By NATARIO McKENZIE
A ROYAL Bank of Canada (RBC) executive yesterday said its appetite to lend mortgages to middle and lower class Bahamians was "substantially diminished" due to inadequate market infrastructure. Tim Rider, RBC Caribbean's senior vice-president of sales, told the Royal Fidelity Economic Outlook that as a result the Canadian-owned bank was now focused on "affluent" borrowers when it came to home lending. With many potential borrowers too heavily indebted to take on a mortgage, Mr Rider also pointed to the continuing absence of a Bahamian Credit Bureau as an example of 'inadequate market infrastructure'.
Legislation to create such a facility has been tabled in the House of Assembly, and is expected to be debated early in 2018, but the RBC executive said its non-existence meant that lending decisions were currently based on "imperfect information" with banks unable to properly assess the creditworthiness of individual borrowers.
And, defending RBC's continued Bahamian branch closures and drive to digital banking, Mr Rider said the bank needed to be "speeding up" - rather than slowing down - when it came to driving such change.
Amid all the complaints, he questioned whether a bank such as RBC should be committed to the Bahamas if this nation was "not committed to its own success', arguing that reforms such as digital banking where necessary to drag the country to world-class norms.
Mr Rider also warned that Bahamian companies and wealthy individuals were setting up "escape routes" for their assets and families in case the Bahamian economy and government finances continued to nosedive - confirming what multiple sources have recently informed Tribune Business about.
"The current mortgage lending infrastructure has substantially diminished RBC's appetite for mortgages to the average Bahamian, and forced our focus up-market to those borrowers who are more affluent and have proven ability to repay their debt," Mr Rider said.
"The mortgage lending infrastructure, and lending infrastructure in general in this country, needs to improve so that we can actually open the lending books."
Mr Rider added that the mortgage market has largely been deserted by the local banks, with Commonwealth Bank, Bank of the Bahamas and Fidelity Bank (Bahamas) now all largely focused on consumer loans that are perceived as less risky because they can be secured via salary deductions.
The senior RBC executive said many potential borrowers are over-leveraged, further depressing the pool of borrowers who can potentially qualify for a mortgage. "From an aggregate perspective we see the country having over-leveraged consumers and over-leveraged businesses," he said.
"Leverage at the sovereign level is a concern, but the VAT tax has indicated that the size of the economy is larger than originally thought, so the debt-to-GDP can be turned, but it will have to primarily be through expense control back towards an investment grade rating."
While many Bahamians will likely be further riled by Mr Rider's comments, having been antagonised by RBC's recent branch consolidations and Family Island withdrawals, they have major social and economic implications for this nation.
For they suggest that the dream of 'owning a piece of the rock' is increasingly being placed beyond the reach of middle class and average Bahamians, the majority of society, as a result of commercial bank risk aversion to mortgage lending.
This is a consequence of the fall-out from the 2008-2009 recession, which resulted in $600 million worth of non-performing mortgage loans clogging bank balance sheets and depressing profit performance, and the prolonged workout that followed.
The Bahamian economy, together with unemployment and salary levels, has yet to fully recover and this, combined with more stringent banking lending standards, has sharply reduced the origination of new mortgage loans.
This, in turn, has depressed the Bahamian housing market, resulting in sharply reduced work volumes for multiple professions that rely upon it - the likes of contractors, realtors, attorneys and other service providers.
The negative ripple effects have been felt throughout the Bahamian economy for a decade, and Mr Rider yesterday identified structural impediments to increased commercial bank lending.
He said the Bahamas does not have a Credit Bureau, making it nearly impossible for lenders to truly understand the level of indebtedness of a potential client. "This means decisions are based on significantly imperfect and much more narrow information than we are used to having in Canada, the US and Europe," Mr Rider said.
"While I know it is on the legislative docket, an expedited focus would be highly recommended."
While he did not identify other 'inadequate mortgage infrastructure', Mr Rider may also have had in mind the Homeowners Protection Act passed by the former Christie administration. While the goal was to make struggling borrowers more secure in their home, the Act is viewed as having had unintended consequences.
Sir Franklyn Wilson, the Arawak Homes chairman, previously called on the Government to "urgently review" the Act, branding it "a real disaster" for the Bahamas' struggling mortgage market.
A well-known Progressive Liberal Party (PLP) supporter, he criticised the Christie administration for "unnecessarily rushing" the Act into law so it could meet a 2012 manifesto promise prior to the May 10 general election.
He argued that it imposed overly-burdensome restrictions on what banks and other mortgage lenders "can and cannot do" in relation to their distressed properties, and introduced concepts and definitions that were unworkable in practice. K P Turnquest, the Deputy Prime Minister, subsequently said the Government would conduct just such a review.
Mr Rider, meanwhile, said RBC has made significant investments in its digital app and point of sales (POS) technology. He added that it had to make "hard choices" to ensure the bank can survive.
"I have been asked many times to slow down and give folks time to adjust," said Mr Rider, who argued: "We cannot be slowing down. In fact, we need to be speeding up." He posed the question: "Should a global lender like RBC be committed to the Bahamas if the Bahamas is not committed to its own success?"
Mr Rider said that without change to bring the Bahamas towards world-class norms, it will continue to fall behind.
"Wealthy Bahamians and companies are limiting their investments in the Bahamas at this time, given their current exposure levels, as well as setting up financial escape routes for their families should the Bahamas continue to deteriorate financially," he added.
"While we understand the prudence of this as a risk manager and banker, it is a detriment to the Bahamian economy."