By Neil Hartnell

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank yesterday said it will exercise “tolerant regulatory treatment” during the COVID-19 crisis by not treating support provided to distressed borrowers as arrears or restructured loans.

The move, announced by the regulator in a statement, will likely keep a lid on the Bahamian commercial banking industry’s non-performing loan levels amid expectations that they could explode due to the mass unemployment sparked by the pandemic 

Disclosing the results of discussions with its licensees on how best to handle the coronavirus fall-out, the Central Bank said commercial banks had agreed not to use unemployment benefit and other relief payments - deposited into a customer’s bank account - as a means to satisfy loan obligations.

And it reminded Bahamian commercial and individual borrowers that they should only take advantage of loan deferral offers if there were no other options available, as the interest due to the lender will continue to accrue and become payable once the crisis has passed.

The Central Bank added that it had agreed with the commercial banks, and credit union sector, for all private sector lenders to provide a three-month deferral against repayments on credit facilities for businesses and households negatively impacted by the COVID-19 pandemic.

Many institutions, such as Royal Bank of Canada, Scotiabank (Bahamas), CIBC FirstCaribbean and Commonwealth Bank, had already announced their intention to offer such repayment holidays prior to the Central Bank’s intervention. Several had even indicated their willingness to offer six-month deferrals.

The regulator, meanwhile, said the three-month deferral will be assessed in June 2020 to determine if any changes are warranted.

“Forbearance will be provided for borrowers who maintained their accounts in good standing before the onset of the pandemic,” the Central Bank added, setting out the terms agreed between both sides. “Further, it is on the condition that such payments will resume, with accrued interest, when the financial circumstances of such borrowers recover.

“Some financial institutions have already announced credit support that could extend beyond three months. Although, the administrative approach to implementing these and other accommodation will vary across lending institutions, the Central Bank will extend tolerant regulatory treatment to exclude these credit balances from being classified as arrears or restructured loans.”

While that will benefit Bahamian commercial bank balance sheets and income statements, the Central Bank sought to strike a balance with protecting hard-pressed borrowers.

“Social assistance and relief payments deposited into bank accounts will remain available to satisfy the assistance needs of borrowers, and not to defray to debt service obligations,” it added.

“Borrowers should be advised that since any credit on which repayment has been postponed will continue to accrue interest, they should only take advantage of payment deferrals when other options or adjustments do not exist.

“Borrowers who can afford to do so are encouraged to continue making loan payments, rather than see their loans increase through accrued interest. In all instances, borrowers are urged to inform their lending institutions of hardships they may be experiencing from loss or reduction in cash flows, income or employment.”