By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fidelity Bank (Bahamas) says the more than $127m collective decline in outstanding mortgage and consumer loans during 2022 shows “quality new credit” and borrowers will be tough to find despite the economy’s rebound.

The BISX-listed bank, in its just-released report ahead of tonight’s 2022 annual general meeting (AGM), said it is aiming to increase non-interest earnings from 10.64 percent to 20 percent of total income in a bid to counter the decline in traditional loan-related income sources that Bahamian commercial banks have relied upon to drive profitability and growth.

“Statistics from the Central Bank of The Bahamas report that consumer loans and mortgage loans outstanding with commercial banks as of December 31, 2022, decreased by $89m and $38.1m compared with December 31, 2021, which demonstrates that the availability of quality new credit is limited even as the economy of The Bahamas experiences its rebound,” Fidelity Bank (Bahamas) warned shareholders.

“Since the peak of the global pandemic, when furloughs and unemployment, particularly in the tourism sector, led to significant increases in the number of loans and advances to customers that fell into delinquency, the yeoman’s effort by the bank during the past two years led to the rehabilitation of a significant number of such delinquent loans.

“However, certain such loans remain as of year-end and, when combined with the contraction in the primary interest earning assets of the Bank, loans and advances to customers, particularly in the consumer loan portfolio that yields higher interest margins, resulted in a decreased interest income,” bank management added.

“This was offset by the decrease in interest expense as a result of the maturity and redemption of debt securities and other interest rate adjustments. Overall, net interest income for the current year decreased by $328,434 demonstrating that the bank, despite pressures from contraction in its primary line of business, is maximising yield from its interest earning assets.”

To counter this trend, Fidelity Bank (Bahamas) said it will target fee income, which increased year-over-year by more than 65 percent in 2022, moving forward. “The bank has more aggressively pursued penetration in credit, debit and prepaid cards business, including the issuance of cards and the offering of merchant acquiring services; that is, enabling merchants to accept cards as payment for goods and services,” the bank’s management told investors.

“The bank expects to exponentially grow the fees and commissions earned, with an almost direct correlation in growth in profitability, as it increases market share in this business, as defined by usage levels, namely the volume and quantum of transactions involving cards as opposed to the number of cards or merchants given significant elements of the required infrastructure and resources are already deployed.

“The exponential growth materialised in part during the year ended December 31, 2022, with fees and commissions increasing by 65.21 percent over the prior year to $6.145m, with non-interest income now representing 10.64 percent of total income. Continuing the exponential growth in the contribution of non-interest income to total income to a target of 20 percent is considered achievable through solely focusing on value added service offerings, notwithstanding net interest income will remain the overwhelming major contributor to total income.”

Looking ahead, Fidelity Bank (Bahamas) said: “The prospects for 2023 and beyond remain positive. However, the initial experience with continuing contraction in loans and advances to customers and increased loan delinquency has refortified the resolve of the bank to appropriately diversify its sources of profitability through business expansion, with expansion in presence in the Family Islands front and centre with the impending opening of offices in Exuma.

“Further, macroeconomic projections report returns to pre-COVID-19 GDP levels, but growth thereafter is what is needed. Recent global macroeconomic conditions that unfortunately are inherited by The Bahamas, such as inflation and the risk of recession in major economies, continue to give reason for caution...

“The way commerce is transacted, and the manner in which persons will live, have gone through an irreversible revolution, and accordingly the economies, sectors, industries, businesses and individuals, globally and more specifically in The Bahamas, will not simply recover to pre-COVID-19 conditions.”