By NEIL HARTNELL
Tribune Business Editor
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.