The Central Bank of the Bahamas has admitted the current economic climate provides "little opportunity" to reduce high consumer debt and loan delinquency levels, with only 'qualified borrowers' able to access credit.
The regulator, in its report on 2015 second quarter lending conditions, disclosed that total credit outstanding to Bahamian businesses and individuals had fallen by $20.8 million or 0.3 per cent during the period to $6.308 billion.
This illustrates the difficulty many potential borrowers continue to experience in accessing credit, which the report confirms is largely due to their exceeding the Central Bank's maximum 45 per cent debt service ratio.
"During the second quarter of 2015, private sector lending conditions remained subdued, constrained by the prevailing weakness in domestic economic activity and the coincident high unemployment rate, which offer little opportunity for unwinding the elevated levels of consumer indebtedness and loan arrears," the Central Bank said.
While little surprise to informed observers, the banking sector regulator's analysis suggests that the Bahamas will be stuck with high personal debt and non-performing loan woes for years to come.
Besides straining personal and household finances to breaking point, the Bahamas' own version of the 'credit crunch' is also clogging up key industries such as the housing, construction and real estate sectors.
Many businesses are being 'choked' by their inability to access needed credit, which acts as the 'lifeblood' for the Bahamian economy, enabling firms to grow, invest and add jobs.
The Central Bank's second quarter lending analysis, based on data obtained from all seven commercial banks, focuses on the 11,435 loan applications that were processed during the the three months to end-June 2015.
While more than 1,400 applications were submitted, some 1,028 mortgage submissions and 1,913 consumer loan filings were either "cancelled by the customer" or waiting on further information and bank decisions.
"Credit demand was strongest for consumer loans, at 90.5 per cent (10,350), with mortgages and commercial loans at a significantly lower 6.5 per cent (748) and 2.9 per cent (337), respectively," the Central Bank report said.
"As expected, the majority of loan applications were processed in New Providence, followed by Grand Bahama and the Family Islands. On average, down payment requirements ranged from a high of 22 per cent for commercial loans to almost identical amounts for consumer loans (15 per cent) and mortgages (14 per cent)."
The Central Bank data provides further evidence of the heightened down payments now required by commercial banks, in response to the $1.2 billion delinquent loans pile they are now grappling with.
"Overall approval rates point to a general willingness by banks to extend credit to qualified clients," the report said. "Of the11,435 applications received and processed during the period, approximately 83.8 per cent were approved.
"In New Providence and Grand Bahama, slightly less than 85 per cent of the applications submitted had favourable outcomes, compared with a 70.8 per cent rate for the Family Islands."
Commercial loan applications, while smallest in volume, achieved the highest approval rates at more than 90 per cent. Second were consumer loan submissions, where approvals ranged from 85 per cent in Grand Bahama to 72.7 per cent in the Family Islands.
"For mortgages,which generally have the longest maturity periods,and therefore the greatest risk exposure, banks’ approval rates were lowest at 82.5 per cent, 69.4 per cent and 52.6 per cent for New Providence, Grand Bahama, and the Family Islands, respectively," the Central Bank report said.
The aftermath of the 2008-2009 recession has effectively 'flipped' the risk-weightings attached by commercial banks to different loan types.
Consumer loans are now seen as relatively low risk and higher (interest rates) yielding, replacing mortgages. With more than $600 million worth of home loans in default, and collateral values falling, banks such as Fidelity Bank (Bahamas) and Bank of the Bahamas have moved away from their traditional mortgage business and into consumer loans.
On consumer loans, the majority of 2015 second quarter applications were for 'miscellaneous purposes' such as paying for utility bills, funeral arrangements and refinancing existing credit lines.
Some 36 per cent, or 3,718 applications, fell into this category with 88.1 per cent, or 3,277, approved.
Debt consolidation accounted for 25.2 per cent of all consumer loan applications, and auto purchases another 19.6 per cent. Credit cards took an 8.9 per cent share, with 10.4 per cent accounted for by borrowings for travel, education, medical purposes, home improvements and furnishings.
"By consumer loan type, the 'other miscellaneous' segment - which had the largest number of applications - secured an 88.1 per cent approval rate. The second highest volume category, debt consolidation, had an approval rate of 80.8 per cent," the Central Bank said.
"However, loan applications for medical care registered the highest approval rate of 89.3 per cent, to contrast with the lowest of 57.9 per cent for land purchases."
The report added: "Nearly 57 per cent of consumer loan denials were because of elevated debt service ratios; 7.6 per cent due to underemployment; 5 per cent explained by a lack of down payment; 4 per cent because of inability to verify income; 3.9 per cent due to prior loan delinquencies; and 3.9 per cent owing to insufficient time on the job."
Almost 96 per cent of commercial loan applications were approved, while the four rejected ones were again due to debt service ratios being too high.