Central Bank: Non-performing loans should not rise to ‘unmanageable’ level

Central Bank: Non-performing loans should not rise to ‘unmanageable’ level
The Central Bank of The Bahamas logo.

Bank’s revised projections indicate Dorian asset losses could surpass $2.5bn

NASSAU, BAHAMAS – An increase in non-performing loans within the commercial banking sector is expected in the wake of Hurricane Dorian but should not rise to ‘unmanageable’ levels, according to Central Bank Governor John Rolle.

During his quarterly media address at the Central Bank, the governor said revised projections indicate asset losses due to Hurricane Dorian could surpass 20 per cent of GDP— or more than $2.5 billion.

He said most of those assets destroyed by the monster storm were from the private sector, adding that insurance payouts to the private sector could exceed $1 billion.

“Nevertheless, it is expected that key commercial assets will recover faster than the housing stock. The Bahamas has some scope to limit tourism loss during the recovery process, by attracting displaced businesses to New Providence and other undamaged islands. This opportunity is greater in the vacation rental market, as average occupancy rates were in the 50 per cent range over the past year, giving undamaged properties room to accommodate significantly expanded business.”

Rolle said the nation is ‘fortunate’ that only 14 percent of the commercial bank’s credit exposure is in Abaco and Grand Bahama collectively.

“We do not expect  when you look at their national exposure that their non-performing loans will rise to unmanageable levels,” he continued.

“We expect some increase but what is important to understand is that collectively  Abaco and Grand Bahama represent some 14 per cent of the bank’s credit exposure.

“Abaco is by itself less than five per cent of the total credit outstanding to The Bahamian market and it is the Abaco economy that will be in the more protracted experience in terms of recovery from the storm. In the case of Grand Bahama the banks have already introduced a six month moratorium on loan repayments and they are working with customers to help them get back on their feet. All of those interventions will help banks manage over the medium term their credit quality and exposure,” said Governor Rolle.

Rolle noted the loan repayment delinquency rate is close to nine per cent and could see a percentage point or two increase as a result of the storm. “It’s not unexpected,” he said.

“We know in the case of natural disasters. We are fortunate that only about 14 per cent of the bank’s credit is exposed to Abaco and Grand Bahama. I think we can breathe a sigh of relief as to what could have been the outcome,” said Governor Rolle.

Rolle also noted increased interest in application for mortgages.

“Around about 15 per cent of applicants are in a category where already incurring too much debt or are not putting up sufficient down payment or there are some other reasons but those are the two big reasons why about 15 per cent are not being successful,” he continued.

“Some results from the Lending Conditions Survey show that demand for credit is now trending stronger than in 2018. Banks have also approved a larger share of recent applications than in the past. The most common reason for unsuccessful loan applications continue to centre around households already carrying too much debt or putting up insufficient collateral to secure the debt,” said Governor Rolle.