By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank's governor yesterday forecast that total Hurricane Dorian losses could exceed $2.5bn at the "low end" - a sum equivalent to 20 percent of The Bahamas' total economic output.

John Rolle, unveiling the regulator's September and third quarter economic outlook, said these projections were "not out of range" given the Category Five storm's devastating impact on private housing, public utilities and infrastructure in Abaco and Grand Bahama.

He warned that a significant "financial resources gap" could develop, despite the Bahamian insurance industry revealing to Tribune Business that insured losses had already surpassed $1bn, due to numerous impacted families and businesses either being totally uninsured or under-insured.

While Mr Rolle did not suggest this "gap" could amount to $1.5bn, the difference between the Central Bank's projected total Dorian losses and insurance payouts, he added that those lacking insurance "could face a lengthy recovery process" through having to rely on either their own savings or financial assistance from the Government and others to rebuild.

The Central Bank governor also predicted that the commercial banking industry's non-performing loan ratio will rise by several percentage points to hit the 10-12 percent range in Dorian's aftermath, as impacted households and businesses struggled to service their debt obligations in the absence of incomes and commercial activity.

He added, though, that such a raised non-performing loan ratio was "not anything to flinch about" for the Central Bank. Mr Rolle said Grand Bahama and Abaco combine for just 14 percent of outstanding commercial bank credit to the private sector, with the latter - the worst-hit island of the two - accounting for just 5 percent.

While this will help impose "some upper limits" on the non-performing loan increase that Bahamian commercial banks are likely to suffer, the Central Bank governor conceded that it was "breathing a sigh of relief in terms of what was the outcome" compared to the scenario if Dorian had made a direct hit on New Providence where most of the country's economy is concentrated.

Still, Mr Rolle's estimates give a further insight into the scale of the damage inflicted upon the Bahamian economy and society by Dorian, and demonstrate how long, expensive and complex the recovery and restoration process will be.

"Even as revised projections indicate that insurance payouts to the private sector could exceed $1bn, the losses - most to private sector assets - could surpass 20 percent of GDP or more than $2.5bn," he warned.

While "key commercial assets" are expected to recover faster than Abaco and Grand Bahama's housing stock, the Central Bank governor said the process was likely to be uneven because a significant number of storm victims lacked adequate insurance coverage.

"There is nevertheless a financial resources gap, given significant uninsured or underinsured families who could face a lengthy recovery process as they rely either on public assistance or have to rebuild out of incomes," Mr Rolle added.

Expanding on his $2.5bn damage estimate under questioning from Tribune Business, he added that a sum equivalent to 20 percent of The Bahamas' annual gross domestic product (GDP) was justified given the impacted islands' contribution to the country's economic output.

"This is just a rough estimate if you're looking at what GDP is for The Bahamas," he explained. "The majority of the damage is expected to be property damage, government buildings and income lost during the period the country was out of service.

"It's really housing stock, utility infrastructure and loss of business premises and inventory. That's collectively where the majority of the loss has occurred. On that basis, 20 percent of GDP is $2.5bn. We're working with 20 percent of GDP as the original estimate of damage.

"The $2.5bn estimate gives you the lower end of what these total damages will be assessed at. I've seen estimates which have much higher physical damages. We know that 20 percent of GDP is not a figure that is out of range."

Mr Rolle, meanwhile, said commercial bank balance sheets were "in a comfortable state to withstand credit stresses from Abaco and Grand Bahama" due to their relatively limited exposure on these islands, with most of their lending portfolios concentrated on New Providence.

Revealing that there are "no concerns" in this area, the Central Bank governor conceded that the sector's non-performing loan ratio - credit upon which no repayment has been made for 90 days or more - would still be pushed back into the double digits due to Dorian.

"We do not expect, when you look at the national exposure, that the impact will rise to unmanageable levels," Mr Rolle said. "We expect some issues. Collectively, Abaco and Grand Bahama represent 14 percent of banks' credit exposure.

"Abaco by itself is less than 5 percent of the total credit outstanding to the Bahamian market, and has the more protracted expectation for the recovery process. From that point of view it puts some upper limits on the deterioration in the non-performing loan situation that the to see."

Mr Rolle said slippage in what had been sustained improvement in bank credit quality, with the ratio of non-performing loans falling to its lowest level for a decade since the 2008-2009 recession pre-Dorian, was inevitable given that the industry was "working with customers to get them back on their feet".

Besides offering a six-month moratorium on loan repayments to clients in Dorian-impacted communities, banks are also being more flexible on down payment requirements and debt service ratios when it comes to extending loans to facilitate storm recovery.

"All that helps banks in the medium term to manage their credit quality and exposure. It gives them time for economic activity to return," Mr Rolle explained.

"Right now the non-performing loan ratio, the aggregate, is close to 9 percent. If it goes up by a percentage point or two points to the 10-12 percent range that's not anything to flinch about as we see it as a temporary response to the storm.

"We see it in the low teens; maybe 10-12 percent. We will have to monitor that to see. Some of the real effects will not be evident for three to six months" when credit exposure to Dorian victims will "start to take off".

Mr Rolle added that further constraining any rapid growth in bad bank loans is the external economic environment, which largely drives Bahamian growth, remains positive due to strong US consumer confidence and low unemployment numbers.

Still, Dorian represents a setback for the commercial banking industry's efforts to tackle its legacy non-performing loan pile and free up financing to fuel renewed economic growth. The Central Bank had been prodding its licensees to more aggressively clean up the issue, and the data shows this was having some reward.

"Over the first nine months of 2019, total private sector loan arrears declined by $60.2m (7.4 percent)," the Central Bank said yesterday. "The ratio of arrears to total loans fell by 1.1 percentage points to 13.2 percent.

"Short-term arrears narrowed by $21.7m (7.4 percent), and the related ratio by 38 basis points to 4.8 percent. Non-performing loans decreased by $38.4m (7.4 percent), and the non-performing loan rate by 67 basis points to 8.4 percent."

The Central Bank added that mortgage loan arrears fell by $42.7m during the nine months to end-September 2019, with commercial/business loan arrears down by $15.4m and that for consumer loans dropping by just $2.1m.