The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian economics professor is urging that “all cards have to be on the table” for banking industry reform as he voiced fears the credit bureau’s launch has yet to lower interest rates for quality borrowers.

Rupert Pinder, assistant professor of economics at the University of The Bahamas (UoB), told Tribune Business in a recent interview that commercial banks must be refocused towards “more lending to the productive sector” of the economy so as to drive faster growth and greater job creation by the private sector.

Asserting that the sector continues to “over-emphasise consumer loans” at the expense of mortgage and business credit, he challenged how purchases of “a BMW or a Kia Sorrento add to capital accumulation” beyond the immediate transaction and satisfying the buyer’s needs.

And Mr Pinder, basing his assessment on personal experience, expressed disquiet that The Bahamas’ first-ever credit bureau “is not functioning the way it should” because, despite possessing information on the credit history of all local borrowers, this has seemingly yet to achieve one of the key reasons for its creation - a noticeable reduction in interest costs for those with an unblemished record.

He also warned Bahamians not to allow the banks to narrow the reform pressure to just a few specific issues, such as lowering or eliminating fees for low-income persons with minimal bank balances, instead arguing that a much “broader” approach is required to assess all consumer concerns “across the board”.

Voicing concerns that the Central Bank is “missing out on opportunities to really help with some of the reforms needed in the banking sector”, Mr Pinder said: “I think the country, the policymakers really need to take a long and hard look at banking reform.”

Asserting that he is far from alone in his views, he hinted that the Government should adopt the more aggressive approach taken by Mia Mottley, the Barbados prime minister, and her stance towards the same Canadian banks that dominate the Bahamian commercial banking market.

“To me, banking is not what it should be in terms of its overall role in the development of the country,” Mr Pinder added. “To me, banking is about financial intermediation. It’s providing a service where it’s a ‘go between’ between savers and borrowers. The savers provide the resources for the borrowers.

“It’s profitable for the banks but, at the same time, they should contribute to the growth and development of our country. They’re falling down there. There is an over-emphasis on consumer loans. Consumer loans don’t necessarily add any value. What I’m finding is that they see themselves as the purveyors of consumer loans.

“They provide some consumer welfare, but don’t add any value to the economy in terms of capital goods and capital improvements. It doesn’t facilitate capital appreciation and accumulation. If we leave it up to the commercial banks, they’ll spend all their time at car shows,” he continued.

“How does a BMW or Kia Sorrento really add to capital accumulation? It’s a good import and, after it’s sold, that’s pretty much it as opposed to facilitating the expansion of the housing market, which creates direct and indirect jobs.”

Mr Pinder asserted that “the other side” of this is that lending activity in The Bahamas by the Canadian banks is “actually creating jobs in other countries because a lot of the loans are processed outside The Bahamas. It creates employment and, in some cases, economic activity outside the country” because these institutions have consolidated core back office functions in other Caribbean states.

Bahamas-based commercial banks have become increasingly focused on consumer lending, as well as fee income, ever since the 2008-2009 global recession resulted in the sector carrying credit arrears that peaked at around $1.2bn - largely due to delinquent and past due mortgage and business loans.

The challenges with repossessing and selling-off distressed properties, coupled with the higher interest rates and consumer loan security offered by liens/deductions taken out on borrower salaries, have driven the banking sector away from home and business loans - something that Mr Pinder and others believe has been to the detriment of the Bahamian economy and society.

“My ideas may seem a bit garbled, but the point I want to make is the Central Bank is missing out on opportunities to really help with some of the reforms needed in the banking sector,” the UoB professor told Tribune Business. “The focus cannot just be on digital transactions...

“Certainly, when you look at the kind of conversations being had in places like Barbados, it suggests I am not alone in my thoughts. There has to be some intervention in all of that to return the banks to their core focus. All the cards have to be on the table, particularly when you look at the historical anemic growth rates in the country of less than 2 percent.”

Mr Pinder argued that the external foreign currency reserves, which stood at $2.7bn at end-November 2024, were more than sufficient to support increased lending and credit expansion. “One of the reforms I would like to see is more lending to the productive sectors,” he reiterated.

“I would also like to see the credit bureau really serve it’s intended focus, meaning lowering the transaction cost for individuals with good credit histories. The credit bureau, in my view, is not functioning the way it should. It should be lowering the transaction cost for customers that are relatively lower risk. I haven’t seen any evidence of it.

“I’ve had some experiences with the banks recently,” Mr Pinder continued. “I’m yet to see, when the banks are asking me to come in for credit based on a certain history, I don’t see any inclination for them to offer me lower rates. I was able to negotiate rates independently of the credit bureau based on my knowledge of certain things and how to leverage, but it had nothing to do with the credit bureau.

“The information generated by the credit bureau should be used to address the issues of information asymmetry, but that should be reflected in lower transaction costs. I think implicit in the function of the credit bureau we should see movement with respect to interest rates.”

Mr Pinder also re-emphasised his belief that the “oligopolistic market structure” of commercial banking in The Bahamas requires greater regulation of industry fees by the Central Bank. “I don’t see how that can be avoided,” he argued. “The only thing talked about so far is greater fee transparency and discussions around the fees for banking accounts.

“There needs to be a more broader review of fees across the board, not just with respect to savings accounts. In fact, I wonder if people are reading very carefully and watching very carefully because I noticed it was rather clever how the banks shifted the conversation to where they would consider adjusting fees with respect to persons with lower bank balances rather than the conversation being broadened to look at fees generally.

“To me, that’s a low hanging fruit,” Mr Pinder added of bank fees. “There are so many other areas.. You look at fees on consumer loans, you look at fees on mortgage loans, fees across the board.” The Central Bank late last year required all its licensees with immediate effect to give consumers and the regulator 30 days’ and 60 days’ notice, respectively, of any planned fee adjustments.

Commercial banks, as well as the credit unions, money transmission businesses and payment services providers that fall under the Central Bank’s regulatory oversight, must now also “disclose or make readily available” the fees charged by rival institutions as well as reveal the anticipated revenue increase generated by adjusting charges.

The Central Bank directive applies to fees related to deposit accounts, credit facilities or any payments-related transactions using cheques, credit cards, debit cards and digital wallets. It also requires its licensees to “provide customers with a schedule outlining the estimated or forecasted change in revenue associated with each varied fee or charge”.