By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A senior banker is warning against Bahamian commercial lenders sparking credit “bubbles” and increased delinquencies by issuing loans that fail to reflect the borrower’s true credit risk.

Gowon Bowe, Fidelity Bank (Bahamas), told Tribune Business it has witnessed a “significant variant” where rivals are issuing consumer loans at single digit interest rates - and with repayment terms extending out as long as some mortgages - in a bid to win business and generate credit portfolio expansion at a time when growth is muted.

However, he warned that loan maturities as long as 15 years, coupled with interest rates well below the 13-15 percent market norm, threaten to give Bahamian borrowers “a false sense of security”. The Fidelity chief warned this would make it difficult to further extend the loan repayment period if clients ran into difficulty, and questioned if such terms truly give Bahamians “financial independence”.

And, in an era where quality borrowers remain hard to find, Mr Bowe told this newspaper that commercial banks face a choice between “higher risk” growth strategies that win market share but potentially undermine loan book quality or “a more stable and balanced approach” that avoids the risk of numerous delinquencies and defaults.

Mr Bowe, who told Fidelity Bank (Bahamas) shareholders in its just-released 2024 annual report that the institution will not resort to “panic” over the “extraordinary actions” some of its rivals have taken to reignite loan book growth, said: “We are seeing much higher loan value amounts, a lot lower interest rates and longer terms.

“When we talk about unsecured lending, that’s generally associated with higher levels of risk and, in terms of the people being targeted, certainly single digit interest rates and unsecured loan terms extending out 15 years are certainly variant elements.

“When you look at the Central Bank, they typically do a periodic update in terms of what the average rates are. Consumer rates are normally between 13-15 percent; when you’re talking single digits that seems to be a significant variant from normal levels,” he added.

“There’s not much data on what the normal loan term is, but when you think about 15 years and beyond that’s normally a significant capita investment that you expect to earn funds from and save funds for. When you take on unsecured lending for such a long period of time, the question is: Is that beneficial to the consumer?”

Mr Bowe was quick to emphasise he is not opposed to commercial banks competing on loan terms and pricing, and he acknowledged in the bank’s 2024 annual report that what has been offered by competitors appears to be an “introductory” move designed to win new business and market share.

However, he added that offering such long terms on consumer loans represents increased risk as the borrower may decide not to continue servicing the debt if the purpose for which it was taken on - buying a vehicle, furniture or holidays - has long since passed.

“If you borrow today for something that has no intrinsic value tomorrow because you have spent it, that is credit risk,” Mr Bowe argued. “The borrower may say: Why should I consider paying for something that has no value from any more money being spent on consumer items?”

This, he added, was unlike long-term investments such as mortgage loans taken out to finance a borrower’s primary residence or to fund the acquisition of investment securities. “We’ve seen a shift where the primary borrowing is now for consumer loans,” the Fidelity chief added.

“We cannot dictate how people use their resources, but the question is are they setting themselves up for financial independence? If they are tied to loans taken out for short-term gratification - vacations, vehicles and furniture - and if we put them in a position to take out those loans for an extended period of time, it gives them a false sense of security.

“I think the danger comes in when persons go into default. One of the ways to help them get back on track is to extend the loan, but if you have already given them an extended loan what happens if they run into a financial default because of the already-extended maturity period,” Mr Bowe continued.

“The last thing we want to see is an increase in the default rate because people have loan terms that are longer than standard, and have them binge on credit that is extended for a long period of time... Each financial institution has to make a choice on how they are going to earn fees and interest.

“Are they looking to populate the loan portfolio with high risk loans with a higher risk of default, or are they looking for a more stable and balanced approach where they avoid future bubbles?” Fidelity Bank (Bahamas), in its 2024 annual report, said the issuance of new consumer loans is still being outpaced by amortisations, early repayments and other adjustments.

It added that this was “a consequence of the devastation of the finances and borrowing capacity of many households following the economic fall-out of the global pandemic, which has resulted in limited availability of quality new credit for the bank to target”.

“The bank, through its expansion in business consumers, recognised growth in cash secured loans and overdrafts. Collectively, this led to an increase in consumer and other loan types, excluding loans and advances to the Government of The Bahamas, bearing out the forecast that the slowing of the contraction of consumer and other loans of the bank in [2023] compared with fiscal year 2022 would be abated in 2024.

“But contraction in consumer loans specifically remains a challenge, and the extraordinary actions by certain competitors of the bank in 2025 through interest rates and tenors that do not match with the credit risk associated with the typical unsecured consumer loan exacerbated this challenge. Albeit the extraordinary actions appear to be solely a penetration tactic as opposed to an overall market repricing.

“The significant contraction in consumer loans reported by the commercial banking sector comparing December 31, 2024, and December 31, 2019, has been previously disclosed, acknowledging growth in 2023 and 2024,” Fidelity Bank (Bahamas) added.

“The growth, however, does not distinguish between the recognition of restructured loans and advances to customers previously written-off by the sector and the recognition of new loans and advances to customers. The experience of the bank suggests the former.”