By YOURI KEMP
Tribune Business Journalist
The Central Bank Governor agreed yesterday that commercial institutions need to “focus more on clearing the runway for new lending” by tackling defaults that exceed Caribbean and international standards.
John Rolle, speaking to a forum organized by the Bahamas Think Tank, said comparisons between the level of non-performing bank loans in the Bahamas and those elsewhere in the region, the United States and Canada “highlight the distance that we have to go to get the delinquency ratios in our banking sector lower than they were in 2008”.
Non-performing bank loans, on which borrowers are 90 days or more past due, amounted to $451.4 million, or 8.4% of total loans outstanding at the end of August 2022. And d Other data unveiled by Rolle revealed that the Bahamas commercial bank lending to the private sector has contracted every year for the past decade since 2012, with only 2019 coming close to stagnation.
The Central Bank governor said the risk-averse Bahamian commercial banks are engaged in “pro-cyclical” lending, meaning they only start extending credit when economic growth and strengthening are visible rather than lead them themselves by their own activities.
This prompted Dionisio D’Aguilar, former minister of tourism and aviation in the Minnis administration, to argue that commercial banks have “transformed” into fee-paying institutions rather than engaging in their primary raison d’être. – lend money to eligible borrowers. He challenged Mr Rolle on “how to fix this problem” as banks’ reluctance to lend was undermining economic growth.
The Central Bank Governor responded that the former Christie administration’s introduction of mortgage relief and the Homeowners Protection Act had shaken commercial banks’ confidence to lend because the latter, in particular, had made it more difficult to realize the troubled assets on which defaulting loans are secured by bringing the courts into the process.
“Part of the process of enforcing guarantees is for the government to try to achieve certain social policy objectives based on the impact on borrowers,” Rolle said. “It’s more than just a foreclosure. The point of a collateral foreclosure is that you should be able to liquidate. We need to understand that part of the protracted collateral resolution process reflects the fact that disposing of foreclosed properties is not easy in this real estate market.
Suggesting that homebuyers would be better off acquiring distressed properties that have already been completed rather than building their own, which would require a cultural shift but would help lenders, Mr Rolle said: ‘Collateral issues are also linked to the fact that the middle class has been badly affected by much of what has happened over the last decade and a half.
“And to the extent that even if you have a new generation of potential borrowers, if they’re not as easily replacing the ones who have kept the collateral, it’s not as easy for them to buy the collateral,” said he declared. “Going forward, credit institutions want more certainty and clarity about how they assess borrowers and the credit bureau will help them so that banks can feel more confident in terms of the historical basis on which people justify their access to credit.
“What you should be very confident with is that even if you have a high number of non-performing loans, the banks have in many cases already absorbed a loss or provisioning of 100% on average, which means that ‘they’ve taken a hit to profit and so it’s just a matter of trying to resolve any assets they might still have on the balance sheet, so we can focus more on clearing the runway for new lending.’ think that will help.
Mr Rolle also pointed out that the return on equity for investors in commercial banks in the Bahamas is “sufficiently lower” than in some other Caribbean jurisdictions. “It doesn’t matter what results we try to achieve in the sector. We cannot discriminate in terms of what investors are looking for or in terms of desired return on investment, whether it is local or indigenous interests or international interests,” he said.
“Try to understand what drives these differentials. One of those the Central Bank is focusing on in the medium term is trying to get some of the excess capital out of the system, which means some of it is going to come out in terms of repatriation[ofdividends-becausesittinginthesystemisn’tentirelyproductive[ofdividends-becausesittinginthesystemit’snottirelyproductive”[desdividendes-parcequesiégerdanslesystèmecen’estpasentièrementproductif[ofdividends- becausesittinginthesystemit’snotentirelyproductive”