The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Hotel room revenues on Nassau/Paradise Island fell by 7 per cent year-over-year to end-July 2017, amid warnings of "sustained softness in tourism".

The Central Bank of the Bahamas, in its monthly economic report for August, said data from a group of major New Providence hotels showed "earnings weakness" in line with a drop in higher-spending stopover visitors.

"On a monthly basis, the value of room sales decreased by 3 per cent in July, amid a 6.5 percentage point reduction in the average occupancy rate to 77.3 per cent," the Central Bank said, "which overshadowed the 2.4 per cent gain in the average daily rate (ADR) to $253.67.

"In addition, over the first seven months of 2017, total room revenue declined by 7 per cent relative to the same period last year. This outturn reflected a fall in the average hotel occupancy rate by 5.5 percentage points to 70.7 per cent, combined with a 2.4 per cent ($6.06) decrease in the ADR to $247.36."

The Central Bank figures are especially troubling given that New Providence's inventory is set to expand by a net 2,300 rooms come March/April 2018 when Baha Mar comes fully on stream.

It is unclear whether Baha Mar's discounting impacted rates, but the relative pricing, occupancy and demand softness is again likely to renew fears about the $4.2 billion Cable Beach 'mega resort' splitting or cannibalising the high-end visitor market with Atlantis and other properties, rather than growing it.

With 400,000 extra airline seats needed into Nassau annually to fill Baha Mar's extra capacity, the Ministry of Tourism, promotion Boards and individual properties will need to redouble their marketing efforts.

The Central Bank added of the hotel data: "These trends were reinforced by data from the Nassau Airport Development Company (NAD), which showed a 0.3 per cent softening in international departures from the country's largest airport during the month of August, vis-a-vis a marginal 0.9 per cent gain in the prior year.

"In terms of the components, the volume of non-US international passengers fell by 6.9 per cent, after a 0.3 per cent decline a year earlier, while growth in the dominant US segment slowed to 0.6 per cent from 1 per cent in 2016."

The Central Bank said construction industry activity, driven by foreign direct investment (FDI) projects and hurricane rebuilding, was helping to compensate for the reduced activity in the Bahamas' leading industry.

It added, though, that Baha Mar's full opening and the diversion of tourists from the hurricane-hit southern Caribbean meant the tourism sector's medium-term prospects were better, Freeport and the still-closed Grand Lucayan notwithstanding.

"Domestic economic activity is expected to remain relatively mild over the remainder of the year, with tourism output constrained by ongoing weakness in the country's second largest market, and the short-term disruption to travel itineraries - caused by the two major storms - on several key source markets," the Central Bank said.

"However, this effect is likely to be balanced by the potential shift in visitors from destinations severely affected by the hurricanes, and the further increase in room inventory resulting from the phased opening of the Baha Mar resort."

The Central Bank added that the Government's fiscal consolidation efforts were likely to be "dampened" by infrastructure repair costs in the southern Bahamas in Hurricane Irma's wake.

However, it added that the reduction in commercial bank non-performing loans (NPLs) "should be maintained" throughout 2017, largely due to Bank of the Bahamas disposing of $166 million worth of toxic credit to Bahamas Resolve.

"Reflecting mainly the sale of a second tranche of Bank of the Bahamas' non-performing commercial loans to Resolve Ltd, total private sector loan arrears contracted by $79.4 million (7.7 per cent) to $951.2 million, while the corresponding ratio of arrears to total private sector loans decreased by 1.2 percentage points to 16.3 per cent," the Central Bank said.

Adding that the full impact of the Bahamas Resolve transaction would be seen in September, the regulator added: "In particular, non-performing loans (NPLs) fell by $84.5 million (11.6 per cent) to $646.5 million, resulting in the attendant ratio receding by 1.3 percentage points to 11.1 per cent. In contrast, the short-term (31-90 day) segment rose by $5.1 million (1.7 per cent) to $304.6 million, with the arrears rate firming by 15 basis points to 5.2 per cent of total loans.

"By loan type, the improvement in asset quality mainly reflected a $79.1 million (33.2 per cent) reduction in commercial delinquencies to $159 million, as the non-accrual segment contracted by $70.6 million (35.3 per cent), while short-term arrears decreased by $8.5 million (22.2 per cent).

"Similarly, the consumer segment fell by $3.1 million (1.2 per cent) to $263.3 million, as the $9.9 million (5.8 per cent) falloff in the NPL category eclipsed the $6.8 million (7.1 per cent) uptick in the short-term segment. In contrast, mortgage delinquencies firmed by $2.8 million (0.5 per cent) to $528.9 million, as the $6.8 million (4.1 per cent) increase in the short-term segment negated the $4 million (1.1 per cent) decrease in NPLs."

The Central Bank continued: "The sale of the non-performing portfolio allowed BOB to reduce its provisions for loan losses significantly, and as a consequence the aggregate provisions for the sector fell by $53.6 million (10.6 per cent) to $454.7 million.

"Reflecting mainly the asset sale to Resolve Ltd, the delinquency rate for commercial loans plunged by 8.2 percentage points, while the corresponding mortgage rate fell by 2.6 percentage points. However, the consumer loan rate firmed slightly by 19 basis points."