By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday said it will “tolerate” larger dividend payments to the Canadian parents of Bahamian commercial banks to ease the pressure for further fee increases.

John Rolle, addressing the regulator’s 2024 third quarter economic briefing, said it would permit larger “outflows” to both regional and home country head offices to reduce excess capital in the Bahamian commercial banking industry and thereby prevent “overly accelerated” lending and credit growth.

With surplus liquidity in the commercial banking industry standing at $3.051bn as at end-September 2024, he disclosed: “The Central Bank is also prepared to tolerate some larger net outflows on dividends, against excess capital in the domestic banks, so they can stay ahead of potential future financial stability risks from any overly accelerated lending trends as well as to reduce some of the current pressures to generate earnings from fees.”

Bank fees, and the transparency associated with any fee rises, have been a particular concern and sore point again with Bahamian consumers in recent months. Mr Rolle, meanwhile, revealed that The Bahamas’ foreign currency reserves which support the one:one peg with the US dollar increased by more than $350m or more than 15 percent during the nine months to end-September 2024.

Explaining that this was driven largely by the Government’s new foreign currency borrowings, the Governor added: “In the foreign exchange markets, the indications of moderating growth were revealed on both the supply and demand sides of transactions.

“The inflows, measured from commercial banks’ purchases of foreign exchange, increased only incrementally by 1.8 percent over the first nine months of 2024, which is even slower than the rise of 2.4 percent in 2023.

“In the meantime, private sector demand for foreign exchange also rose at a much slower pace of 1.5 percent for the same nine months period, still large enough to moderately reduce the net sale of foreign exchange that commercial banks subsequently passed on to the Central Bank,” Mr Rolle continued.

“Nevertheless, the year-to-date trends in external reserves were reversed to a buildup just exceeding $350m or 15.3 percent over the first nine months of the year as opposed to a slight reduction over the comparative period in 2023.

“This was because the Central Bank’s foreign exchange transactions with the Government switched from net sales, which helped fund a sizeable debt repayment last year, to net purchases this year which were driven by the foreign currency borrowings of the Government. At the beginning of November, the external reserves were estimated at about $2.68bn compared to approximately $2.51bn at the same point in 2023.”

Looking to the projected external reserves position at year-end, Mr Rolle added: “The Central Bank forecasts that external reserves could still decrease overall in 2024, relative to the opening balance at the beginning of the year, and this will be due to stronger private sector spending on imports. This continues to be in line with the Central Bank’s posture to encourage accelerated lending to the private sector.

“Moreover, there has also been increased capital raising efforts in the private sector that are stimulating investment-related imports. Even still, the coverage provided by the external reserves is expected to remain more than adequate to support the fixed exchange rate.”

The Governor, noting that private sector loan delinquencies continue to fall, said: “Bank credit to the private sector is growing at a faster pace than in 2023, which is across residential mortgages, consumer loans and business lending. Based on the most recent lending conditions survey, commercial banks are also receiving and successfully approving a higher overall volume of loan applications.

“At the same time, the average delinquency rate for borrowers who are three months or more behind in payments continues to decrease. As at September 2024, this corresponded to just under 6 percent of private sector loan balances, which are even further below where the system was before the great recession of 2008.

“While being spurred on by better economic conditions, indications are that the lending climate has also improved modestly because banks are now using the credit bureau to help assess applications.... In the Central Bank’s monetary policy assessment, the Central Bank will continue to accommodate and encourage increased lending to the private sector and, with this, tolerate some diminished holdings of the external reserves over the near term.”

Mr Rolle said the forecast further reductions in US interest rates could help boost foreign direct investment (FDI) in The Bahamas by lowering developers’ funding costs while also reducing debt servicing (interest) expenses for the Government on its variable-rate US dollar and foreign currency debt.

“The projected reduction in major central banks’ interest rates, as inflation comes under control, increases the ease of funding for potential foreign investments and reduces the expected cost of servicing the Government’s existing foreign currency debt, once other factors are taken into account,” the Governor added.