The Tribune

• Will ‘not allow people to be rewarded for bad behaviour’

• Eyes specialist collection, asset seizures, wage garnish

• Focused on 5-10% annual recovery rate at ‘full running’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fidelity Bank (Bahamas) will “aggressively” pursue delinquent borrowers responsible for $80m in collective consumer loan write-offs via personal bankruptcy judgments, asset seizures and taking liens over their wages.

Gowon Bowe, the BISX-listed institution’s chief executive, acknowledged to Tribune Business that these tactics may seem “harsh” and potentially attract criticism but added that the bank will not sit idly by and “allow people to be rewarded for bad behaviour” when they fail to meet their obligations.

Speaking after its annual general meeting (AGM) last week, he said management had “indicated” to shareholders that Fidelity Bank (Bahamas) plans to hire “specialist collection skills” as a means to enforce existing judgments against loan defaulters via the Bahamian court system.

Affirming that success would “have a tremendous impact on the bottom line”, Mr Bowe told this newspaper that the BISX-listed institution is “fairly confident” it can recover that $80m at a rate of 5-10 percent per year once the initiative hits full speed.

Essentially warning long-standing consumer loan deadbeats that there will be no hiding place, he said: “We have a significant portfolio of delinquent loans that we have made full provision for, and in the annual results they are essentially written-off. We are now looking, and I indicated this at the AGM, at specialist collection skills for the enforcement of judgments.

“Our general collections team is focused on working with borrowers, but when you have borrowers who are not [responding], and the court have given you a judgment that says they owe, we need to start taking the general practice of enforcing that, whether it be through bankruptcy proceedings, the garnishing of wages or seizure of assets.

“We are going to take a very deliberate approach to this portfolio of loans that has been written-off over the years. If persons owed the bank during growth years, the focus was on customers coming in but, if you are in a period of contraction, the focus is on recovering loans from those who have failed to meet their obligations.”

With Bahamian commercial banks still struggling to find suitably qualified borrowers for new lending opportunities, many institutions are now grappling with flat or contracting loan books. With little prospect of strong growth in their core business line for the foreseeable future, some are turning to alternative income streams such as fees and commissions plus placing emphasis on recovering loan loss provisions and delinquent credit.

“The general society is going to see a more aggressive approach from Fidelity,” Mr Bowe affirmed. “It may garner some criticism from some as they see it as being harsh.” However, he reminded potential critics that Fidelity Bank (Bahamas) has a fiduciary duty to both its depositors and shareholders to both protect their capital and recover all funds due and owing.

“The bank is going to turn its attention to enforcing, not penalising, the obligations on persons who it has secured legal judgments in relation to,” he told Tribune Business. “We are certainly take the most proactive approach in terms of enforcement even if that means, which is a rare occurrence in The Bahamas, putting people into bankruptcy proceedings under Bahamian bankruptcy law.”

Asked about the collective size of the delinquent credit portfolio that Fidelity Bank (Bahamas) is targeting, Mr Bowe said: “This has been built up over a decade to near $80m. Even collecting 10 percent of it over several years... If we recover at $8m a year. We know in the beginning stages it will not be that successful, but will be more from the perspective of starting the collection effort.

“We will have to devise a strategy that will allow us to be most efficient and cost effective. We’re not going to spend $10,000 to collect $12,000. We’re hoping to spend $1m to collect $5m. We have to make sure the ratio is like that, and that whatever we put into the collection effort is appropriate.

“We have a near-$400m loan portfolio currently, and when you look at the loans written off since the better part of 2012 and 2013, which was when we saw an uptick in the economy, that’s not unusual - writing off between $7m to $10m per year,” he continued.

“Last year we recovered $1.5m, and this year we’re already at $2m for the half-year period. We are quite encouraged that, without specialist collection efforts, by doing that we are fairly confident of a 5-10 percent recovery once we are up and fully running. We will certainly make life more difficult for those who fail to borrow responsibly, even if we do not collect in cash. We are not going to allow people to be rewarded for bad behaviour.

“If we’re successful, we’ll see the results. As we discussed with the shareholders, nothing ventured, nothing gained. This is, in effect, a secondary loan portfolio that has different characteristics but currently has a value of zero, so any recovery will add to the bottom line.”

Mr Bowe said the $28m did not include delinquent mortgage credit because this is secured on the underlying real estate assets that provided collateral for the loan. “It’s about getting sales,” he added of the difficulties in realising mortgage collateral. “We had a great increase in the last year. It may not sound like a lot, between one and two sales per month, but compared to years past that’s like night and day.”

The Fidelity Bank (Bahamas) said shareholders were last week given guidance as to the 2023 first-half performance with the second-quarter and six-month figures now in the process of being finalised. “We spoke to what we are seeing in the first half of the year,” he added.

“We are finalising the six-month results, and we did share that the loan contraction in the industry, which for 2022 was over $130m, with some $90m in consumer loans, is abating but still present in the first half of the year. We’ve been able to maintain interest income and grow revenues, but we have seen an increase in loan loss provisions and that put a damper on profits for the first six months.”

Fidelity Bank (Bahamas), in its just-released 2022 annual report, said the more than $127m collective decline in outstanding mortgage and consumer loans during 2022 shows “quality new credit” and borrowers will be tough to find despite the economy’s rebound.

The BISX-listed bank added that it is aiming to increase non-interest earnings from 10.64 percent to 20 percent of total income in a bid to counter the decline in traditional loan-related income sources that Bahamian commercial banks have relied upon to drive profitability and growth.

“Statistics from the Central Bank of The Bahamas report that consumer loans and mortgage loans outstanding with commercial banks as of December 31, 2022, decreased by $89m and $38.1m compared with December 31, 2021, which demonstrates that the availability of quality new credit is limited even as the economy of The Bahamas experiences its rebound,” Fidelity Bank (Bahamas) warned shareholders.

“Since the peak of the global pandemic, when furloughs and unemployment, particularly in the tourism sector, led to significant increases in the number of loans and advances to customers that fell into delinquency, the yeoman’s effort by the bank during the past two years led to the rehabilitation of a significant number of such delinquent loans.

“However, certain such loans remain as of year-end and, when combined with the contraction in the primary interest earning assets of the Bank, loans and advances to customers, particularly in the consumer loan portfolio that yields higher interest margins, resulted in a decreased interest income,” bank management added.

“This was offset by the decrease in interest expense as a result of the maturity and redemption of debt securities and other interest rate adjustments. Overall, net interest income for the current year decreased by $328,434 demonstrating that the bank, despite pressures from contraction in its primary line of business, is maximising yield from its interest earning assets.”