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Rbc's Middle Class Mortgage Appetite 'Severely Diminished'

By NATARIO McKENZIE

Business Reporter

nmckenzie@tribunemedia.net

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."

Comments

Gotoutintime 1 year, 3 months ago

Don't blame people for setting up "financial escape routes". Anyone who doesn't do that is crazy!!

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sheeprunner12 1 year, 3 months ago

What qualifies a Bahamian to be considered "middle class" ....... when the average Bahamian annual personal income is in the area of $20,000 ????????? Is that based on a personal income or a family income criteria?????

How much must a "family income" be to be considered middle class?????? ....... $50,000????

With the cost of living and the temptation of salary deduction, Bahamians rarely have 50% of their salaries available as disposable income on payday ........ We rob Peter to pay Paul.

hat is what the banks (and Bahamians) have found out now ................ the hard way.

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ohdrap4 1 year, 3 months ago

back in the 90s , to qualify for a loan at the mortgage corporation i think the house hold income was 40,000. that would be 20,000 a piece for two people working.

But then before the started selling out to foreigners, a nice and big hope was 250,000-- I remember the Punch headline that a now deceased pastor bought this extravagant home.

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birdiestrachan 1 year, 3 months ago

It is clear that he does not hold Bahamians in high regard. But perhaps some of what he says may be worth looking into it will not hurt, to do so..

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sealice 1 year, 3 months ago

Nice Mr. Rider.... you think this place is a shitholio and you trying to blame the people.... thankfully i stopped banking with your Merry Band Of Crooks years ago...

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seamphony 1 year, 3 months ago

who else is here to blame? we spent more than we made for years and years in good times and in bad times. now the banks are cutting their losses.

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sealice 1 year, 3 months ago

"we" is dumarsses who borrowed when they shouldn't have - i was brought up if you don't got it you just don't got it but you go on living. These fools at RBC probably used to let the PLP push them around when the Bank of the Bahamas was failing and they actually complied and loaned money to people who they probably already knew were high risk. I mean they just now saying we should have a credit ratings system? This didn't just happen it's been a long process and because our FNM transparent No teeth but i guess they're not bullies either gubmint can't do crap about it RBC is just as guilty as the people they loaned the money to

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JackArawak 1 year, 3 months ago

It's not a question of "holding Bahamians in high regard"; it's The Bahamas. And he is right, the country is a disaster, held back in time and education levels by the government since oh, 1967 or so. Too much focus on people drinking and twerking at political rallies and not enough focus on raising an educated and respectful generation and a commitment to staying on pace with global modernization. The government has failed us and the cows are coming home in bigger and bigger numbers.

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TheMadHatter 1 year, 3 months ago

Our national pass-time is baby making. We mix our Water & Sewerage together. We have a proxy government called the Christian Council. We have a lady we never hear from as our Head of State. I could go on and on, but who would listen?

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Sickened 1 year, 3 months ago

I'm listening! Preach brother. Mix our Water & Sewerage together - LOL! That's why my belly always aching after I brush my teeth! And why I can't get rid of this stink breath.

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Well_mudda_take_sic 1 year, 3 months ago

Translation: Commercial bank lending in a Creolized nation where the financial system is becoming increasingly controlled by thugs like Sebas Bastian and Craig Flowers is just too big a risk!

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bogart 1 year, 3 months ago

Here we go again with the foreign guy setting policies in the foreign headofgice visiting the colony. What a bunch of crap!!!...middle an lower class Bahamians...affluent...BahamianCreditBureau? Mudda sic dred didnt someone mention that thats what a bank analysis does?? ..a banker can analyze invome, budget anslysis loans and tell you what you should have left over and balance sheet can support data....simple what you put into your pocket should still be thers less what you take out or you pocket gat hole..aint notin imperfect about dat ...trying to pull wool pver people eyes to cover us disaster fron aggressive lending....and putting one over on govt....why RBC should be committed yo this nation if it was not committed to its own success.....well thats true since the authorities have not done investigations into lending policies of these same banks leaving Bahamians eid domev 600m in bad loans and proof is now same banks change policies that few remaining Bzhamians can qualify!! Spending millions yo tigthten up policies sure tells you something dey been doing wrong.. We need a Consumer Financial Protection Bureau as in the United States and a United Kingdom Banking ConsumerProtection and Competition in the Banking sector!!!

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Bonefishpete 1 year, 3 months ago

Talking about Bankers, where's Banker?

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proudloudandfnm 1 year, 3 months ago

When you live in a country where $300.00 a week is considered a "good" salary this is what you get....

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hrysippus 1 year, 3 months ago

Lets just shoot the messenger and then everything will be fine and we won't have to actually do anything differently. See, problem solved.

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bogart 1 year, 3 months ago

..."The mortgage lending infrastructure, and lending infrastructure in general in this country needs to improve so that we can actually open up the books."... .......actually.....these infrastructure are currently 'dictated' in the Bahamas by the mortgage lenders themselves including selection of Bank Approved Appraisers list, Bank Approved lawyers, Bank Approved legal documents with iron clad covenants and legal teams to pursue debtors even after mortgaged property is sold for all interest, costs recovered etc inJugment, and the rest of course respective Bank Approved Terms and Conditions bank accountants, mathematical ratios, mortgage insurances, indemnity insurances, analyses, amortizations etc. Banks are geared to make maximum profits and officers from loan officers are now also Sales officers with QUOTAS to meet to get pay increase, bonuses, trips etc set by headoffices.

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Brilander 1 year, 3 months ago

Damn straight! Who do these banks think they are trying to make maximum profits? Businesses? They should try to LOSE money and lend it to the people LEAST likely to pay it back, and stop trying to collect it when the borrowers fail to repay. Anything else is just the usual foreign wickedness! Puhleeeeez!

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Dawes 1 year, 3 months ago

AS usual if a foreigner says something that we decide is bad about the Bahamas we tear them down. We have all said, on this website, at one point or another that there are serious issues that need to be addressed. Now this man says it, instead of listening to the message we would rather shoot the messenger. If one of the top people at perhaps the largest bank in the country says these are the problems he faces, we should listen, as all the other banks will be saying the same thing.

But no lets continue to say how bad he is and how he should leave as we don't like the message, whilst we continue to churn out huge numbers of under educated children who are on the verge of becoming adults.

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bogart 1 year, 3 months ago

Foreign or local if they both get the same treatment. The Bahamas is one of the leading financisl centres in the world and has dozens of top notch bankers, in senoor positions in many leading banks, i know of a few vice presidents right hre in Nassau who run back a d forth yo NewYork etc. We have devised structures and continue to that have served well until govt gets into it.. We have also trained many foreign bankers who get paid more an move to senior roles, we have provided papers 20 uears ago and designed systems on what we ane now seeing today. Bahamas was and still is at the top og the game like Cayman before the Caribbean and sre continuing to change. Not cause dey is senior mean dey is saying da ting correctly, like fer instamce ROyal was one first bank to com 1900s but den it took Sir Etienne an company to correct what plenty been doin wrong like black people coulfnt go on dem cas dey black. We know why some say what ...but then in todays trib Bus headline where banker says and the 3 bullet points. Now da youth education story das ean hole next ting you startin.

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