The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Difficulties in one bank’s commercial loan portfolio seemingly sparked a $38.7 million deterioration in the sector’s ‘bad credit’ position during April, another month in which the Bahamian economy was “relatively subdued”.

The Central Bank of the Bahamas’ report on economic developments for April noted that private sector credit growth slowed to a trickle, expanding by just $300,000 compared to $4 million the year before.

And, with tourism exhibiting continued “softness”, predictions of 2.7 per cent GDP growth for the Bahamian economy in 2013 also appear under threat.

Noting that more than $1 out of every $5 lent by the Bahamian commercial banking sector is at least 30 days past due, the Central Bank report said: “Amid a deterioration in one institution’s loan portfolio, banks’ credit quality indicators worsened over the review month.

“Total private sector loan arrears grew by $38.7 million (3.2 per cent) to $1.256 billion, and rose by 62 basis points to 20.3 per cent of total private sector loans.”

Most of the deterioration occurred among loans between 31-90 days past due. These increased by $33 million (9.7 per cent) to $372.6 million, as they grew to 6 per cent of total loans.

The Central Bank added that non-performing loans - arrears in excess of 90 days, and on which banks have ceased accruing interest - increased by $5.7 million (0.7 per cent) to $883.million, accounting for 14.3 per cent of private sector loans.

“The expansion in loan delinquencies was concentrated in the commercial component, which firmed by $37.8 million (13 per cent) to $329.5 million, reflecting gains in the short-term and non-accrual segments by $34.9 million (40.3 per cent) and $3 million (1.5 per cent), respectively,” the Central Bank said.

“In addition, mortgage arrears advanced by $3.6 million (0.5 per cent) to $676 million, owing primarily to a $4.6 million (0.9 per cent) rise in non-performing loans, which outpaced a $1 million (0.6 per cent) decline in short-term arrears.

“In contrast, the consumer component decreased by $2.8 million (1.1 per cent) to $250.1 million, as both the short-term and non-performing categories softened by $0.9 million (1 per cent) and $1.9 million (1.1 per cent), respectively.”

The Central Bank said this forced commercial banks to increase their provisioning levels by $10 million (2.5 per cent) to $410.3 million.

“However, with the rate of expansion in arrears outpacing the increase in

provisions, the ratio of total provisions to arrears fell by 22 basis points to 32.7 per cent, while the corresponding non-performing loan ratio firmed by 84 basis points to 46.5 per cent,” the Central Bank said.

“Banks also wrote-off an estimated $9.7 million in loans, and recovered approximately $3.7 million.”

Given all this, there is little sign of a private sector-led recovery. Due to weak credit demand among both consumers and businesses, the increase in loans to the private sector slowed to just $300,000 in April.

“In terms of the components, mortgages were up by $11.4 million, extending 2012’s $2.8 million increase, and consumer credit firmed marginally by $0.2 million, in contrast to a $4.7 million contraction a year earlier,” the Central Bank said.

“Commercial loans fell by $11.2 million to reverse the year-earlier $5.8 million expansion.”

The Central Bank conceded that the Bahamian economy was “relatively subdued during the month of April, reflecting signs of softness in the tourism sector”.

“Indications are that the slowdown in tourism sector output was largely attributed to weakness in the long-stay visitor segment, as economic conditions in the key North American source market remained stressed,” the Central Bank said.

“Provisional first quarter data from a sample of large hotels in New Providence and Paradise Island showed total room revenue declining by 1.9 per cent, owing primarily to a broad-based reduction in the average hotel occupancy rate by 3.2 percentage points to 68 per cent.

“However, in a compensating move, almost 80 per cent of the properties surveyed reported higher average daily room rates (ADRs), resulting in a 6.3 per cent gain to $270.74 per day”.

Construction activity linked to foreign direct investment-related projects had helped to stabilise the economy, the Central Bank said, while energy costs also fell due to the decline in international oil prices.