Central Bank: Commercial banks can absorb increases in non-performing loans

Central Bank: Commercial banks can absorb increases in non-performing loans
The Central Bank of The Bahamas. (PHOTO COURTESY OF THE CENTRAL BANK)

NASSAU, BAHAMAS — The commercial banking sector have comfortable levels of capital to absorb any likely increase in non-performing loans (NPLs), Central Bank Governor John Rolle has stated.

Speaking at a quarterly economic briefing, Rolls said:“We have not seen any negative movement yet on non-performing loans with respect to COVID-19.

“We anticipate that there will be some increase. There is a lot of work going on around that. More importantly we believe banks have comfortable levels of capital. As a matter of fact the capital levels  in our domestic banks are in excess of the internationally recommended levels. We are comfortable that the banks can absorb any potential losses or increase in NPLs.”

The regulator announced back in late March that it had arranged with domestic banks and credit unions to provide a three-month deferral against repayments on credit facilities for businesses and households that were negatively impacted by the COVID-19 pandemic.

This accommodation will be revisited in June 2020, for appropriate changes that may still be warranted.

The monetary developments for the month of March the Central Bank noted that bank liquidity contracted over the review period, as the expansion in domestic credit outpaced the rise in the deposit base.

The regulator also noted that monetary developments for the month of March featured a declined in broad liquidity by $48.6 million to $2,048.9 million, exceeding the $32 million falloff a year earlier, as the growth in domestic credit outpaced the rise in deposits.

“In contrast, excess reserves—the narrow measure of liquidity—grew by $13.6 million to $1,150.9 million, a reversal from a $36.1 million contraction during the same period in 2019.  For the first quarter, liquidity expanded, largely attributed to further net foreign currency inflows from reinsurance receipts and seasonal net tourism inflows,” the Central Bank reported.

“Specifically, excess reserves increased by $44.7 million, extending the $4.8 million gain in 2019.  In addition, excess liquid assets rose by $79.4 million, albeit a slowdown from the $88 million growth recorded in the previous year.”

The Central Bank also reported that total Bahamian dollar credit grew by $92.1 million in March, a reversal from the $81.6 million reduction recorded in the same period last year.

“Net claims on the Government recovered by $61.7 million, following the $70.1 million contraction in 2019. In addition, credit to the private sector rose by $32.2 million, a turnaround from the $8.7 million decrease in the previous year,” it stated.

“In particular, consumer credit increased by $24.2 million vis-à-vis a $6.3 million reduction last year; and commercial credit advanced by $13.0 million in contrast to the $4.0 million falloff in the prior year”