Published On:Wednesday, March 10, 2010

By NEIL HARTNELL

Tribune Business Editor

CLOSE to one in every 10 loans to Bahamian consumers and businesses is now non-performing or 90 days past due, Central Bank of the Bahamas data released yesterday shows, with the total value of private sector borrowings in arrears now standing at $1.106 billion - some 18.1 per cent of the outstanding portfolio.

While not surprising to regulators, the banking industry and economic observers, the latest figures on bank asset quality continue to show a deteriorating picture, providing further evidence of how exposed Bahamian households and businesses have been to a reduction in top-line income due to the recession.

Acknowledging that Bahamian commercial banks saw their asset quality "weaken further in the month of January, as the protracted period of elevated unemployment and weakened private sector activity continued to negatively impact borrowers' ability to repay debts", the Central Bank said the first month of 2010 saw a $16.1 million or 1.5 per cent increase in loan arrears to hit $1.106 billion, compared to end-December 2009.

As a result, the percentage of total loans in arrears increased by 0.3 per of a percentage point to 18.1 per cent.

Breaking this down, the Central Bank said total loans between 31-90 days past due increased by $6.4 million or 1.3 per cent in January to $520.1 million, increasing the percentage of loans in this category to 8.5 per cent of the total outstanding private sector loan portfolio.

In the more critical non-performing category, where loans are more than 90 days overdue, and upon which the banks stop accruing interest, there was an increase of $9.7 million or 1.7 per cent to some $586.1 million of credit in trouble.

This meant that some 9.6 per cent of the $6.585 billion private sector loan portfolio is now non-performing, with close to one in five loans now in default.

"The build-up in total arrears was led by a $25.4 million (10.8 per cent) hike in the commercial segment to $261 million, due to gains in both the short-term and non-accrual components of $14.2 million (19.2 per cent) and $11.2 million (6.9 per cent) respectively)," the Central Bank report on monthly economic and financial developments for January found.

"In addition, mortgage delinquencies firmed by $11.5 million (2.2 per cent) to $543 million, owing to growth in 31-90 day arrears of $4.7 million (1.6 per cent) and non-performing loans of $6.9 million (2.8 per cent)."

However, "consumer loan arrears fell by $20.8 million (6.5 per cent) to $302.2 million, reflecting declines in the 31-90 day and non-performing segments by $12.5 million (8.4 per cent) and $8.4 million (4.8 per cent) respectively".

As a result, the Central Bank said Bahamian commercial banks increased their loan loss provisions by $3 million or 1.4 per cent during January 2010 to $216.6 million, leaving the ratio of provisions to arrears at 19.6 per cent.

Still, the monetary policy regulator reassured Bahamians that the financial system remained stable, with commercial bank capitalisation "well in excess of the mandatory 8 per cent of risk-weighted assets", leaving the reduced asset quality "adequately covered by bank capital positions".

Elsewhere, banking system liquidity remained strong, with excess liquid assets standing at $494.05 million, while foreign exchange reserves were at $796.11 million.

And January saw a $3 million gain in private sector credit, compared to a $25.1 million contraction in the same month during 2009. This was driven largely by a $3.8 million advance in commercial claims, along with a $0.5 million gain in mortgage growth.

With total tourism receipts "expected to remain significantly below 'pre-crisis' levels in the near term", and the economy still fragile despite "a more positive picture emerging", the Bahamas was expected to be challenged during 2010 with the global rebound "expected to be less robust than previous recoveries".

Construction activity was set to be "anaemic" due to the lack of foreign direct investment, and the Central Bank concluded: "The near-term outlook is for little improvement in current unemployment levels, with the majority of short-term job opportunities accruing from government's employment initiatives."