Nearly 16 percent of private sector credit remained in deferred status as of September

Nearly 16 percent of private sector credit remained in deferred status as of September
The Central Bank of The Bahamas. (PHOTO COURTESY OF THE CENTRAL BANK)

NASSAU, BAHAMAS — Nearly 16 percent of private sector credit remained in deferred status as of September, according to Central Bank Governor John Rolle.

Rolle, while delivering remarks on the regulator’s Monthly Economic and Financial Developments (MEFD) for September 2020, noted that there remains an interim focus on encouraging forbearance on delayed repayments of loans for borrowers.

“However, as banks compile better information about borrowers, who might become permanently unemployed, they are expected to classify these exposures as nonperforming and to begin to [make] provision for losses,” Rolle said.

“Banks have also been required, since the end of the three to six-month period of blanket deferrals, to have those borrowers who are still earning income resume payments.”

He added: “With such adjustments already occurring, approximately 15.8 percent of private credit remained in deferred repayment status as of September, compared to about 37 percent at the onset of the economy’s closure.

“Also, the non-performing rate for private sector loans, which could still rise more significantly in the year ahead, has only shifted slightly higher since April.

“That said, the Central Bank’s stress testing still gives us confidence that commercial banks have adequate excess capital to absorb any extreme losses that the sector might experience.”

According to Rolle, the losses the banks are incurring as a result of the pandemic will not jeopardize their operations.

He said: “On average, banks in our system have 30 percent more capital than they are required to hold.

“In the Bahamian system the requirements for capital already built in a lot of precautions. On the international level, comfort level is at least eight percent capital relative to risk exposure on a bank’s balance sheet.

“In The Bahamas, we set our tolerance in the mid teens. On average banks have surpassed that and in many cases are holding at least double the required level of capital.”

Rolle further noted that outstanding private sector credit has fallen slightly over the first three quarters of 2020.

“In contrast, there has been an increase in deposits, as the foreign exchange financed government spending in the economy and reinsurance proceeds still present from Hurricane Dorian have augmented private sector liquidity. Moreover, as the latest lending conditions survey reveals, demand for credit as seen from new loan applications was almost 60 percent lower in the first half of 2020. However, the application’s success rate in obtaining credit was only slightly reduced from prior survey periods. Being turned down for credit continued to be influenced by the weak financial state of loan applicants, most commonly being assessed as having insufficient capacity in earnings or job security to afford the loan.”

According to Central Bank data, commercial arrears fell by $8.1 million (10.3 percent) to $69.8 million, as the short-term segment reduced by $19.5 million (57.7 percent ), outstripping the $11.5 million (26 percent) rise in the long-term component.

“Similarly, mortgage delinquencies decreased by $6.5 million (1.6 percent) to $399.5 million, underpinned by a $12.1 million (8.9 percent) reduction in short-term arrears, which outweighed the $5.6 million (2.1 percent) rise in non-accrual loans.

Further, consumer loan arrears moved lower by $2.2 million (one percent) to $227.9 million, as the 31-90 days category lessened by $7.5 million (7.4 percent), eclipsing the $5.3 million (4.1 percent) growth in non-performing loans.

The Central Bank also noted that growth in total Bahamian dollar deposits narrowed to $22.9 million in September, from $53.4 million in the comparable 2019 period, attributed to the falloff in foreign currency inflows from real sector activities.

“In particular, the reduction in fixed deposits extended to $19.1 million from $14.6 million a year earlier. Further, gains in demand balances moderated sharply to $25.6 million from $60.2 million in the prior year. Conversely, savings deposits expanded by $16.4 million, exceeding the $7.8 million accumulation in the preceding year. Likewise, the expansion in foreign currency deposits tapered to $10.8 million from $96.3 million in 2019. These trends persisted over the nine-month period, as the build-up in Bahamian dollar deposits slowed to $218.9 million from $331.4 million in the same period last year. Specifically, the accumulation in demand balances tapered to $232.1 million, from $338.2 million in the prior year, while the decline in fixed deposits quickened to $177.6 million, from $106.3 million last year,” the Central Bank reported.