By NEIL HARTNELL
Tribune Business Editor
Commercial bank loan arrears fell below the $1 billion mark for the first time in years at end-February 2017, with ‘bad’ credit having declined by almost $200 million over the previous 12 months.
The improved data, disclosed by the Central Bank in its monthly economic report for February, indicates that more aggressive strategies are starting to make inroads into the loan delinquency overhang that peaked at $1.2 billion following the 2008-2009 recession.
“Supported by a reduction in one institution’s short-term delinquencies, total private sector loan arrears contracted by $40.8 million (4 per cent) to $968.6 million, resulting in a 69 basis point improvement in the ratio of arrears to total loans to 16.4 per cent,” the Central Bank said of the commercial banking industry’s end-February position.
“A year-on-year analysis revealed a sustained trend of improvement in balance sheet quality, backed by the sale of non-performing mortgages, banks’ aggressive loan restructuring programmes and, to s lesser extent, Government’s Mortgage Relief Programme (MRP).
“As a consequence, loan arrears fell by $199.3 million (17.1 per cent) over February 2016, while the ratio of arrears to total loans declined by 3.1 percentage points.”
Ian Jennings, the Clearing Banks Association’s (CBA) chairman, yesterday stopped short of declaring that the data showed the industry was finally making sustained inroads into a problem that has impacted credit access and left hundreds of Bahamian families in distress.
Explaining that the Central Bank’s report was based on the data it received from the banks, Mr Jennings said the numbers did not necessarily include mortgages extended by non-bank lenders, such as insurance companies.
Suggesting that the figures possibly captured just “two-thirds to three-quarters” of the entire mortgage market, Mr Jennings said this again highlighted why the Bahamas needed a Credit Bureau.
Much of the reduction in non-performing loans came from Scotiabank’s sale of a delinquent mortgage portfolio to Sir Franklyn Wilson’s Gateway Financial.
Assessing the ‘bad’ credit decline in more detail, the Central Bank said: “In terms of the length of delinquencies, the short-term 31-90 day component decreased by $35.3 million (12.7 per cent) to $242.7 million, with a 60 basis point fall-off in the attendant ratio to 4.1 per cent.
“Comparatively, non-performing loans (NPLs) contracted by $5.4 million (0.7 per cent), while the relevant ratio softened by nine basis points to 12.3 per cent.
“The reduction in delinquencies was anchored by a $32.8 million (6.4 per cent) decrease in mortgages, reflecting mainly a fall in the short-term segment of $32.2 million (22 per cent), and a slight decrease in NPLs of $0.6 million (0.2 per cent),” the Central Bank added.
“Similarly, reductions were recorded for commercial and consumer delinquencies of $5.6 million (2.4 per cent) and $2.3 million (0.9 per cent), respectively. In terms of the former, both the 31-90 day and NPL segments contracted by $1.6 million (3.6 per cent) and $4.1 million (2.1 per cent), while for the latter, declines of $1.6 million (1.8 per cent) and $0.7 million (0.4 per cent), were registered for the short and long-term components, respectively.”
Turning to the economic outlook for the Bahamas, the Central Bank said conditions were “subdued” in February due to “softness” in tourism industry activity.
“Preliminary indicators suggest that the tourism sector’s performance was relatively weak during the review period, as inferred from reduced foreign currency inflows through commercial banks,” the Central Bank said.
“The most recent statistics on visitor traffic from the Nassau Airport Development Company (NAD), for the first two months of the year, showed a 4.1 per cent decline in visitor departures, relative to a 2.3 per cent uptick in the prior year.
“This outturn was largely due to a 3.9 per cent fall-off in United States passengers, while the number of visitors returning to ‘other’ countries also narrowed by 5.3 per cent in comparison to the first two months of 2016.”
The Central Bank said construction activity was more robust, while Baha Mar’s opening and other foreign direct investment (FDI) projects are forecast to produce a slight uptick in the economy as 2017 progresses.
“The domestic economy is expected to expand mildly in 2017, as activity in the construction sector is poised to remain buoyant over the near-term, supported by several varied-scale foreign investment and hurricane rebuilding projects,” it added.
“In addition, the outlook for the tourism sector has improved, to some extent, in line with both expanded and restored hotel capacity in New Providence. In this environment, conditions in the job market are expected to recover gradually, with the majority of the gains accruing to the construction and tourism sectors.”