The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

PRIME Minister Perry Christie yesterday blasted commercial banks and other private lenders for being “complicit” in creating an “out of control consumerist culture” that has left many Bahamians burdened by unsustainable personal debt.

Addressing Royal Fidelity’s inaugural Bahamas Economic Outlook, Mr Christie said Bahamians were today creating more personal debt and less savings than past generations.

This, he warned, would not build a productive economy. “There is simply too much personal debt being taken on by too many people in our country,” the Prime Minister said.

“We need to break out of that because it can’t go on much longer like this. Banks and other lending institutions  may be getting richer, particularly with the excessive interest  rates that are being charged by some.

“It is turning too many people in our country into what I characterise as modern day slaves. With the  prominence of salary deductions, you have a whole bunch of folks who are taking home literally just a few dollars every months, hardly enough to keep the lights and the water running. The rest is going to personal debt service.”

The Prime Minister, while correct in his concern for many Bahamians’ borrowing and saving habits, touched on a subject that has been frequently raised by the likes of businessman Franklyn Wilson.

And his speech also screamed ‘irony’ in numerous respects. For the Government owns a 65 per cent stake in Bank of the Bahamas which, following its recent $69 million net loss and $100 million ‘bailout’, has publicly announced it will retreat from commercial lending to focus on consumer credit - the very thing targeted yesterday by the Prime Minister.

And the affiliate of the conference host, Fidelity Bank (Bahamas), is another that has switched away in recent years from mortgage lending to the point where consumer loans account for the bulk of its credit portfolio. Together with Commonwealth Bank, the three Bahamian-owned commercial banks are all focused on consumer lending.

The Government itself is also “complicit” in the ‘consumer culture’ growth, as several successive Auditor-General reports have revealed that the Government had allowed civil servants salary deductions that exceeded the 75 per cent of monthly income limit set by the Treasury in 2009.

However, Mr Christie said of the personal debt growth: “This cannot continue to go unchecked. It is destroying lives and is killing the local productive economy. You can borrow money for a car, fridge, stove or furniture, but you can’t burrow a dime if you are a young entrepreneur who has a solid business plan to start a new venture that will end up hiring people.”

The Prime Minister said Bahamian culture had previously been different on the need to save.

“The importance of saving was better understood and most of this out-of-control consumerist culture we see today didn’t exist  back then,” he added.

“Today we have people taking out loans for vacations that they will end up taking seven years to pay back, or taking out loans for lavish weddings or cars they don’t really need to change right now. They are piling up these loans that they have to pay back at 18, 20 or 22 per cent interest rates and whatever charges might exist.”

Mr Christie accused banks and other lending institutions of being complicit in promoting this culture. “Banks and other lenders are complicit  in this, too, cajoling or sweet talking customers into taking out loans they don’t need or simply can’t afford in the long run,” he said.

“There is a compelling urgency in this country to address this issue. For some we need to limit the amount of salary deductions that can be made. We need to take steps to encourage saving and lessen the appetite  for for personal debt.”

Mr Christie said banks should take the lead in encouraging more responsible lending and refrain from charging excessive interest rates.

“Hopefully we can collaborate on a new Consumer Lending Act promised by successive administrations and, hopefully, it will come across Parliament in the not too distant future,” said Mr Christie.

    He added that he had previously been unaware that there were consumers who were employed but deliberately refusing to pay their mortgages.

“I didn’t know there were people in the Bahamas who had mortgages, who had jobs and decided that they weren’t  going to pay their mortgages. I knew, for instance, there were people who were unemployed and couldn’t pay.,” said Mr Christie.

“We are not going to impose on the banks any new formula, but work with the banks to ensure that we can have an agreed position to ensure that banks and consumers are protected.”