By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
‘Bad’ commercial bank loans will remain within the $850-$900 million range over the short-term, the Central Bank is forecasting, as the value of mortgage collateral continues to decrease.
The regulator, in its newly-released 2015 annual report, confirmed that dealing with distressed residential and commercial property loans remained “the greatest challenges” for commercial banks.
It added, though, that the sales pace for distressed real estate appeared to have increased in 2015 - although full recovery of loan values remained the key problem.
“With the mildly positive economic outlook, benchmark non-performing loan levels are expected to remain within the $850 million to $900 million range in the near-term,” the Central Bank projected.
“Stress testing indicated that capital buffers remain comfortable at a doubling of non-performing loans.
“However, additional capital would be required if delinquencies rose by 150 per cent or 200 per cent, as the assumed earnings reduction would escalate owing to increased loss provisions and depressed interest income (from non-accruals).”
While some $1.2 billion worth of bank credit is past due, around $300 million of this is between 31 and 90 days past due, leaving non-performing loans - those more than three months late - at $850-$900 million.
Dealing with distressed properties, which were acting as security for non-performing mortgage loans, “provided the greatest challenges for some banks”.
“The value of distressed properties continued to decrease, with those in the Family Islands sustaining greater reductions in value than those located in Nassau,” the Central Bank disclosed.
“Notably, some banks indicated that sales of distressed properties in 2015 were generally better than in the prior year.
“Nonetheless, banks were encouraged to strengthen their loan underwriting policies and collateral assessments to ensure they had sufficient allocation of specific provisions to adequately reflect the level of impairment in the portfolio.”
The Central Bank said personal/household credit “remained stable” in 2015, although the collective sum lent by the banking industry to private sector businesses contracted.
“Commercial banks pursued aggressive marketing campaigns targeting the narrow pool of creditworthy borrowers,” the regulator added.
“Support for customers through debt consolidation and restructuring also continued, although banks have raised their lending standards.
“As a result, some banks reported that the performance of these loans had improved in terms of their stability.”
The Central Bank also confirmed that the maximum 40 per cent debt service ratio was waived for commercial bank clients who were restructuring credit, provided no new loans were given.
Despite Bank of the Bahamas’ woes, and the repatriation of excess retained earnings by the Canadian-owned banks, the Central Bank said the commercial banking industry’s risk-weighted capital ratio of 33 per cent was well above the “target and trigger ratios” of 17 per cent and 14 per cent, respectively.
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