The Tribune

By NEIL HARTNELL

Tribune Business Editor

BAHAMIAN commercial banks expect that high liquidity and non-performing loan levels, the latter of which now exceeds 19 per cent, will be "maintained for another 12-18 months" at least unless something sparks a dramatic reduction in unemployment.

Total private sector loan delinquencies increased by a further $7.3 million or 0.6 per cent during April 2012 to close the month just shy of $1.2 billion, and top banking officials said the data - while showing the situation had stabilised - also indicated there was no prospect of rapid improvement.

"That's here to stay for another year to year-and-a-half," Paul McWeeney, Bank of the Bahamas International's managing director, told Tribune Business. "I can't see beyond that. Looking that distance, I don't see much change taking place."

Anwer Sunderji, Fidelity Bank (Bahamas) chief executive, said: "This is a long-term problem that's going to take a long time to make any kind of dent in it.

"The data shows that things have stabilised, but while things have not gotten worse, it shows they have not gotten any better. We are where we are. We just have to plod through the issues."

The Central Bank of the Bahamas' report on monthly economic and financial developments for April 2012 disclosed that 19.1 per cent, or almost $1 out of every $5 in credit extended by the Bahamian commercial banking sector, was in arrears at that month's end.

During that month, non-performing loans - those more than 90 days past due, and upon which the commercial banks have stopped accruing interest, increased by $7.5 million or 0.9 per cent to hit $829 million. The latter figure is equivalent to 13.2 per cent of total bank loans, meaning that $1.3 out of every $10 lent as credit is now non-performing.

Short-term arrears loans, though, declined by $0.3 million to $370.7 million in April, accounting for 5.9 per cent of all outstanding credit. This indicates that Bahamian commercial banks are doing a decent job in getting loans between 31-90 days past due back into the current category.

April's arrears rise was concentrated solely in consumer loan delinquencies, which increased by $13.3 million or 5.2 per cent to $267.2 million. Consumer loans between 31-90 days in arrears rose by $10.3 million or 11.4 per cent, while those in the non-performing category increased by $3 million or 1.8 per cent.

This more than offset the $2.2 million decline in delinquent mortgage loans to $634.1 million, and $3.8 million or 1.3 per cent drop to $298.4 million worth of bad loans in the commercial segment.

Still, Bahamian commercial banks wrote-off a net $10 million worth of loans in April 2012, some $3.9 million in recoveries partially offsetting $13.9 million in gross write-offs. The industry increased loan loss provisions by $15.2 million or 4.6 per cent to $343.4 million.

"We're going to ride it out," Mr McWeeney told Tribune Business. "It's going to have an impact on bank performance in terms of interest income as well as provisions.

"The longer this drop continues, the more difficult it is for the market to absorb these distressed properties, which is why there will be more provisioning."

On the overall loan arrears situation facing the Bahamian commercial banking industry, Mr McWeeney added: "It's not getting dramatically worse. It's back and forth between the same range, but it's not getting any better either. The economy expanding and job growth is fundamental to a recovery."

Low credit demand, and the inability of many potential borrowers to meet the stricter qualifying criteria set by the banks, has contributed to another increase in excess liquidity to $961.5 million at end-April 2012.

This figure, which represents the surplus assets in the Bahamian commercial banking system that are looking for a lending home, is lower than the more than-$1 billion reached in 2011, when it was boosted by the proceeds from the $204 million Bahamas Telecommunications Company (BTC) sale and BORCO and Baha Mar deals.

"It's at elevated levels because credit growth is so anemic," Mr McWeeney told Tribune Business of system liquidity. "We expect these levels to be maintained for another 12-18 months, unless something changes."

While excess liquidity in the banking system typically dropped slightly during the seasonal run-up to Christmas, the Bank of the Bahamas International chief said the drawdown would "not be as deep as prior years because the economy does not have the power right now".

This was further illustrated by the continued weakness in private sector credit demand, which grew year-over-year by just $4 million in April, compared to $16.7 million the previous year.

The Central Bank said this reflected "high unemployment, elevated indebtedness and general sluggishness in economic activity", with consumer credit contracting by $4.7 million as opposed to the $13.6 million expansion in April 2011. Mortgage loan growth was halved to $2.8 million, but commercial loans increased by $5.8 million compared to the year-before decline of $2.3 million.

Mr McWeeney said that if there was credit demand, in many cases the borrower did not qualify. He added that the Government, with $504 million and $550 million fiscal deficits for 2011-2012 and 2012-2013 to finance, was set to be the main customer for commercial banks in the coming days and months.

The surplus banking system liquidity, he added, was also depressing deposit rates in the Bahamian banking system at a time when "the risk on loans is elevated".