By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Central Bank’s governor yesterday agreed that commercial institutions must “focus on clearing the runway a lot more for new lending” by tackling loan delinquencies that exceed Caribbean and international norms.

John Rolle, addressing a forum staged by The Bahamas Think Tank, said comparisons between the level of non-performing bank loans in The Bahamas and those elsewhere in the region, the US and Canada “underscores the distance we have to go in getting the delinquency ratios in our banking sector lower than they were in 2008”.

Non-performing bank loans, on which borrowers are 90 days or more past due, stood at $451.4m or 8.4 percent of total outstanding credit at end-August 2022. And further data unveiled by Mr Rolle revealed that Bahamian commercial bank lending to the private sector has contracted in every year over the past decade since 2012, with only 2019 coming close to flat.

The Central Bank governor said risk averse Bahamian commercial banks are engaged in “pro-cyclical” lending, which means that they only start to extend credit once economic growth and strengthening is visible rather than driving this themselves through their own activities.

This prompted Dionisio D’Aguilar, former minister of tourism and aviation in the Minnis administration, to argue that commercial banks have “morphed” into fee-levying institutions rather than engaging in their primary reason for being - lending money to qualifying borrowers. He challenged Mr Rolle over “how to fix this problem”, as the unwillingness of banks to lend was undermining economic growth.

The Central Bank governor replied that the former Christie administration’s introduction of mortgage relief and the Homeowners Protection Act had undermined commercial bank confidence to lend because the latter, in particular, had made it harder to realise the distressed assets upon which delinquent loans are secured by introducing the courts into the process.

“Part of the process of enforcing collateral is the Government trying to meet certain social policy objectives with how borrowers are impacted,” Mr Rolle said. “It’s more than just a foreclosure. The point of foreclosing on collateral is that you should be able to liquidate. We need to appreciate that some of the protracted process of resolving collateral is a reflection that it is not easy in this real estate market to dispose of foreclosed properties. 

Suggesting that home buyers would be better acquiring already-completed distressed properties as opposed to building their own, which would require a cultural shift but help out lenders, Mr Rolle said: “The collateral issues are also tied to the fact that the middle class has been severely impacted by a lot of what’s happened in the last decade-and-a-half.

“And to the extent even if you have a new crop of potential borrowers, if they don’t as easily replace those who held on to the collateral, it’s not as easy also for them to buy into the collateral,” he said. “Going forward, the lending institutions want more certainty and clarity over how they assess borrowers and the credit bureau will help that so banks can feel more confident in terms of the historical basis on which persons would justify their access to credit. 

 “What you should be very confident with is that even though you have a high non-performing loans, the banks have in many cases already absorbed a loss or 100 percent provisioning on average, which means that they’ve taken a hit the profit and so it’s really just being saddled with trying to resolve assets that they might still have on the balance sheet. So we can focus on clearing the runway a lot more for new lending. I think that will help.”

Mr Rolle also pointed out that the return on equity for investors in Bahamian commercial banks is “sufficiently lower” than some of the other Caribbean jurisdictions. “It doesn’t matter what the outcomes are that we’re trying to achieve in the sector. We cannot discriminate in terms of what investors are seeking or in terms of the desired return on equity, whether those are local or indigenously owned interest, or international interest,” he said. 

“Try to understand what’s driving these differentials. One of those that Central Bank has a medium-term focus on is trying to get some of the excess capital out of the system, which means some of it is going to go out in terms of repatriation [of dividends- because sitting in the system it’s not entirely productive.”