The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday forecast investment by Bahamians in overseas capital markets and real estate could this year increase by 25 percent compared to pre-COVID and hit $100m.

However, John Rolle told a webinar staged by the Chartered Financial Analyst (CFGA) Society of The Bahamas that the monetary regulator was likely to ease up on further exchange control liberalisation so it can focus on protecting the one:one US dollar exchange rate peg given the uncertainties gripping the world economy.

“What we’re saying is that in the immediate present environment we have to proceed with caution,” he said of further exchange control easing. “One of the important liberalisations we did in the last two to three years was the way the public gets access to investment currency for investment abroad, including reducing the premium people pay to buy international currency.”

Noting that this premium now stands at 5 percent, having once been as high as 20 percent, Mr Rolle said Bahamians had previously paid a collective $20m per year - going as high as “close to $30m” per year - to access foreign currency.”

With Bahamians having invested $80m overseas via the Investment Currency Market (ICM) in 2019, the year before it was temporarily closed due to the COVID-19 pandemic, the Central Bank governor added: “I believe in 2022 it could hit $100m, and that’s because we reformed the system so that Bahamians could establish trading accounts with local bank and trust companies.”

With these institutions acting as custodians, Mr Rolle said this move had given Bahamians “flexibility to buy and sell their portfolio. That’s a major change from previously when, buying or selling your shares, you had to get approvals. That flexibility to trade has been critical in giving Bahamians more access to portfolio investment through investment currency channels.

“The same channels exist for those looking to invest in crypto currency, crypto assets,” he added, “and we see a lot of persons come in to us to request permission to engage in this type of activity. We approve them.”

In similar fashion to how foreign exchange approval authority has been delegated to the commercial banks for trade transactions, Mr Rolle said “at some point it has been suggested that a similar type of structure be put together for portfolio transactions that need investment currency”.

However, he added that the Central Bank’s short-term goals were focused firmly on managing the one:one US dollar currency peg and, by extension, The Bahamas’ external reserves. “If there were to be near-term changes, rather than liberalisation access locally our focus would be more on administrative processes,” Mr Rolle confirmed.

“A lot of the risk and outlook in the environment influences how we proceed with exchange control policies.” Noting that the Central Bank had been implementing “a policy of gradual liberalisation” pre-COVID and Hurricane Dorian, he added that currently “the focus is best put on how to strengthen the administrative process while keeping the medium term goals of liberalisation and access to foreign exchange”.

Mr Rolle said it was “prudent to manage the risk” and keep the foreign reserves healthy, so they can sustain the peg “without any interference or intervention from monetary policy”. However, due to a lack of eligible borrowers, he added that there was no expectation of a surge in credit demand that will pressure the external reserves.

“The economy now is at a point where we believe the banking system is nearing the end of any deterioration in its delinquency rates or non-performing loan rates,” the Central Bank governor said. “We expect that the height of these delinquency rates will be achieved this year and, before the end of this year, we will see a gradual easing in delinquency rates.”

However, Mr Rolle described the Bahamas’ non-performing loan ratio as high compared to international standards. “We do not foresee banks on the net expanding credit to the private sector this year,” he added. “That possibility is greater in 2023.”

As for The Bahamas’ foreign currency reserves, Mr Rolle said these were expected to contract in 2022 “as the economy gets back on its feet” through expanded consumer demand and the Government finances more of its deficit needs in Bahamian dollars.

“We should expect some contraction in the foreign reserves balance as we go through 2022. It’s possible that a we go into 2023 we will see the reserves grow again,” the Central Bank chief said. “In so far as the reserves are concerned, the Central Bank has the tools to manage the reserves in the appropriate fashion and have support for the Bahamian dollar exchange rate.”

While foreign currency purchases and sales had declined by between 20-30 percent in 2020 at the height of COVID-19, when the economy was beset by lockdowns and other restrictions, Mr Rolle said the subsequent recovery had “almost reached 2019 levels in terms of receipts coming through the banking system”. Sales and purchases for 2021 were both around the $5bn mark.