Tanya McCartney

Published On:Wednesday, September 08, 2010

By NEIL HARTNELL

Tribune Business Editor

Finance Corporation of the Bahamas (FINCO) will resume dividend payments once it is certain loan delinquencies are on a declining trend, its managing director said yesterday, with its non-performing loans "within industry average" at around 10 per cent of its $800.614 million credit portfolio.

Tanya McCartney told Tribune Business that the mortgage lender's bottom line was still being impacted by loan loss provisions, adding that while the rate of growth in non-performing loans had slowed compared to 2009, they were still increasing in number.

As a result, FINCO's Board of Directors again decided not to pay a dividend to shareholders for the 2010 third quarter, despite the BISX-listed financial institution experiencing a more than doubling of its net income for the nine months to July 31, 2010.

Bottom-line profits for the period rose by 101.5 per cent, from $3.05 million in the 2009 comparative period to $6.148 million this time around, largely due to an almost-30 per cent fall in loan loss provisions, which dropped from $11.613 million in 2009 to $8.171 million in the nine months to July 31, 2010. This compensated for a 2.7 per cent drop in FINCO's net interest income, which fell from $21.314 million to $20.739 million year-over-year, but Ms McCartney cautioned against being too optimistic, telling Tribune Business: "We're continuing to have to provision.

"In the latter part of last year, we saw a spike in non-performing loans, and while they continue to grow, it's not at the pace they were growing at last year."

However, she added: "We're still waiting to see a fall-off in the growth of non-performing loans. It continues to grow, not at the sharp rate they were growing at last year, but we're yet to see any fall-off. When we see that happen, the bottom line will be hit in a positive way."

Asked where FINCO's non-performing loans stood as a percentage of its total portfolio, Ms McCartney said: "We're within the industry average (10.1 per cent). We're at about 10 per cent, and are monitoring that very closely."

Given FINCO's $800 million net loan portfolio, that would indicate that some $80 million worth of the mortgage lender's loans are non-performing, but Ms McCartney said its capital base would "absolutely" carry it through should credit quality deterioration persist into 2011 and 2012, with its capital and reserve levels "exceeding the regulatory requirements".

She confirmed that the Board's decision on no third quarter dividend payment was directly linked to the loan delinquency situation, telling Tribune Business: "It's definitely tied to the fact that we want to see non-accrual loans reduce. It's too soon to say whether there's a trend in the reduction of non-performing loans.

"Our capital is pretty strong, but I want to be cautious and do not want to start paying dividends and then have to stop. We want to comfortably see a turnaround in the operating environment. Our provisioning policy is consistent, conservative and we're well provisioned. We don't change it willy nilly; it is what we do."

Despite the credit quality decline experienced across the Bahamian commercial banking industry, Ms McCartney said good loan prospects still existed amid the recession, as evidenced by the 3.6 per cent growth in its loan book during the first nine months of fiscal 2010 - from $772.442 million at the 2009 year-end to $800.614 million at July 31, 2010.

The FINCO managing director said this growth had been achieved by its ability to leverage relationships with other members of the Royal Bank group, and working with real estate developers, such as Balmoral, that shared the lender's vision. She explained that FINCO had been able to refer mortgage clients who represented good consumer loan prospects to Royal Bank branches, and vice versa, while relationships with RBC Trust Company (Bahamas) and RoyalFidelity Merchant Bank & Trust, in which Royal Bank has a 50 per cent joint venture stake, had also proven fruitful.

"We've really leveraged our relationships in the market," Ms McCartney said. "There's a lot of referrals and working closely with developers, and targeted marketing. There's still some good business out there, and where we have been able to, we have been working with clients and will continue to do so."