By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sir Franklyn Wilson has questioned whether the Bahamas has sufficient entrepreneurial risk-takers capable of exploiting the Central Bank’s interest rate to create new businesses and jobs.

The Arawak Homes and Sunshine Holdings chairman said that despite interest rates having already been at near-record lows for the previous five-and-a-half years, there was little evidence that this had helped to stimulate the moribund Bahamian economy.

Pointing to the commercial banking system’s $1.472 billion in surplus liquid assets available for lending at end-November 2016, Sir Franklyn challenged budding entrepreneurs to “find the answers” through greater innovation and creativity.

He acknowledged, though, that the 50 basis point (0.5 percentage point) cut to the Central Bank’s discount rate, dropping this to 4 per cent, would only produce positives for Bahamians and local companies.

Apart from reducing monthly repayments for hard-pressed mortgage and commercial borrowers, Sir Franklyn said the move would also reduce costs for companies whose debt securities were tied to the Bahamian Prime rate.

He added that BISX-listed FOCOL Holdings, which he chairs, would enjoy a $250,000 reduction in annual interest payments to holders of its $50 million in perpetual preference shares - money that can now be reinvested in the company, or drop straight to the bottom line.

“In terms of that contributing to economic growth, there’s no way to put spin on that,” Sir Franklyn told Tribune Business of the Central Bank’s interest rate cut.

“While there’s no way to put a good spin on S&P, there’s no way to put a bad spin on this.”

He then, though, challenged Bahamian entrepreneurs and the private sector to step up and exploit the reduced cost of capital and borrowing, implying that they had failed to respond to the last Central Bank rate cut in June 2011.

“Where are the entrepreneurs? Where are those who are going to do something?” Sir Franklyn asked. “Interest rates were already new record lows, yet we have all this money in the bank.

“The point I’m making is who’s going to start the foundation, build the foundation, build the hotel? Who’s going to do things? Who’s going to come up with the ideas? Who’s going to create the jobs?”

Commercial banks, given a non-performing loan pile that peaked at $1.2 billion, have become increasingly risk averse and shy about lending to the Bahamian economy’s productive sectors, particularly the housing market and private sector.

Outstanding Bahamian dollar mortgage and commercial credit again declined in 2016, dropping to $3.021 billion and $711 million respectively at end-November 2016, compared to $3.073 billion and $753 million the year before.

Commercial banks have imposed an increasingly stringent criteria on loan applicants, making it much harder to obtain credit, even though the supply of financing is plentiful.

Sir Franklyn, though, argued that this should be no obstacle, adding: “Entrepreneurs find ways around this. Those who look for excuses don’t have money. There are always answers if you are serious about doing something.”

Private sector confidence, though, has experienced a sustained battering since the 2008-2009 recession, with the economy’s consistently low growth and increased imposition of government bureaucracy and taxation taking a heavy toll.

The Central Bank’s rationale for reducing the Discount rate, which is the rate at which it lends to commercial banks, is that the move will reduce capital costs for Bahamian companies planning to expand and take advantage of Baha Mar’s phased opening in 2017, plus other resort-related projects.

The regulator is also hoping that its action will help to stimulate a domestic housing market still burdened by almost $600 million in non-performing mortgage loans, with the rate cut reducing monthly payments for existing borrowers, while potentially helping new ones to qualify.

The interest rate cut, which the Central Bank has ordered the commercial banks to pass on to borrowers via a 0.5 percentage point reduction in the Prime rate to 4.25 per cent, represents a ‘wealth transfer’ from savers to borrowers.

The latter, many of whom are highly or overly-leveraged, will see an increase in their disposable incomes as a result of lower debt servicing costs, which could also boost economic activity.

Bahamian companies, too, will see a drop in payments on their loans and debt securities, helping them to increase profits or invest in job-creating expansions.

“It ain’t the good old days, but a 0.5 percentage point reduction will certainly help,” Sir Franklyn told Tribune Business.

“A lot of people’s mortgages are going to go down, and that will help in a very significant way, as a 0.5 percentage point differential on $100,000 will account for something. More and more people can qualify, even in a tough job market. It helps everybody.”

He added that the Central Bank’s rate cut would also “put more pressure” on institutional investors, and asset managers, to find better-yielding investments and returns, which also “ought to create more opportunities for entrepreneurs”.

Sir Franklyn, assessing the combined impact of the rate cut and S&P downgrade, urged Bahamians to “take control of their lives” and, in so doing, help to improve the country’s situation.

“If I had to summarise my position between the two, good news and bad news, it’s my prayer at this holiday season that more people take control of their own lives, find answers, don’t look for excuses, gamble less and discipline yourself in terms of bad credit,” he told Tribune Business.

“It will help to build your own circumstances, and in the process strengthen our own economy.”