The Tribune

By NEIL HARTNELL Tribune Business Editor THE Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) chairman yesterday described as "very concerning" the almost-$300 million worth of 'bad loans' to the private sector, with January's $10.6 million increase indicating some businesses did not enjoy the traditional Christmas 'bounce'. Speaking after Central Bank of the Bahamas data for January 2012 disclosed that between 24.4 per cent to 31.5 per cent of commercial bank loans to Bahamian companies were in default, depending on the measurement used, Winston Rolle said these "high" numbers emphasised just how deep and prolonged the recession had been. The Central Bank, in its monthly report on economic and financial developments, said that while the Bahamian commercial banking industry had experienced only a "marginal" $0.5 million increase in total loan arrears during January 2012, 'bad credit' extended to businesses had risen buy $10.6 million or 3.7 per cent. Bahamian companies were responsible for some $297.3 million worth of loan arrears at end-January, the Central Bank report said. It added that private sector loans between 31-90 days in arrears rose by $5.2 million or 5.9 per cent during that month to $92.7 million while. And, more concerning, non-performing loans to Bahamian companies, meaning those over 91 days past due, rose by another $5.4 million or 2.7 per cent during January 2012, hitting $204.6 million by month's end. The January increase is somewhat surprising, as Mr Rolle acknowledged, because Bahamian businesses in general receive a boost from increased consumer spending at Christmas, the extra sales revenue traditionally helping to carry them through the relatively lean early months of the following year. It also, in theory, gives them enough cash flow to fully service their debt. "That would be strange," the BCCEC chairman said of the loan arrears rise detailed by the Central Bank, "because typically you'd find those numbers in the January report would reflect a spin-off from Christmas. "From that, we can conclude that businesses may not have had the level of activity they would have wished over the Christmas period. In some cases, they would have borrowed capital to satisfy their inventory requirements in preparation for the Christmas season." As a percentage of total commercial bank loans to Bahamas-based companies, the $297.3 million arrears pile accounts for 24.4 per cent if Bahamian dollar and foreign currency credit are combined for a $1.217 billion total. But, if just the $942.72 million worth of Bahamian dollar credit is used as the denominator, some 31.5 per cent of loans advanced to local companies are in default. It is not clear whether the Central Bank has used just Bahamian dollar credit, or combined this with its foreign currency counterpart, in the calculations. Describing these percentages as "high" and "a sizeable amount", Mr Rolle told Tribune Business the numbers produced by the Central Bank for January 2012 were "not very good". "Companies are having challenges in meeting their financial obligations," he said. "That [the Central Bank report] is a clear indication that we're very much in recessionary times, and businesses are not seeing the profits and revenues they need to keep current with their obligations. "We're still in for a bit of a haul, and will probably not see a true improvement in that [bad loans] until later in the year, the fourth quarter. If banks are still having to experience those sort of late payments coming from the business community, that's a pretty good indication of the challenges businesses are still having out there in terms of meeting their financial obligations." Mr Rolle said the start of any Bahamian economic recovery "needs to happen pretty quickly, over the next 90-120 days, because if not we will go into the summer which, in the business cycle, tends to be a relatively slow period of time in any event". And he added: "The Central Bank report just verifies the how deep the recessionary challenge is, and how much progress we need to make before we start talking about recovery. "It also affects the pace of lending in other areas, because if the banks are experiencing that now they will need to be more discerning as they look at new loan opportunities, and be much more critical." When it came to new consumer lending opportunities, the Central Bank report noted that the one real growth area remained debt consolidation, which rose by $3.8 million in December and continued its "year-long upward trajectory". Mr Rolle, though, questioned whether Bahamians receiving debt consolidation loans would "change their habits" or merely continue with the habits that saw them get into such situations in the first place. In its report, the Central Bank said some $1.208 billion worth of Bahamian commercial bank loans were in arrears, a sum equivalent to 19.3 per cent - almost $1 out of every $5 lent. It added: "Arrears in the short-term 31-90 day category declined by $13.5 million (3.4 per cent) to $378.6 million, and equated to a reduction in the corresponding ratio by 23 basis points to 6 per cent. "However, non-performing loans - those in excess of 90 days and upon which banks stopped accruing interest - grew by $14 million (1.7 per cent) to 13.2 per cent of total loans." Mortgage defaults, which account for 53.6 per cent of all commercial bank loan arrears, were down by $2.4 million at $647.7 million, as the $7.1 million or 3.6 per cent reduction in loans between 31-90 days past due exceeded the $4.8 million (1.1 per cent) growth in non-performing home loans. Consumer loan arrears, which account for 21.8 per cent of the total, fell by $7.7 million or 2.8 per cent in January 2012 to $263.7 million. Short-term consumer loan delinquencies fell by $11.5 million or 11 per cent, offsetting the $3.8 million increase in the non-performing category. "During January, banks increased their loan loss provisions by $24.4 million (8.1 per cent) to $324.9 million, resulting in the ratio of provisions to total arrears and non-performing loans rising by two and 2.3 percentage points to 26.9 per cent and 39.1 per cent, respectively," the Central Bank said. "In addition, banks wrote-off an estimated $7.4 million in loans, while recoveries totalled $4.7 million. In December - the latest month for which data is available - banks restructured an estimated $17.6 million in private sector loans."