By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government and commercial banking industry must have “a meeting of the minds” so the latter can “clean up” its backlog of distressed properties and resume aggressive mortgage lending again, a senior banker urged yesterday.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told an “economic resilience” webinar organised by TCL Group that the Government was taking “a contradictory position” by focusing on new housing developments rather than directing persons to distressed homes that could be acquired at much-reduced prices.

He said the backlog of delinquent mortgage properties, where borrowers have defaulted on their repayments, was tying up bank capital and deterring new lending in the domestic Bahamian housing market for properties worth $1m or less.

“If things continue to be tight in the domestic environment, the availability of qualified borrowers and mortgages is going to remain restricted. There’s underlying factors to that,” Mr Bowe told the webinar. “There’s a significant inventory of distressed properties that exists in our populace today.

“Unfortunately, we have the contradictory position by the Government in that we see the build-out of new housing development. There needs to be a meeting of the minds as we need to first clean up the inventory that remains.” Mr Bowe was likely referring to the latest presentation of keys to homeowners in the newly-constructed Pinecrest subdivision, his argument being that the focus should be on finding new owners for existing properties rather than building more homes.

Doing so, he added, would “free up cash flow for the banks to take a more aggressive approach to mortgages. As long as we have a lingering exposure on the mortgage portfolio we will always have that challenge”. The Central Bank’s latest published monthly economic report, for September 2022, showed that some $392.6m worth of mortgage loans were in arrears at that point, meaning the borrowers are behind on their loan repayments.

Bahamian commercial banks have increasingly shied away from the mortgage market since the 2008-2009 recession, which saw many borrowers default and left them with a huge pile of distressed assets they were unable to easily - and quickly - offload to new owners due to a lack of qualified applicants.

They are increasingly demanding borrowers put up greater equity, around 10-15 percent of the purchase price, which has made qualifying difficult for many, with the addition of closing costs often requiring home buyers to come up with a significant five-figure sun to complete their purchases. Several commercial banks, including Fidelity and Bank of The Bahamas, have also followed Commonwealth Bank’s lead by increasingly focusing on consumer loans, which are perceived as less risky because they can be secured via salary deductions.

Roger Archer, Scotiabank (Bahamas) managing director, told the same webinar that he was “encouraged” by the fact loan delinquencies have reduced despite the twin shocks of COVID-19 and Hurricane Dorian. Noting increasingly grim predictions that a US recession is coming, if not already here, he acknowledged: “There’s a possibility of increased delinquencies.

“The one thing that’s encouraging for me is that we’ve been through COVID and Dorian, and delinquencies over that period have actually reduced. It speaks to the quality of customer we have, and also speaks to commitments in the economy to honour their debts. Even though the risk is there, and the risk is elevated if there is a recession, as an industry we are well-positioned to navigate that.

“We are still well-capitalised, still liquid, and I am confident we are able to navigate any recession that comes. Capital generation is likely to slow, but we all go through cycles. It will not be unique to us as businesses or an industry. My view is if we invest now we will position ourselves to get through any shocks likely to come our way,” Mr Archer added.

“We have been preparing for these risks for some time, and I’m confident that as an industry and economy we will get through any challenges in front of us. A key piece is investing now to lower costs and create value for consumers.”

The Scotiabank (Bahamas) chief also warned Bahamians to “be very mindful” that the nation now has a credit bureau compiling data on their creditworthiness for banks and other lenders, so that the latter can better assess the risk involved in lending to them. Given that refinancing, and access to new loans, could be critical should a recession strike, Mr Archer urged households and businesses to act now to address any delinquencies and improve their rating.

“As we go into a very uncertain period, managing your credit score and having access to credit when you want it is critical,” he said. “Get a copy of your credit report, see where you are now, see if it’s accurate and manage your credit score. With uncertainty in front of us, you need to make sure you are managing your household and managing your business to get through any challenging times we may face in the future.”