and The Bahamas’ vulnerability to natural disasters.

“Directors welcomed the Central Bank’s focus on reserve adequacy. They emphasised that the COVID-19 related capital flow management measures are appropriate for now but should be phased out when the pandemic recedes.

“They recommended the establishment of an asset registry and real estate price index to reduce information asymmetries, which would also support financial inclusion. Directors supported the nation-wide introduction of the Central Bank digital currency. They stressed, however, that there are significant risks to financial intermediation, integrity and cyber security that require careful monitoring.”