By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Commercial banks are “inviting” the Government to intervene in their lending practices, a top businessman warned yesterday, because they are “fuelling” behaviour that does not benefit the Bahamas.

Franklyn Wilson, the Sunshine Homes and Arawak Homes chairman, said the tendency of many commercial banks to focus on higher-yielding consumer loans - and charge borrowers 18-20 per cent interest even with salary deductions - was placing “growing pressure” on the Government to act.

Telling Tribune Business that there was “a significant, deepening divide” between the lending policies of some commercial banks, Mr Wilson implied that with price controls imposed on basic food items, such as eggs and milk, there was nothing to prevent the Government imposing similar ‘caps’ on interest rates.

And he added that increasing numbers of Bahamians were starting to view commercial banks negatively, believing their lending practices were “reckless and irresponsible”.

“There’s a significant divide which has developed, and is deepening, in the banking sector,” Mr Wilson told Tribune Business.

“On the very same day you had the chief executive of one bank in the papers complaining about the Homeowners Protection Bill and how this was affecting the market, the major lender in the country was launching a mortgage campaign. There’s a dichotomy developing.”

The latter bank referred to was BISX-listed RBC FINCO, which is Royal Bank of Canada’s Bahamian mortgage-lending arm.

But, while FINCO has stayed true to its mortgage roots, other banks have increasingly altered their loan portfolio to take on a greater mix of consumer loans.

This has partly been driven by the recession, in which mortgage loans have been hit particularly hard, accounting for around $650 million of the $1.2 billion worth of bank loans that are either in default or non-performing.

In addition, consumer loans - sometimes unsecured - attract a higher interest rate than mortgages due to the perceived greater risk, and thus generate higher margin yields for the banks if they stay current.

Railing at the increased trend towards personal lending, Mr Wilson told Tribune Business: “People are coming to realise consumer lending is not good for the country.

“At some point the pressure will grow on the Government to stop this, as it’s not in the country’s interests.

“I’m beginning to hear more and more people identify banks in these terms, as reckless and irresponsible. I’m not putting forward that view myself; people are expressing their own views on the conduct of the banks in this country in very negative terms.”

While acknowledging that the first responsibility of commercial banks, and all companies, was to deliver profits for their shareholders, Mr Wilson said that if rising bottom lines were driven by “fuelling” unsustainable consumer lending, the Government will “at some point have to take notice and make policy changes to stop these practices”.

Arguing that many Bahamians were subject to salary deductions for their entire working life, after gorging themselves on personal loans, Mr Wilson said that unlike the US, there were no personal bankruptcy laws in this nation that enabled people to wipe out their debts and start afresh.

“The conduct of certain banks is fuelling a behaviour pattern that the banks themselves must realise cannot be sustained, and must realise is not in the national interest,” Mr Wilson told Tribune Business.

“At some point, the conduct of the banks must be putting pressure on the Government to do something.”

He added: “Successive governments in the Bahamas have been so preoccupied with acting in a manner where they are not perceived as anti-business, and anti-foreign direct investment, they’ve allowed businesses to get away with a lot.”

Mr Wilson said many Bahamians who might otherwise qualify for a home mortgage loan had “maxed themselves out” on multiple consumer loans.

And he added that banks who charged interest rates of 18-20 per cent on consumer loans, plus fees, were “putting pressure on those focused at lending mortgages at 7.5 per cent.

“They’re inviting the Government to do something,” he said. “It’s an invitation for the Government to act.”