Central Bank: Domestic economy could register only “marginal growth” this year

Central Bank: Domestic economy could register only “marginal growth” this year
(PHOTO: NOVIKOV ALEKSEY VIA SHUTTERSTOCK)

NASSAU, BAHAMAS — The domestic economy could register only “marginal” growth in 2021, with the onset of tourism recovery shifted more outside of the peak occupancy period, according to the Central Bank of The Bahamas.

The regulator, in its monthly economic and financial developments report for December, noted: “Developments continue to be dominated by the COVID-19 pandemic, contingent on the pace of progress on the international health front, the effectiveness and availability of vaccines and the subsequent resumption in global travel.

“Nonetheless, new and ongoing foreign investment-led projects, along with post-hurricane rebuilding works, are projected to provide some support to the construction sector.”

The regulator added: “With regard to the labor market, it is expected that the uptick in the unemployment rate will be sustained over the near-term, with any job gains concentrated largely in the construction sector and in the limited re-engagement of tourism sector employees.”

Central Bank Governor John Rolle. (FILE PHOTO)

According to Central Bank Governor John Roll: “The economy is expected to remain most significantly challenged in the first half of 2021, and begin to show improvement in the second half of the year.

“The recovery should become much stronger over the course of 2022, at which time the private sector should revert to being a net contributor to growth in the foreign reserves.”

Rolle noted during a press conference to release the bank’s monthly economic and financial developments report that a virtual standstill of international travel in 2020 underscores the severe negative impact of the COVID-19 pandemic on the Bahamian economy.

“These effects will also weigh heavily on the economy in 2021 because the global vaccination drive is not expected to meaningfully boost travel confidence until the second half of the year,” said Rolle.

“For The Bahamas, this limits the degree of economic strengthening that would be observed in 2021. The most significant upside potential for tourism recovery remains getting the virus under control in North America.

“The major fiscal stimulus being crafted for the American economy will also have positive spillovers for the speed of the Bahamian recovery.”

Rolle noted that in the financial sector, credit risks increased for lenders in 2020, and banks, in particular, started to make larger provisions for loan losses.

“However, banks only recorded a slight increase in loan payment delinquencies, as borrowers facing hardships largely benefitted from deferred loan payment arrangements,” said Rolle.

“As these arrangements have mostly expired, a truer extent of delinquencies will become evident in 2021. Up to the end of 2020, only 8.5 percent of loan balances remained in deferral state, compared [to] about two-thirds of balances in June of 2020.

“Nevertheless, commercial banks have continued to show forbearance with borrowers who are facing difficulties.”

The Central Bank of The Bahamas logo.

According to the Central Bank, banks’ credit quality indicators improved during the month of December, although remaining weakened for the year.

“For the month, total private sector arrears decreased by $23.2 million (2.9 percent) to $773.1 million, with the corresponding ratio reducing by 36 basis points to 13.8 percent,” the regulator noted.

“By length of delinquency, short-term arrears (31 to 90 days) fell by $27.2 million (8.3 percent) to $298.5 million, lowering the accompanying ratio by 46 basis points to 5.3 percent. In contrast, non-performing loans (NPL) rose by $4 million (0.9 percent) to $474.6 million, resulting in the non-accruals rate firming by 10 basis points to 8.5 percent.”

The regulator further noted that given the increase in non-performing loans and the negative outlook, commercial banks raised their provisions for loan losses by $28.4 million (5.2 percent) to $569.7 million in December.

“Consequently, the ratio of total provisions to arrears rose by 5.7 percentage points to 73.7 percent,” the Central Bank noted.

“In addition, the ratio of total provisions to non-performing loans moved higher by five percentage points to 120 percent. Similarly, the coverage ratio of specific provisions to non-performing loans grew by 5.3 percentage points to 83.4 percent.

“During the month, banks wrote off approximately $18.5 million in bad loans and recovered an estimated $1.6 million.”