By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
ROYAL Bank of Canada's (RBC) mortgage lending arm yesterday unveiled a 67 per cent year-over-year slump in 2018 first quarter profits as 'bad credit' woes continued to bite.
Robert Johnston, Finance Corporation of the Bahamas (FINCO) chairman, told shareholders that recurring non-performing loan woes were largely responsible for the two-thirds drop in total comprehensive income.
Non-performing loans rose by more than $5 million in the three months to end-January 2018 to hit $126 million, which Mr Johnston said represented a 6 per cent year-over-year rise and 4 per cent increase on the $120.87 million at year-end 2017.
He added that FINCO remained well-capitalised, but also continued "to face challenges with new credit origination" - a common problem throughout the Bahamian commercial banking industry when it comes to finding qualified borrowers that meet a tighter lending criteria.
"The bank's net profit for the three months ended January 31, 2018, was $3.1 million and represents a decrease of 65 per cent when compared to the corresponding period for 2017," Mr Johnston informed shareholders.
"This decrease is mainly attributed to lower interest income and an increase in provisions, which was driven by an increase in non-performing loans."
FINCO's results are likely to disappoint investors, given that they follow so swiftly behind a 2017 full-year when the mortgage lender near-doubled profits due to a more than 50 per cent drop in loan loss provisions.
'Bad credit', though, increased during 2017, and the hit to this year's first quarter indicates that FINCO's financial performance will continue to fluctuate as it struggles to deal with a non-performing loan pile that may yet take several years to work out.
Interest income fell by 9.8 per cent year-over-year for the 2018 first quarter, dropping from $15.105 million to $13.626 million, due to the combination of non-performing loans increase and difficulty in finding new borrowers.
Net interest income dropped by almost $1 million as a result, with total revenue falling by 7.7 per cent from $12.714 million to $11.74 million.
Compounding the top-line hit was the $4.6 million year-over-year increase in loan loss provisions, which jumped from $569,786 in the same period in 2017 to $5.218 million for this year's first quarter.
As a result, FINCO's net income fell by 65 per cent from $8.848 million to $3.138 million, while total comprehensive income was down by a similar 67 per cent.
FINCO's problems come at a time when the Bahamian commercial banking industry has enjoyed some success collectively in addressing its non-performing loan backlog, which stood at $566 million at end-February.
However, the BISX-listed entity, 75 per cent majority-owned by RBC, saw little change in loan book health during the 12 months to end-December 2017, with 'impaired' loans - those 90 days or more past due - increasing in value from $119.414 million to $120.87 million.
"Loans and advances classified as impaired represent 14.44 per cent (2016: 13.95 per cent) of the total loans and advances portfolio," FINCO's financial statements, audited by PricewaterhouseCoopers (PwC), said in the 2017 accounts.
"The allowance for impairment losses represents 8.92 per cent (2016: 8.01 per cent) of the total loans and advances portfolio, and 61.73 per cent (2016: 57.39 per cent) of the total impaired loans."
As with most commercial banks, the high 'bad loan' hangover from the 2008-2009 financial crisis continues to act as a drag on FINCO's financial performance. However, loan loss provisions fell by 50.1 per cent in 2017 - from $25.017 million to $12.477 million - accounting entirely for the mortgage lender's improved bottom line performance.
Comments
bogart 6 years ago
Given that this massive mortgage loan failures versus less consumer loan failures cannot be all blames on the recession. Some massive 4000 plus accounts failed before during and continues after recesdion and the recent change in banks application processes credit risk assessments have definitely slowed the defaults. Amazingly while compatative foreign bankers have similar defaults and their defaults can be linked to unfair lending practices leading to banks investigated and found guilty and govt legislation applied ...there has not been any such thing in the Bahamas ....except to create a Credit Bureau which will definitely have those mortgagors of the hundreds of defaulted mortgaged homes still listed in regular newspapers handout periodicals. Investigations are needed for negligence and lack of due care where bankers are guilty of fraud etc in not looking out for the success of their clients but gaining bonuses etc for selling the most bank products.It is very corrupt to think only the customers are to blame.
bogart 6 years ago
In tribune artcle 'Clerk gave bank more than her annual pay' wednrsday 16, January ,2018.
The amount of her annual pay is listed and her monthly mortgage pay is listed and there are other deductions from her pay slip from CoB. This is clearly over the debt service ratio of 45% and would jeapordise her abi.ity to repay mortgage which in this case was done because of the alleged theft from her employer and laundering it. R,ecently there is yet another story of an RBC employee pleading guilty to stealing some 61k and may be in the bank. . Obviously these amounts impacted profits plus should raise questing on loans. There is another tribune article of a Scotia bank manager being terminated for allegedly not meeting targets and an case of emplouee opening a large number of deposit accounts instead of one so as to meet sales target goals.
John 6 years ago
When you hear about ‘people money gone missing ‘ from a bank account, you don’t know how serious it is until you experience it yourself. And when the bank keeps telling you ‘they are looking into it, then eeeks go by and then weeks turn into months and you don’t get your money back. Just the same set of questions and the same promise from the bank, we looking into it. And then some people claims that they had to hire a lawyer to get their money back and others who say they just give up after two years of waiting and just close their accounts and ‘stop dealing with that bank.’ But isn’t there some authority that ensures that depositors’ funds are safe and they are reimbursed for lost funds without having to go through a long, drawn out legal battle with the bank?
bogart 6 years ago
...sorry to say you have to go through it. The banks have maximised every second of their employees time to make profits....the 50k funds are in case of govt gurantee and statutory reserve is for run on bank.....when you have been ripped off by bank.....money missing from your account.....charged fees ie 15 dollats to cash 80 dollar cheque, have your account at bank but business clients refusing to accept your cheque loss of business, money posted to different account, payment not made but sitting on another account, debits and credits made on account which you are not advised. etceyc....now in the mortgages area the errors are even greater as they involve conrractors, appraisers, contractors incurancrs, group insurances, life insurances, lawyers, judges, indemnity insurances, guarantors, TDSR total debt service ratios, sales targets, comprehinsive home insurances eycetc......when anything goes wrong .....you are on your own to fight to correct it....lawyers will not go against banks who have the most money and lawyers and not have any more business....bankers usually close ranks and protect each other....and by the time you struggle to correct you have no money to continue fighting,....you are a trouble maker using up peoples time, a broke outcast you get victimized.....you lose!! ....
John 6 years ago
And the increase in non performing loans represent what is going on in the economy as a whole There has been a major slump in economic activity resulting in layoffs and increases in unemployment that was accompanied by serious spikes in the cost of living. These cost increases include gas prices and many food items. Water in the food store is now 5.50 a 5 gallon and milk and meat items have also shot up. And major corporations like BPL, BTC and others So, yes, more Bahamians are defaulting on loans because they are unemployed or their disposable income has decreased. But Bahamians are also learning that loans are not free money. In fact it is very expensive money. And many are learning how to stay away from the loans departments in this uncertain economy. Many are purchasing automobiles for cash and putting off the purchase of homes until they have down payments to purchase significant equity in them Better to purchase a home later and keep it than to start early and lose it to the bank after struggling to pay for many years.
bogart 6 years ago
Banks also need to innovate....create products....amend some of the ways they do business.....I have done it a number of times to make life easier.......use other situations. For instance it may be expensive for one person to buuy a 50 x 100 lot and build a house...why not build a duplex and sell to two persons...each own a half??......why not do reverse mortgages???.....why not get into longer year term mortgages??.....why not get into get more structurally prefab hurricane proof etc reduce costs??...why not get into mortgages with rscrow savings account and use for emmergrncy or balloon payment??......I think pne bank does this..why not do 99 yr leasehold .and options.etcetc....any more I d have to charge for consultation....
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