By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Commercial banks are “inviting” the Government to intervene in their lending practices, a top businessman warned yesterday, because they are “fuelling” behaviour that does not benefit the Bahamas.
Franklyn Wilson, the Sunshine Homes and Arawak Homes chairman, said the tendency of many commercial banks to focus on higher-yielding consumer loans - and charge borrowers 18-20 per cent interest even with salary deductions - was placing “growing pressure” on the Government to act.
Telling Tribune Business that there was “a significant, deepening divide” between the lending policies of some commercial banks, Mr Wilson implied that with price controls imposed on basic food items, such as eggs and milk, there was nothing to prevent the Government imposing similar ‘caps’ on interest rates.
And he added that increasing numbers of Bahamians were starting to view commercial banks negatively, believing their lending practices were “reckless and irresponsible”.
“There’s a significant divide which has developed, and is deepening, in the banking sector,” Mr Wilson told Tribune Business.
“On the very same day you had the chief executive of one bank in the papers complaining about the Homeowners Protection Bill and how this was affecting the market, the major lender in the country was launching a mortgage campaign. There’s a dichotomy developing.”
The latter bank referred to was BISX-listed RBC FINCO, which is Royal Bank of Canada’s Bahamian mortgage-lending arm.
But, while FINCO has stayed true to its mortgage roots, other banks have increasingly altered their loan portfolio to take on a greater mix of consumer loans.
This has partly been driven by the recession, in which mortgage loans have been hit particularly hard, accounting for around $650 million of the $1.2 billion worth of bank loans that are either in default or non-performing.
In addition, consumer loans - sometimes unsecured - attract a higher interest rate than mortgages due to the perceived greater risk, and thus generate higher margin yields for the banks if they stay current.
Railing at the increased trend towards personal lending, Mr Wilson told Tribune Business: “People are coming to realise consumer lending is not good for the country.
“At some point the pressure will grow on the Government to stop this, as it’s not in the country’s interests.
“I’m beginning to hear more and more people identify banks in these terms, as reckless and irresponsible. I’m not putting forward that view myself; people are expressing their own views on the conduct of the banks in this country in very negative terms.”
While acknowledging that the first responsibility of commercial banks, and all companies, was to deliver profits for their shareholders, Mr Wilson said that if rising bottom lines were driven by “fuelling” unsustainable consumer lending, the Government will “at some point have to take notice and make policy changes to stop these practices”.
Arguing that many Bahamians were subject to salary deductions for their entire working life, after gorging themselves on personal loans, Mr Wilson said that unlike the US, there were no personal bankruptcy laws in this nation that enabled people to wipe out their debts and start afresh.
“The conduct of certain banks is fuelling a behaviour pattern that the banks themselves must realise cannot be sustained, and must realise is not in the national interest,” Mr Wilson told Tribune Business.
“At some point, the conduct of the banks must be putting pressure on the Government to do something.”
He added: “Successive governments in the Bahamas have been so preoccupied with acting in a manner where they are not perceived as anti-business, and anti-foreign direct investment, they’ve allowed businesses to get away with a lot.”
Mr Wilson said many Bahamians who might otherwise qualify for a home mortgage loan had “maxed themselves out” on multiple consumer loans.
And he added that banks who charged interest rates of 18-20 per cent on consumer loans, plus fees, were “putting pressure on those focused at lending mortgages at 7.5 per cent.
“They’re inviting the Government to do something,” he said. “It’s an invitation for the Government to act.”
Comments
John 10 years, 11 months ago
whils the prime rate has dropped by just 1 percent in recent years, a leading local commercial bank has reduced its interest on fixed deposits fro 4 1/2 perecent to just 1/2 percent. So if a person have a $1000,000.00 loan facility at this bank, backed by a cash deposit, his effective interest rate is now 11 percent. While the interest rate on his loan was reduced by 1 percent the interes paid on his CD also decreased by 4 percent. This is in addition to other increases that banks have made on his expenses. Bahamians should avoid borrowing from these banks until they levell out their charges and offer better lending rates. For example while the rate ion a CD in the US ranges from 0 to 2 1/2 percent, lending rates (mortages) ranges from 1 to 4 percent, compared to the rates here that does not go below 6 1/2 percent. Banks have also increased the charges on creditcards with the interest rate going from 18 percent per month to 20 and 22 percent a month. Let the consmer BEWARE!
John 10 years, 11 months ago
Some banks are actually trying to discourage persons from putting money in the bank and trying to force others to remove large amounts of money they already have on deposit at these banks. They claim that there are few or no quallified borrowers in the market and so they are not making many loans. So they would rather not have large deposits in their banks that they have to pay interest on but cannot loan out.
john33xyz 10 years, 11 months ago
There is already a cap on interest rates - which is 20%.
For Government to act, the best thing would be to enact Laws for bankruptcy as he mentions are there in other countries. That would then make them think twice about preying on the poor and uneducated.
I would not even provide them with a registry to search for who had declared bankruptcy - let them make their own association to track it.
The law can also be similar to the US where after 7 years no consideration can be given to a prior bankruptcy.
That is the quickest and simplest thing to do to make them THINK before they lend. Currently banks have people living in slavery which is supposed to be outlawed under our Constitution.
John 10 years, 11 months ago
While the legal cap on interest rates may be 20%, some banks are exceeding that by adding on extra charges and fees. This should be a "consumers market" where qualified persons should be able to get loans at low to reasonable interest rates. But banks are restricting the market by raising the requirements to get a loan and also by artifically keeping the interet rates higher and almost any other market. Bahamians need to boycott these banks and only patronize banks that offer more favorable terms. Most of them take their HUGE profits out of the Bahamas any way...to Canada and elsewhere...thats why Canada can brag that they hardly felt much of the 6 year recession that the rest of the world went through.
lakerfan242 10 years, 11 months ago
The govt. needs to allow more competition in the banking sector. That's how the situation will change, not by them mandating any new laws which will only lead to the existing banks finding other sneaky ways to stick it to the consumer. They can go either one or two ways or perhaps both, invite in another major commercial bank, eg. one of the American banks to the commercial space, or allow the numbers men to set up their bank. Either one will offer lower interest rates to get into the market, and then the other banks will have to drop theirs to keep up with the competition.
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