The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Lack of competition in the Bahamian commercial banking industry has created barriers to accessing financial services, an Inter-American Development Bank (IDB) report is arguing.

The IDB’s Caribbean Quarterly Bulletin for the first three months of 2019, released yesterday, said the absence of greater “price competition” among the six Bahamas-based commercial banks had increased lending rates and spreads that made products too costly to access for some Bahamians.

“The cost of financial services reflected in rising lending rates limits access to credit and strengthens barriers to financial inclusion,” the IDB report said. “Spreads between deposit and lending rates increased by almost three percent from 2010 to an estimated level of 10.4 percent in 2018, roughly two percent higher than countries in the Latin America and Caribbean region.

“The oligopolistic nature of the commercial banking market limits price competition within a profitable sector. Return on equity (ROE) levels were favourably measured at 6.8 percent in 2017, slightly below the 7.9 percent level at the end of 2016.”

More companies in The Bahamas than anywhere else in the Caribbean identified access to financing as a “very severe obstacle” to their performance and productivity in a 2014 survey, although financing costs were deemed less of an obstacle than in all other regional states.

The same survey also showed that access to financing, including costs (interest rates) and difficulties in providing sufficient collateral security to satisfy lenders, were cited by Bahamian companies as the second greatest barrier to improved productivity and performance - behind only an educated labour force.

“Key drivers of these constraints are the level of development of domestic financial markets, and structural factors impeding access to finance and inclusion,” the IDB report said, although it described credit markets in The Bahamas as “relatively robust and above the level of many regional peers.

“The country’s ratio of domestic private credit to GDP of 54 percent in 2015 was above the regional average for Latin America and the Caribbean (49 percent), and ahead of all other [major Caribbean] countries except Barbados.

“In this context, the financial sector is relatively well developed and functionally dynamic, and it provides several different types of intermediation as credit remains strong and on par or above other major financial economies.”

The IDB report, though, noted that income distribution inequality was a likely driver of disparities in access to financial services in The Bahamas. It said that the income share of the top 20 percent of the Bahamian population was “about 16 times’ that of the bottom 20 percent” based on IMF research.

“The geographic profile of the nation – most of the population resides in the islands of New Providence (with Nassau as its capital) and Grand Bahama – creates particular access challenges that require the provision of financial resources across vast areas of sea and, in some places, sparsely populated islands,” the IDB added.

“This affects banking costs within the financial sector. The outer-most regions of the Family Islands within the archipelagic chain, where roughly 15 percent of the general population resides, appear to be most affected.”

The Bahamas’ large undocumented immigrant population and lack of trust in financial services products were also identified as major factors in different levels of access to financial services. “According to a report from the International Organisation for Migration (IOM), an estimated 50,000 undocumented migrants from Haiti are living in The Bahamas,” the IDB report said.

“Some 5,000 are registered workers according to the IMO, and up to some 13,000 dependent family members are reliant on these workers. The IMO reported most undocumented immigrants are unable to open a bank account and experience other issues common to being stateless within the archipelago.

“The financial literacy survey conducted in October 2017 found that while Bahamians had knowledge of basic financial products and services, their philosophy has not translated into positive personal actions or higher usage of more sophisticated instruments such as long-term savings and investments products,” it continued.

“Financial behaviour was evenly divided between those who seek to spend now before saving versus those who save first before spending. Most residents expressed concern about finding viable financial options to achieve their long-term goals.

“Findings regarding the use of financial buffers as a measure of security varied, as some 48 percent of households had up to six months of income saved for emergencies, versus 13 percent that had only one month or less of savings.”

The IDB report said improving financial access, and lowering associated costs, will boost private sector competitiveness and reduce “economic bottlenecks slowing private sector growth to help the economy reach higher levels of potential growth”