The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian financial institutions are engaged in “hand to hand combat” to find scarce quality mortgage clients, a leading banker yesterday arguing that 8 per cent interest yields were not enough top compensate for high delinquency rates.

Anwer Sunderji, Fidelity Bank (Bahamas) chief executive, told Tribune Business that the institution wanted to be “a boring business” through a ‘no-frills’ approach designed to ride out the continuing economic “headwinds”.

However, staying ‘under the radar’ might prove difficult if the BISX-listed institution continues to produce results such as the 54 per cent year-over-year net income increase for the 2014 first half.

Speaking after Fidelity Bank (Bahamas) unveiled the rise to $6.746 million in net income for the six months to end-June, Mr Sunderji expressed optimism that the bank’s 2014 second half performance would be “slightly better” than the first.

Yet he and Fidelity Bank (Bahamas), in their second quarter results announcement, were quick to warn that “the risk/reward equation for mortgage lending has deteriorated materially”.

Mr Sunderji’s bank has countered this by switching the majority of its lending portfolio into higher-yielding, easier to collect/write-off consumer loans, thus moving it away from its traditional focus on residential real estate.

Such a move is understandable, given that the latest statistics from the Central Bank of the Bahamas, released in May, show that some $715.2 million worth of mortgages are either past due or non-performing.

“Mortgages remain an important element of our portfolio,” Mr Sunderji told Tribune Business, “but the risk/return equation has deteriorated materially. The delinquencies are much higher, and the rates are much lower.”

And with the economy, employment and incomes still to properly recover from the 2008-2009 recession, Bahamian commercial banks and other mortgage lenders are finding few home borrowers who meet the more stringent qualifying criteria.

“It’s hand-to-hand combat for mortgages, and it’s hurting,” Mr Sunderji told Tribune Business. “The big banks have the liquidity to compete at levels we can’t.

“They have more funds and can afford to lend at 8 per cent, when that does not adequately compensate you for risk when you have 16 per cent delinquencies.

“It’s a tough, tough environment and you can’t find creditworthy customers. It’s the same old, same old.”

The Bahamian commercial banking industry also finds itself stuck with hundreds of distressed properties that it cannot move because there are no buyers available to purchase them.

And there is the further potential uncertainty that may be caused if the Government moves forward with its Homeowners Protection Bill, plus the Mortgage Relief Plan.

Given this reality, Mr Sunderji said Fidelity Bank (Bahamas) had no expansion plans, and was focused on “steady as she goes” and controlling costs.

“We want to be a boring business. There’s something to be said about boring businesses as things stand now,” Mr Sunderji said.

“We can’t rest on our laurels, but we’re not shouting from the roof tops. We’re trying to keep a low profile as best we can. It’s a tough time for companies, and financial institutions in particular.

“There’s a lot going on in this country, and businesses have to be on the alert. Costs are an issue, revenues are not building. There are lots of headwinds.”

Mr Sunderji said Fidelity Bank (Bahamas) had managed to be “a little bit ahead of the curve” with its internal reforms, giving it a “head start” in coping with the new economic and business environment.

He added of the bank’s likely performance: “The second half is going to be better than the first half, as we’ve started building, so we should see a bottom line slightly better than forecast.”

Fidelity Bank (Bahamas) net income attributable to ordinary shareholders was $6.343 million or $0.22 per share for the 2014 first half, compared to $0.14 for the first six months in 2013 - some 57 per cent higher.

The bank paid a dividend of $0.10 per share during the 2014 first half, and its share price increased by 28 per cent during this period.

Analysing Fidelity Bank (Bahamas) performance for the 12 months to June 30, 2014, a period that includes the full impact of the 3 per cent Business Licence tax unveiled in the 2013-2014 Budget, comprehensive income was just over $12 million.

The Return on Average Assets (ROAA) was 2.7 per cent, and Return on Average equity (ROAE) stood at 26 per cent.

The bank’s efficiency ratio deteriorated to 49 per cent due to the higher Business License fees that came into effect in 2014. Total expenses grew by 5 per cent, due to a jump of 16 per cent in general and administrative costs. Provisions for Loan Losses eased modestly. Liquidity remained robust, Fuelled by growing deposits, and the loan to deposit ratio was a satisfactory 85%. The Bank’s Risk Weighted Capital Ratio met and exceeded the Central Bank’s guidelines.

Since year-end 2013, Fidelity Bank (Bahamas) total assets grew by nearly $27 million, or 6 per cent, to $470 million, with loan assets growing by some $6 million, or 2 per cent, to $320 million.

Its 50 per cent ownership of Royal Fidelity Merchant Bank & Trust also boosted the first half bottom line performance.