By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
FINCO suffered a $10.9 million year-over-year ‘reversal’ to generate a small loss during the three months to end-April 2017, as delinquent loans “increased significantly” to $122 million.
Royal Bank of Canada’s (RBC) BISX-listed mortgage lending arm blamed its 2017 second quarter performance, with the ‘bottom line’ slumping from a $10.667 million profit the year before into a $260,592 loss, on its non-performing portfolio.
“The bank continues to face challenges with credit origination,” FINCO said in a report to its 25 per cent Bahamian minority shareholders. “Non-performing loans, at $122 million, had increased significantly and remained at a very high level during the quarter.”
FINCO’s non-performing mortgage portfolio has grown slightly from the $119 million ‘bad loan’ pile on its books at year-end 2016, illustrating the continuing credit challenges facing all Bahamas-based commercial lenders - and not just Bank of the Bahamas.
The mortgage lender blamed that year’s 15.5 per cent increase in non-performing loans, up from $103 million at the beginning of the year, on the impact of Hurricane Matthew.
The non-performing loan rise also impacted FINCO’s top-line, with second quarter interest income down year-over-year by 11.8 per cent at $14.414 million compared to $16.344 million in the same period during 2016.
As a consequence, net interest income fell by 18.2 per cent to $10.418 million compared to $12.74 million the year before, while total income was off by 18.4 per cent at $10.978 million as opposed to $13.447 million.
However, FINCO’s total net and comprehensive income was plunged into a minor loss by the $7.085 million in loss loss provisions its deteriorating loan portfolio was required to take.
Explaining the impact for the half-year, FINCO told shareholders: “The bank’s net profit for the six months ended April 30, 2017, was $9.1 million, which represents a decrease of 42 per cent or $6.7 million when compared to the corresponding period for 2016. This decrease is attributed mainly to lower interest income and an increase in loan loss provisions.’
For the 2017 first half, interest income was down by 8.1 per cent compared to the prior year period, standing at $29.519 million compared to $32.125 million.
Net interest income came in 7.8 per cent down year-over-year, standing at $22.546 million compared to $24.441 million in 2016, while total income was down by a similar margin at $23.692 million as opposed to $25.767 million.
As with the second quarter results, the 101.4 per cent year-over-year increase in loan loss provisions, which more than doubled from $3.8 million to $7.655 million, drove the decline in FINCO’s results.
The continuing difficulties in finding qualified borrowers saw FINCO’s credit portfolio decline by almost $16 million in the six months to end-April, closing the half-year at $766.636 million.
Comments
John 6 years, 8 months ago
So does the tend to vindicate BoB for at least some of its poor performance over the past year. The largest bank on the is suffering loses despite downsizing and cutting back severely on customer service. Everyone is in agreement that the economy has deteriorated and loans are not performing.
observer2 6 years, 8 months ago
The variance in performance of retail banks in the country warrants further study. Why is it that Commonwealth Bank achieves record profits and BoB achieves record losses? Why is FINCO's results so choppy and Fidelity's so consistently improving.
Is it that their management skills are just that much better?
tell_it_like_it_is 6 years, 8 months ago
Sumtin jus ain't right, 'da ain no mosquito bite!
John 6 years, 8 months ago
If you study CB's loan portfolio you would notice they never ventured into some of the loans territory RBC and BoB went into. CB's consumer loans had a quick turnover and a high interest rate and allowed the bank to keep their non-performing loans within constraints. BoB was to politically exposed and ended up with toxic loans that had little security or collateral to repossess. RBC, despite closing branches, not paying interest on deposits, including term deposits, reducing staff, cutting back on service, still cannot seem to get its head above water, at least not for long. RBC always operated like a monopoly in the Bahamas and is now only finding out what stiff competition in the Bahamas retail market is like. Many feel that RBC is planning an exit strategy from the Bahamas and other Caribbean countries and may only leave a small footprint behind. ScotiaBank, while not fearing as bad as RBC also has its share of struggles to turn a profit.
Well_mudda_take_sic 6 years, 8 months ago
This comment was removed by the site staff for violation of the usage agreement.
John 6 years, 8 months ago
@muddd-tak-dik. Stop being so near sighted and narrow minded. If Sebas and Flowers were the problem how is it that the banking problems are worldwide? Grow into maturity and stop sounding so petty.
Sickened 6 years, 8 months ago
Mudda take dick... is that what you said? LOL
John 6 years, 8 months ago
*mudda-tak-sic
John 6 years, 8 months ago
the further deregulations by the Trump administration will give US banks an additional $27 billion in profits this year. Are the US banks headed back to the Pre-Obama era where they 'did as they please" and went into bankruptcy?
banker 6 years, 8 months ago
The problem with FINCO is their management. They know that RBC, the parent would drop them in a heartbeat if they could find the right buyer. Canadian banks, because of their size, can afford to be patient, and the divestiture of their Caribbean assets has been on the table for a long time. It is just not worth it anymore to them, and they are moving into more profitable business lines - like 72 -84 months on a new car loan in the US and Canada.
So the management of FINCO is under stress to produce results. They were seeking growth by putting more and more into the loans business. They kept making more and more marginal loans and that is how they got into trouble. I am told that some lending officers had a quota to "put money on the street".
And the financial industry is procyclical. That means that failures in some areas cause failures in the lending institutions. Marginal or sub-prime loans are a huge bellwether of the economy. It is an indication that the economy is not doing well. In boom times, when people get into credit trouble, the can usually refinance (at a higher rate of course). When they no longer can refinance, that is when the loan portfolio stops performing, which is the case for FINCO -- too many marginal loans seeking higher profits.
I fear that the economy of the Bahamas is due for a further decline. The current FNM government should be putting economic diversification policies in place now, and I see no sign of that. I hope that I am wrong about my prognostications. When I see boom times in other cities (Berlin, Vancouver, Dublin, Hyderabad, Seattle, etc), my heart sinks because we don't have to be in a backwater if we just had some vision at the top. Not seeing any right now. Maybe Bahamians are too parochial to have the mental and cognitive resources and vision to get us out of the deep hole that we are in. Nobody seems to have the problem-solving skills to disrupt the downward slide.
John 6 years, 8 months ago
Furthermore a revived and profitable BoB would spell even more trouble for RBC / Finco.
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