The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Restoring credit applications to pre-COVID volumes is just “the first step” to reversing the $500m pandemic-driven cut in the Bahamian commercial banking industry’s loan book, a senior executive said yesterday.

Gowon Bowe, the Clearing Banks Association’s (CBA) chairman, told Tribune Business that while the return of loan applications to their highest levels since the 2020 first quarter signals greater borrower confidence it has to be viewed against how much the total bank credit market shrunk in the three years prior to 2023.

With the industry’s total outstanding loan portfolio having shrunk by around half a billion dollars during that period, he explained that renewed credit growth averaging around $120m to $150m per annum means it will take between three-and-a-half to four years to recover the ground lost to COVID. Based on that timescale, Bahamian commercial banks will only fully rebuild the portfolios they had by around 2026.

Mr Bowe, also Fidelity Bank (Bahamas) chief executive, spoke after the Central Bank’s lending conditions survey for the 2024 first half suggested an improving credit market with the number of approved applications having increased by 15.1 percent to 13,764 compared to the prior year period. This made for an approval rating of 80.4 percent.

Loan applications received increased by 7.7 percent year-over-year to 17,118 for the six months to end-June 2024, the Central Bank found, while so-called “loan denials” fell by 37.4 percent when measure against the same period in June 2023. Mr Bowe, though, emphasised that the credit market - loan applications, approvals and disbursements - must be viewed in its entirety to gain a full understanding of its health.

Describing the increased loan applications as “a positive trend”, and a sign that many potential borrowers have increased confidence in their ability to qualify for credit, he reiterated that this optimism did not necessarily translate into approvals as there could be “some legacy issues” with past delinquencies, for example, that candidates must first resolve.

While not trying “to put a wet blanket” over the Central Bank report’s findings, Mr Bowe said the “size and quantum” of loans being disbursed is another critical factor. “Is the amount being disbursed comparable to pre-COVID?” he asked. “I know the answer: Absolutely not.

“In consumer loans up to the end of August this year, growth from January 1 was about $74.8m. That’s certainly positive in that regard. However, when we say there was a contraction in the overall loan portfolio of banks of $500m from the beginning of COVID to about 2023, and if you’re growing back at $120m a year, that will take about four to five years which is not inconsistent with what we disclosed in our [Fidelity’s] annual report...

“It’s not to dampen the enthusiasm, because I think it’s exactly right for us to be optimistic because we are seeing a reversal of these trends.” While the Bahamian banking industry’s commercial loan book has expanded by $90m year-to-date through August 2024, and its overall portfolio has expanded by $116m, Mr Bowe said there has been “contraction” in both mortgage lending and credit to the Government.

“If we are saying total loans contracted by $500m, and we only got back $120m, even though the final quarter may see some additional growth and we may possibly get to $150m a year, that’s still three-and-a-half years to get back,” he told Tribune Business.

“We should take the optimism and confidence of borrowers. That’s the first step. We must then consider if they are meeting the credit criteria, and that will be a bit tighter given the experience in COVID and prior to COVID with the 2008-2009 recession, and then see if the disbursements are panning out.

“Is there growth there? Yes. Is there growth in consumer and commercial loans? Yes. Is there growth in government lending and mortgages? No, there’s contraction. Is there overall growth? Yes. Is that at the pace where it will rebound in one to two years? No, it will be three to four years with that growth.”

Mr Bowe said the commercial banking industry’s total outstanding mortgage loan book has narrowly contracted by $1.5m for 2024 to-date, even though the Central Bank’s lending conditions survey disclosed that the approval rate for such credit rose by 22 percentage points to 54.3 percent for the first six months of the year.

The approval rate rose despite a 25.5 percent year-over-year reduction in demand for mortgage loans based on a lower volume of applications. “You have less people applying but a greater percentage being approved,” Mr Bowe added. “Is it because only prime borrowers are borrowing so approval rates are going higher?

“It’s not appropriate to disaggregate applications from approvals and disbursements. They are all related if you want to understand the environment. You want to understand the contraction in applications. Does that mean discouraged mortgage applicants are not submitting? If there is a higher percentage being approved, does that mean less applicants and a greater percentage being approved because they ate better borrowers?”

Mr Bowe said the reduced industry mortgage book meant this element of its lending portfolio is not growing, with institutions “running to stand still” as new loans replace those that have been paid off or amortised. “Over the first half of 2024, respondent banks received 793 residential mortgage applications; constituting 98.3 percent of the total mortgage applications received,” the Central Bank survey said.

“Residential mortgage applications decreased further by 25.5 percent, year-on-year, following the 7.6 percent decline a year earlier. Reductions were documented for all three major categories: New construction (49.1 percent), rehabilitations and additions (23.8 percent) and existing dwellings (8.7 percent).

“Of the applications received, financing sought against existing residential dwellings represented 41.4 percent of mortgage demand, while rehabilitations and additions and mortgages for new construction accounted for 38.8 percent and 18.1 percent, respectively. Moreover, commercial financing applications constituted just 1.7 percent of requests.”

The Central Bank added: “Analysis by island revealed that mortgage applications processed in New Providence fell by 29.3 percent, and in the Family Islands by 36.8 percent. In contrast, demand increased in Grand Bahama by 13.2 percent.

“Nevertheless, total mortgage applications recorded an approval rate of 54.3 percent in the first half of 2024, an increase of 22.1 percentage points vis-à-vis the same period last year. Specifically, the approval rate for renovation projects was 10.2 percent, while support for new construction and existing dwellings requests were 63.7 percent and 91.6 percent, respectively. Further, commercial mortgages registered an approvals rate of 50 percent.”

As for consumer loans, which accounted for 91.7 percent of all credit applications, the Central Bank revealed that 24 percent - close to one in four submissions - was for purposes of debt consolidation. And, of the 9.2 percent of consumer loan requests that were rejected, nearly 53 percent of these denials were for low credit scores and poor risk assessments. High debt service ratios accounted for more than one in four rejections.

“Requests grew by 10 percent year-on-year on account of growth in applications received from New Providence (13.6 percent) and the Family Islands (9.3 percent). Conversely, demand from Grand Bahama reduced by 12.3 percent,” the Central Bank said.

“Of the 15,691 consumer loan applications received, requests were mainly for ‘other’ miscellaneous purposes (26.1 percent), consolidation of debt (24 percent), credit cards (21.7 percent) and travel (11.8 percent). Categorised by component, lending requests showed gains for debt consolidation by 31.5 percent and land purchases by 27.4 percent.

“In the same trend, demand rose for ‘other’ miscellaneous purposes (26.4 percent) and credit cards (17.2 percent). In contrast, applications reduced for commercial vehicles (84.9 percent), education (43.3 percent), home improvements (41.5 percent) and medical (41 percent),” it added.

“Further declines were recorded for furnishings and appliances by 13.2 percent, travel, by 9.9 percent and private cars by 2.1 percent. Meanwhile, the number of applications received for taxis and rented cars registered a flat outturn.”