The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank's governor yesterday revealed "a decade of steady contraction" in lending to the private sector was halted by 2023's $50.3m credit expansion although mortgage activity remained "subdued".

John Rolle, addressing the regulator's quarterly economic briefing, said last year saw further improvement in credit market conditions as non-performing loans declined by more than a full percentage point of outstanding credit and the ability of borrowers to service their debts also improved following the COVID-19 pandemic.

"Lending to the private sector also expanded further, halting a decade of steady contraction, while the debt servicing capacity of private borrowers was further improved," he said. "Meanwhile, the inflation rate eased in line with reduced price pressures on imported international goods and services."

The Central Bank revealed that outstanding credit advanced to private borrowers expanded by $50.3m in 2023 as compared to a $127.9m contraction the prior year. However, the growth was driven by consumer (personal) and commercial (business) loans, which expanded by $19.1m and $76.4m, respectively. Mortgage loans, by contrast, contracted by $45.3m.

The domestic housing market weakness was acknowledged by Mr Rolle, who also conceded that while the Central Bank's abolition of the mandatory mortgage indemnity insurance requirement to qualify for a lower down payment would improve access to financing for some home buyers, the long-term solution is to improve jobs and income.

"Stimulus to the domestic housing market and building activity through mortgage lending remain subdued," he said. "With the Central Bank’s December 2023 relaxation of mortgage lending conditions, some added positive impacts are expected over the medium-term, although more significant expansion is more likely to be linked to downstream benefits of future employment and income growth that increase the pool of eligible homeowners."

With foreign exchange flows deemed "healthy", Mr Rolle added that the Central Bank plans "to support faster growth in domestic credit over the medium-term, particularly in the private sector.

"The domestic environment will also support more increased net financing of the Government’s deficit in local currency. As a result, it is projected that the increased spending stimulated by credit could lead to additional reduction in the external reserves, although not to any levels that would endanger the level of reserves needed to support the currency peg," he said.

The Central Bank governor said evidence that The Bahamas' economic recovery has reached "a more mature state", with GDP output recovering beyond pre-COVID levels, lay in the minimal increases in foreign exchange inflows and outflows experienced through the banking sector in 2023.

"Total foreign currency inflows through the banking sector rose very mildly by only half a percentage point to an estimated $7.2bn in 2023," Mr Rolle said. "The recovery pace of such inflows in 2022 was 34 percent.

"Although these measured flows can understate the actual volume of activities, due to leakages and potential diversion of some private revenues that never reach the local economy, the recorded transactions still significantly reveal the domestic impact though expenses, including wages taxes other costs that sustain the local presence of business enterprises.

"On the outflows side, foreign currency demand also strengthened at a sharply moderated pace of about 1.5 percent to an estimated level close to $7.1bn in 2023. Extending private sector transactions to their impact on reserves, the commercial banks’ net purchase of foreign exchange from the public was significantly reduced in 2023, and consequently commercial banks’ net sale of foreign exchange to the Central Bank was almost unchanged from 2022," the Governor added.

"The Central Bank's external reserves, however, decreased by almost $250m in 2023 because of a strong reversal in net transactions with the public sector to net sale of $360m as opposed to a net purchase of $206m in 2022.

"The reason for this difference was that the Government was able to reduce its net reliance on foreign currency borrowing, which had contributed to the net foreign exchange sales to the Central Bank in 2022, and there is nothing that is concerning or upsetting about such trends."

As for credit, Mr Rolle added: "Commercial banks’ lending to the private sector recovered further in 2023. This is a sign that conditions for lending have become more favourable, with more strengthening expected in 2024. That said, the increase in 2023 was for only consumers loans and business lending, with a reduction still seen for residential mortgages.

"The credit delinquency rates also continued to fall. In particular, the proportion of total private sector loans that were three months or longer past due with payments decreased to 6.6 percent by December 2023 from 7.7 percent at the end of 2022. Those are typically what we refer to as the non-performing loans ratio. This pattern of reduction is expected to continue in 2024."