By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known businessman has warned that the near-500 per cent increase in Bahamian consumer debt over the past two decades is undermining “nation building” and fuelling “irrational behaviour” by borrowers.

Franklyn Wilson, the Arawak Homes chairman, told the St Barnabas Parish congregation that “the explosion in consumer credit” and desire for instant satisfaction had left many Bahamians in a situation where their monthly income is dwarfed by outgoings.

While Bahamian per capita income had risen by 8 per cent over the 24 years to-date, Mr Wilson said personal consumer indebtedness had increased more than five-fold over the same period - from $2,000 per head in 1991 to $11,500 now.

He added that the relative ease of consumer lending, with commercial banks able to take liens over a borrower’s salary to guarantee payment, was sucking valuable capital away from the Bahamian economy’s productive areas - the housing market and private sector.

Stripping out the Government’s share of the rise in per capita income between 1991 and 2015, Mr Wilson said the average 8 per cent increase enjoyed by Bahamians “may not be seen as great”, but would have been sufficient to maintain a lifestyle equivalent to that of the early 1990s.

Yet he argued that many Bahamians had chosen not to do that, instead seeking instant gratification via a lifestyle that included all the modern consumers fancies, such as cell phones, cable TV and new vehicles.

And not all could afford these upgrades on the incomes they earned, with Mr Wilson arguing that too few Bahamians remembered to invest a portion of their monies into long-term savings.

“This has created a challenge because while the income levels of today could have maintained us at the levels of 1991, even after increases in the cost of living, they cannot meet the changes in lifestyle and behaviour patterns to which we have become accustomed since that time,” Mr Wilson said.

“So, on average, we each have become comfortable with spending more than we earned. Year after year.

Indeed, many persons have become oblivious to what prior generations had proven and taught – when our outgoings consistently exceed our income, our upkeep will become our downfall. Put differently, we simply cannot forever spend more than we make.”

Too many Bahamians, the Sunshine Holdings chairman, said, had sought to fill the gap by resorting to consumer credit for purchases such as cars and furniture.

“Tragically, therefore, there are persons who took out these consumer loans and today cannot even remember what they did with the money – certainly they have nothing meaningful to show for it,” he said.

“A second tragedy is how much has been borrowed. The official record discloses that total consumer debt in 1991 was about $271 million or about $2,000 for every working person. By the end of 2014, the level of consumer debts had increase to almost $2.3 billion or about $11,500 for every working person.

“Thus, from 1991 to 2014, our average income after taxes increased by about 8 per cent but the level of our consumer loans went up by almost 500 per cent.”

Mr Wilson said these figures underestimated the scale of the Bahamian consumer borrowing binge, as they did not include data from ‘pay day lenders’ and a host of other entities not regulated by the Central Bank.

He blamed a change in Government policy in 1992 or 1993, which eliminated the requirement for borrowers to have a sum equivalent to 35 per cent of the loan amount, for fuelling consumer lending.

The practice of salary deductions was also “liberalised”, a development that Mr Wilson argued changed the ‘risk evaluation’ matrix for lenders and removed the need for collateral such as real estate.

“Everything has been made so easy. Getting a loan has become so quick,” Mr Wilson added.

“More and more, the borrowers would never even ask the cost – that is the rate of interest being charged on the loan or the charges being added to the loan.

“Imagine: The same people, who spend great time going from food store to food store looking for the best deal, would go and borrow money without even asking the price,” he added.

“Once the lender said that the loan is approved, the rate of interest is irrelevant. So is the level of fees being added. This is truly irrational. But irrational conduct is so common. No wonder rates of interest on consumer loans are commonly more than twice the rates charged for mortgage or business loan.”

Mr Wilson argued that this “irrational behaviour” was having “serious consequences” for both individuals and the wider Bahamian economy and society.

With Bahamians on average paying $200 a month from their income to service interest and borrowing costs on consumer loans, Mr Wilson said the ‘salary deduction’ practice had caused many to lose control over their incomes - especially after the Government raised the 45 per cent limit to allow for ‘emergency exemptions’.

Arguing that this had been abused by civil servants, Mr Wilson said: “I am advised that when the Government prepares payroll, 72 per cent goes to finance houses and not directly to the employee.

“Think hard about that. The typical Government employee is actually seeing only 28 per cent of his or her income. From that they must pay for groceries, cooking gas, utilities, costs related to vehicles and education for children. In many instances, even rent.

“Worse still, to get to an average of 72 per cent, it means that there are some borrowers where far more than 72 per cent of the salary is assigned.”