The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian commercial banking sector’s stability hit a seven-year high in 2022, the industry’s regulator has revealed, as combined profits soared nearly 59 percent to just shy of $400m.

The Central Bank, unveiling the 2022 Financial Stability Report, said the industry’s soundness was at its highest level since 2016 thanks largely to improved profitability and system liquidity following the travails caused by COVID-19.

Pointing to its Banking Stability Index, which combines these factors with others such as asset quality and soundness, the Central Bank said: “In 2022, the Banking Stability Index, which measures the soundness of deposit-taking institutions in The Bahamas, continued to improve underpinned by the ongoing strengthening in the domestic economy. The index increased to 2.01 from 1.53 in 2021, signalling that the sector remained sound.

“Specifically, the normalised profitability indicator rose to 1.04, higher than the 0.61 firming in the previous year, reflective of an increase in profitability, as returns on both assets and equity sustained its positive trend in 2022, extending the gains in the preceding year. In addition, the liquidity indicator firmed to 0.53 from 0.46 in 2021, as banking sector liquidity maintained robust levels. The normalized asset quality indicator also moved higher to 0.47 from 0.42 in the prior year.”

Commercial bank profitability was boosted by the Bahamian economy’s post-COVID re-opening and recovery from the pandemic. This, and the return of thousands of Bahamians to full-time work and normal hours, meant many borrowers were able to meet their loan obligations once again and, as a consequence, banks were able to recover multi-million dollar loss provisions taken during COVID’s peak.

“Domestic banks reported net profits of $397m in 2022, extending the previous year’s $254.7m net earnings,” the Central Bank said. “Contributing to this outturn was a decline in provisions for bad debts and reductions in staff and occupancy costs. Correspondingly, the ratios of net income to average monthly assets (return on assets), and to equity (return on equity) grew to 3.5 percent and 17.9 percent, respectively, from 2.3 percent and 10.9 percent in 2021.

“Total provisions for bad debts fell by $140.1m (27.5 percent) to $371.8m, extending the 10.9 percent decrease in the previous year. As a result, the attendant ratio to average assets declined by 1.2 percentage points to 3.2 percent. In addition, depreciation costs reduced by 4.6 percent, a turnaround from a 20.6 percent rise in 2021, with the attendant ratio lower by one basis point at 0.17 percent.

“In contrast, total operating costs increased by 2.3 percent after an 11.6 percent reduction a year earlier for an eight basis points rise in the relevant ratio to 3.6 percent. Further, the ratio of net interest income to average assets firmed by eight basis points to 4.7 percent while the ratio of commission and foreign exchange income to average assets moved higher by seven basis points to 0.5 percent.”

Breaking down the improvement in loan delinquencies witnesses in 2022, the Central Bank added: “Total private sector loan arrears contracted by $169.6m (21.8 percent) to $610.2m at end-December 2022, a reversal from a growth of $6.7m (0.9 percent) in the prior year.

“The decline was led by the reduction in consumer loan arrears, with more modest decreases reported for commercial delinquencies and mortgage arrears. Consequently, the ratio of arrears to total private sector loans fell by 2.9 percentage points to 11.4 percent following a 42 basis point rise a year earlier.

“A disaggregation of delinquencies by average age showed that the non-performing loan segment decreased by $113m (21.4 percent) to $414.9m, a switch from a $53.4m (11.2 percent) gain in 2021. The outturn was occasioned by reductions for all loan types, with non-performing loans for consumer loans lower by $87.7m (43.6 percent), mortgages by $23.1m (8.3 percent) and commercial arrears by $2.2m (4.7 percent),” the regulator continued.

“By comparison, short-term (31-90 days) arrears reduced by $56.6m (22.5 percent) to $195.2m, extending the year-earlier $46.6m (15.6 percent) decline. In particular, mortgage delinquencies fell by $33.8m (21.2 percent), while commercial and consumer arrears were lower by $14.1m (59 percent) and by $8.8m (12.7 percent), respectively.

“As a result, the non-performing loan ratio against total private sector loans decreased by 1.9 percentage points to 7.7 percent, while the ratio of past due loans to total private sector loans narrowed by one percentage point to 3.6 percent.”

Turning to commercial banking sector liquidity, the Central Bank said: “Banking sector liquidity remained buoyant in 2022, supported by government’s foreign currency borrowings and receipts from real sector activities. As a share of total assets, banks’ holdings of liquid assets grew by 3.5 percentage points to 37.3 percent, outpacing a year-earlier 1.4 percentage point gain.

“Further, the ratio of liquid assets to short-term liabilities rose by 2.1 percentage points to 48.8 percent, exceeding the previous year’s 1.0 percentage point improvement. The ratio of deposits to total loans firmed by 13.3 percentage points to 135.5 percent, following a more modest 7.6 percentage point gain in 2021. Meanwhile, the ratio of demand deposits to total deposits strengthened by three percentage points to 50.6 percent, extending the 2.5 percentage point increase in 2021.”