Commercial banks not under any ‘unmanageable financial stress’ post-Dorian

Commercial banks not under any ‘unmanageable financial stress’ post-Dorian

Grand Bahama and Abaco accounted for around 14.8 per cent of total private sector credit

NASSAU, BAHAMAS – Central Bank Governor John Rolle said yesterday that commercial banks in The Bahamas are not under any ‘unmanageable financial stress’ as a result of Hurricane Dorian, noting that they have comfortable levels of capital to absorb any loses that may materialize.
Governor Rolle who was addressing the Exuma Business Outlook yesterday said, “Our commercial banks are not under any unmanageable financial stress because of  the Grand Bahama and Abaco outages.  These institutions have comfortable levels of  capital to absorb any losses that might materialize, and they are still collectively in a position where their capital levels will need to be reduced over the medium-term.
Most of banks’ credit exposures are to New Providence, where economic activities remain intact.  The Central Bank’s stress testing simulations show that in a very severe,  major hurricane, that might be the case if damages were concentrated in New  Providence, banks could face significant loan losses, but would still be able to  withstand the setback generally, from their existing capital buffers.”
Governor  Rolle continued, “Where this picture could evolve in an unsettling fashion however, is changing expectations on the frequency of major shocks, since the system would need sufficient time to recover between events.  This takes us back to the issue of having overall macroeconomic  resilience, to contain the extent of losses for any major or successive storms.”
Governor Rolle said that in terms of financial sector exposure, commercial banks’ credit portfolio for Grand Bahama and Abaco totaled approximately $830 million over the July-September 2019  reporting period, which accounted for around 14.8 per cent of total private sector credit.
“Collectively just over half of the exposures were mortgages.  Moreover, Grand  Bahama represented about four-fifths of the total credit—which is good in the context  of the faster pace at which this sub-economy is expected to recover.
At the outset, the  non-performing loans rate was higher in these northern islands. As we consider the impact and recovery from Dorian, the general outlook for the  Bahamian economy is for some setback in the near-term, with the revised growth projection still positive for 2019, but at less than the levels forecasted prior to the storm’s passage.
In 2020, the outcome could be flat to negative, with a return to  positive territory in 2021.  The recovery path in both of the affected islands will initially be dominated by extensive rebuilding activities, which will heighten the demand for construction-related skills and services.  This should partially offset the contraction in activities other economic sectors.
Governor Rolle noted that the general outlook for the Bahamian economy is for some setback in the near-term, with the revised growth projection still positive for 2019, but at less than the levels forecasted prior to the storm’s passage.
“In 2020, the outcome could be flat to negative, with a return to positive territory in 2021.  The recovery path in both of the affected islands will initially be dominated by extensive rebuilding activities, which will heighten the demand for construction-related skills and services.  This should partially offset the contraction in activities other economic sectors.
The private sector component of the rebuilding activity will be partly financed by external reinsurance proceeds,” said Governor Rolle.
The Central Bank Governor also noted that  on the projected recovery path, this nation’s foreign reserves will experience a boost  initially from the re-insurance receipts and proceeds from government financing.  “These are expected to be consumed in full next year, with the expectations that The Bahamas could end 2020 with slightly lower foreign reserves than at the end of 2018,” he said.