Credit demand declines sharply in first half of 2020

Credit demand declines sharply in first half of 2020
The Central Bank of The Bahamas.

NASSAU, BAHAMAS — A Central Bank survey of bank lending conditions has revealed that demand for credit declined sharply across all markets during the first half of 2020, as application volumes fell to “historically low levels”.

The regulator noted that during the first half of 2020, demand for credit was largely impacted by the COVID-19 pandemic.

“During the review period, the number of consumer loans applications processed declined by 46.6 percent to 9,553, relative to the same period last year,” the regulator stated.

“Reductions were noted in all consumer credit categories, most notably for purposes related to education (71.1 percent) and credit cards (68.5 percent). In contrast, loan requests for commercial vehicle purchases expanded by 33.3 percent.

It continued: “Despite fewer applications, the average approval rates firmed by 4.7 percentage points to 87.2 percent in the second half of 2020, the highest since the second half of 2016. As to declined applications, the most common reasons cited by banks were high debt service ratios (38.2 percent), underemployment (34.1 percent) and other “miscellaneous” factors (9.9 percent).”

Miscellaneous factors included low credit scores, purposes outside of banks’ practices, missing information and non-permanent employment.

The regulator noted that local credit demand expressed through the volume of loan applications was significantly constrained during January to June 2020, as the effects of COVID-19 and subsequent restrictions severely reduced business and employment activities in The Bahamas.

“Appetite for consumer credit maintained its dominance,” the bank said.

“However, the volume of such requests still declined broadly, except for an interest in purchases of commercial vehicles. Despite the downturn, the average approval rates remained elevated at 87.2 percent, the highest since the second-half of 2016.

“In the mortgage sector, financing demand for already built homes remained dominant, but interest in new construction was the only category with overall increased applications. The commercial credit requests reduced by 9.7 percent year-on-year, although increased applications were measured compared to the six months to December 2019.”

It added: “A lesser fraction of the applications were approved vis-à-vis the first half of 2019, but the acceptance rate held steady in comparisons to the second half of 2019.”