Thursday, November 7, 2019
By NEIL HARTNELL
Tribune Business Editor
Politicians are reluctant to tackle The Bahamas' consumer debt woes for fear of undermining much of the spending fuelling the economy's "powder puff" growth, a well-known developer said yesterday.
Sir Franklyn Wilson, pictured, the Arawak Homes chairman, told Tribune Business it was easier for both major parties to "turn a blind eye" to the increasing number of Bahamians becoming financially crippled by excessive borrowing due to the "short-term" benefits produced by their spending on consumer goods.
Arguing that this was "not sustainable economic development", Sir Franklyn said much of The Bahamas' economic growth has been built on a flimsy debt-fuelled platform rather than long-term savings and investments in the economy's productive sectors.
These concerns were reinforced by this week's publication of the latest Central Bank's Lending Conditions Survey, which revealed that debt consolidation loans - the last resort rescue act for troubled borrowers - received the most applications of any consumer loan type during the 2019 first half.
And, with consumer loans accounting for 91 percent of the total 19,712 loan applications made during the period, Sir Franklyn said it merely continued a trend that he and others have been voicing fears over for some time.
Warning that it would require real "courage" for a governing party to make the necessary changes in public policy, he expressed scepticism that anything would happen soon and said: "Politicians don't get elected on the basis of courage."
Turning to the Central Bank's survey findings, Sir Franklyn told this newspaper: "This continues the pattern that has been going on for some time..... At some point the fact of the matter is that some government is going to out that some public policy change is necessary.
"Part of the problem why politicians are reluctant to act is because so much of economic growth depends on consumer spending, and if you go to restrain it, this narrative about economic growth will be affected in a fundamental way.
"It's not in the short run interests of politicians to do anything about it. It's better in the short run for politicians to ignore it - it props up employment, it props up government revenue. You turn a blind eye because it gives you an opportunity to say the economy is growing, and make speeches on that."
The Central Bank survey revealed that out of 19,712 loan applications processed during the 2019 first half, more than nine out of ten, or just under 18,000 related to consumer loans. The commercial banking industry, badly hit by the housing market crash following the 2008-2009 recession, now views consumer loans as less risky because they can be secured by salary deduction.
The data highlighted how the risk averse Bahamian commercial banking industry continues to concentrate its lending efforts on loans for cars, furniture and appliances, and the luxury "bells and whistles" of life - something that threatens to deprive the economy's productive elements, namely the housing market (mortgages) and private sector (businesses) of much-needed financing capital.
It also further exposed the breadth and depth of the pressures faced by financially-struggling Bahamian households, individuals and businesses, as debt consolidation loans are typically a last resort move to rescue troubled borrowers by combining all their outstanding loans into one to reduce the debt repayment burden.
More than 6,000 Bahamian borrowers applied for debt consolidation loans during the 2019 first half, making it the most sought-after form of consumer credit by some distance and accounting for more than one-third of all such loan applications during the six months to end-June 2019.
Sir Franklyn argued that it was easier to focus on headline GDP growth numbers than look for the roots of economic expansion, which he suggested were poorly planted due to an over-reliance on consumer spending that was often underpinned by unsustainable debt levels.
Consumer spending is thought to drive up to two-thirds of Bahamian GDP growth, but the Arawak Homes chairman said economists had "long recognised" there was a difference between economic growth and sustainable growth.
"It's more convenient to talk about economic growth than sustainability and development," he told Tribune Business. "There's a difference between economic growth and economic development. This is not economic development. I hear all the talk about the economy growing, but that's powder puff, man, powder puff.
"How do you keep building the economy? What money is going to hotels, farms, fisheries and things that earn foreign exchange? None. You can't have economic development without this type of development. Someone says they want to build a plant. Where are they going to find the money? Who will lend them the money?"
Sir Franklyn said it was easier to be approved for consumer credit than a mortgage because the lender's qualifying criteria for the former were much simpler, and any loan could be secured via salary deduction if they were working.
"There's just so much you could point to that unless and until we address very serious issues in this country we're just spinning wheels. This is one," he told this newspaper. "This is not economic development; this is not economic development. I repeat that: This is not economic development.
"No one wins with this. Various businesses have a good innings or two, have a good short run, but in this model no one wins. Government gets revenue from imports, and buying fridges and cars, but this is a temporary thing. It s not sustainable."
While the total number of loans processed during the 2019 first half represented a 17 percent increase compared to the 2018, just 53 percent of mortgage applications were approved to further illustrate the ongoing difficulties many Bahamians have in meeting the banks' more stringent qualifying requirements to enter the housing market.
The approval rate for commercial loans to businesses, representing a small minority of 2019 first half credit applications, stood at 86 percent.