The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The $100 million Bank of the Bahamas ‘bail out’ helped to staunch the industry’s 2014 bad loan bleeding, but “no significant improvement” to this problem is expected in 2015.

The Central Bank of the Bahamas’ report on December’s economic developments discloses that the transfer of $100 million worth of ‘bad’ commercial loans to the Government-owned Bahamas Resolve had, at least on paper, caused a $64.8 million year-over-year decline in the banking industry’s total loan arrears. Without it, the sector was looking at a $35 million increase.

Yet, while the Bank of the Bahamas rescue helped to ‘cap’ the upward movement in bad loans, there is little disguising the continuing impact this situation is having on too many Bahamian households, plus the ‘drag’ it is exerting on the overall economy.

Even accounting for the Bahamas Resolve transaction, total private sector loan arrears closed 2014 at $1.287 billion - a figure equivalent to 21.4 per cent of total loans. This means that more than $1 out of every $5 lent by Bahamian commercial banks is in default.

And the Central Bank itself warned that “no significant improvement is anticipated in the loan arrears situation” this year.

The data produced by the Central Bank shows that the industry’s non-performing loans (NPLs), those more than 90 days past due and upon which the banks have stopped accruing interest, grew by $6.1 million to $972.1 million at year-end 2014.

While loans between 31-90 days past due dropped by $70.9 million or 18.4 per cent, year-over-year, to $315.2 million, the figures show Bahamian commercial banks are still making no headway with long-term defaulters.

“Over the year, banks increased their total provisions for loan losses by $129.4 million (34.2 per cent) to $508.1 million, elevating the ratio of provisions to both arrears and non-performing loans, by 11.5 and 13.1 percentage points, to 39.5 per cent and 52.3 per cent, respectively,” the Central Bank said.

The Bank of the Bahamas ‘bail out’ saw commercial loan arrears fall by $80 million or 23 per cent in 2014, hitting a total $263.6 million. But, while consumer loan arrears dropped by $5.4 million to $312.3 million, ‘bad’ mortgages grew by $20.6 million or 3 per cent to $711.6 million.

Again, non-performing mortgages increased by $42.3 million or 8.6 per cent in 2014, more than offsetting a $21.7 million or 10.9 per cent drop in the 31-90 day segment.

Elsewhere, the Bahamas Resolve transaction drove a $114.8 million contraction in outstanding Bahamian dollar credit to $6.029 billion - a $38.9 million greater shrinkage than the previous year’s $76.86 million drop.

Commercial loans contracted by $146.5 million, compared to a $64.5 million drop in 2013, as banking sector exposure to businesses continued to fall.

“Banks’ outstanding mortgages also decreased further by $7 million, after falling by $2.5 million a year ago,” the Central Bank said. “However, growth in consumer credit rebounded to $38.7 million, from the year-earlier $8.9 million reduction.”

The latter highlights the increased focus Bahamian commercial banks are placing on consumer loans as the only relatively safe area of credit growth in the current environment.

Elsewhere, the external reserves grew almost by $47 million year-over-year to end 2014 at $786.76 million, boosted by a $75 million short-term foreign currency loan that the Government took out late in the year.

On the tourism front, the Central Bank said: “The ongoing recovery in several key source markets, combined with joint public/private sector promotional campaigns and increased airlift, secured a stable 3.5 per cent expansion in total visitor arrivals to 5.1 million over the 10 months to October, when compared with the year-earlier period.

“After a 6.3 per cent reduction a year ago, the high value-added air segment strengthened by 4.5 per cent, while growth in the sea component slowed to 3.2 per cent from 6.5 per cent. By major port of entry, visitors to the Family Islands improved by 8.5 per cent, outpacing last year’s 0.4 per cent uptick, based on gains in both the sea (9.2 per cent) and air (2.7 per cent) segments.

“Bolstered by a 43.2 per cent advance in air arrivals, which offset the 8.1 per cent fall in the larger sea segment, the contraction in tourists to Grand Bahama softened by two percentage points to 2.4 per cent.

“ In contrast, growth in tourists to New Providence slowed to 2.3 per cent from 7.3 per cent in the 2013 comparative period, as the expansion in the dominant sea component tapered to 2.7 per cent, to moderate the reversal in air arrivals from a 6.9 per cent decline to a 1.5 per cent gain.”

Emphasising that the Bahamian economic outlook was mixed, the Central Bank of the Bahamas said Value-Added Tax’s (VAT) inflationary impact was likely to be mitigated by the decline in global oil prices.

While the opening of Baha Mar and other resort projects, coupled with the hosting of international events and further foreign direct investment (FDI) activity, would boost the construction sector and help ease the unemployment numbers.