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Bahamas told: Break $2bn banking logjam

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Michael Anderson

• Unleashing surplus assets vital to COVID rebound

• Banker warns on govts fiscal/tax ‘drag’ for recovery

• Country, its people, ‘cannot survive on what we have’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must break the $2bn-plus logjam in its commercial banking industry to overcome a key “drag” that will undermine its post-COVID recovery, a top investment banker warned yesterday.

Michael Anderson, RF Holdings (formerly Royal Fidelity) president, told Tribune Business The Bahamas will only succeed in growing its way out of post-pandemic stagnation and soaring debt by mobilising the huge amount of surplus liquidity clogging the nation’s banking system.

Speaking as RF Holdings unveiled its seventh annual Bahamas Economic Outlook conference, which will be held virtually on May 6, he said this potential capital pool - which stood at $2.158bn in February 2021 - had to be converted into investments in productive businesses and industries if this nation is to revive job creation and economic activity.

Warning that The Bahamas may have to “grow and tax” simultaneously, given the government’s urgent need to slash an annual $1.327bn deficit and national debt rapidly approaching $10bn, Mr Anderson argued that both country and individuals are “not generating enough money to cover our costs” as he warned: “We clearly cannot survive on what we’ve got.”

With the Government’s fiscal bleeding threatening to “drag” down the strength and pace of post-COVID recovery, the RF Holdings chief said the inability to access excess assets sitting in the banks - which are supposedly available for lending/investment purposes - means local entrepreneurs cannot take advantage of spin-off opportunities created by initiatives such as cruise ship home porting.

“One of the drags is the lack of investment,” Mr Anderson told Tribune Business. “If there’s $2bn sitting in the banks doing nothing, we’ve got a long way to go. We’ve got to move it out. Banks have traditionally been seen as the source of capital, and they’re not now. We’ve got to invest in the economy; the only way it is going to grow is if we put in investment, both local and foreign.

“If money is sitting in the banks then no investment is taking place. If we can deal with the lack of investment by mobilising those funds in the banks to cater to more tourists and the like we can start to grow the economy.”

Central Bank of The Bahamas data revealed that excess or surplus liquidity in the Bahamian commercial banking system at end-February 2021 was higher than the $2.097bn that this nation entered the COVID-19 pandemic with some 12 months. This indicator has been elevated throughout the Minnis administration’s term, representing assets that the banks have been unable to lend.

Mr Anderson said the $10m capital inflow into RF Holdings’ Bahamian dollar investment funds in March 2021 indicated investors were looking for opportunities to “get their money to work”, yet this sum was “a drop in the bucket compared to the $2bn sitting in the banks”.

“We’re still holding too much cash in the funds,” he added of RF Holdings’ investment funds, “and we need some projects to come on stream. We’re interested in looking at investment projects so we can start to grow the economy because the banks will not do it.”

Whole acknowledging that laws, regulations and the need to protect depositors’ money meant Bahamian commercial banks generally are risk averse, Mr Anderson said it was “hugely important” to The Bahamas’ post-COVID recovery that these surplus assets be put to good use.

“It’s like absent the mobilisation of this money there’s no opportunity to grow,” he asserted. “There’s limited infrastructure here but big hotel demand. Look at cruise home porting. If they want to home port in Nassau there’s not nearly enough rooms to accommodate 5,000 passengers staying overnight when tourism comes back.

“You could in theory have a tremendous opportunity in that space, but at the moment you cannot do it. That project has massive opportunities. If you look at the downtown Nassau redevelopment, we’ve been sitting on that since I arrived in The Bahamas some 30 years ago. Massive amounts of capital are required, and there are opportunities for growth and development.”

While Bahamians may be unable to mobilise the capital required to enter the Atlantis and Baha Mar-type mega resort market, Mr Anderson said “we have to own the tourism product” outside these assets moving forward given that the industry generates up to 60 percent of the country’s annual gross domestic product (GDP).

Besides unlocking the banking system’s surplus capital, he argued that Bahamian investors also needed to shake-off a risk averse mindset that sees many continue to rely on bank deposit interest as a key source of capital returns and preservation.

Yet the RF Holdings chief pointed out that The Bahamas’ typical 2-3 percent annual inflation rate meant the value of such savings is actually being eroded because interest rates are presently lower. “They don’t want to move out of the bank; the inherent risk scares most people off,” he added. 

“We need people to start thinking about how to grow their business. There’s a tendency to get bogged down and we need to get beyond these limitations. The Government also needs to be more collaborative and take away some of this red tape so people do not have so much uncertainty around whether there’s an investment opportunity.

“These opportunities are real, and we need to figure out how to do things in a better way. Every single day you have money in the bank you fall backwards. Unless you are making 2-3 percent on your money, you’re are going backwards. This comfort in what you perceive as not losing your capital is being worn away over time,” Mr Anderson continued.

“We have no choice but to grow. We have absolutely no choice but to grow our way out of this. We clearly cannot survive on what we have got. People’s level of debt is going up, the Government’s level of debt is going up, and we’re not generating enough money to cover our costs - the people and the Government. That’s not sustainable.”

Comments

realitycheck242 2 years, 10 months ago

Mr Anderson, become an advocate for BISX of which your company is a major share holder to change the archaic rule which causes BISX to have wild fluctuations in share prices after a single small individual or retail investor decides to off load a bare minimum of one thousand shares. Only then will investors get excited and many of them will decide to enter the market thus reducing the 2 billion that's stuck in bank deposits. YTD the stock market in the Bahamas has plummeted by 8.8% Percent and the BISX all share index closed down 185.75 points last month. it is mostly due to that one archaic rule instead of the listed companies valuations during this pandemic .Bahamians investors do have a risk averse mind set, but that is a historic way of thinking for us. Only better knowledge about investing and the future stability of BISX will change their way of thinking. At this time the bank deposit rates are modest and is likely to remain that way for the near term future. BISX valuations does not look promising for the next 12 months or as long as the pandemic persist, BISX performance has to become demonstrably pronounced in a positive direction or many Bahamians are not likely to venture into the stock market.

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DonAnthony 2 years, 10 months ago

First of all BISX index is down 6.46% for YTD, not 8.8%. Also this metric is extremely misleading as it is based on market capitalization and therefore very sensitive to the larger companies. It is largely negative because of first Caribbean and other banks which have relatively large market capitalizations and have taken a huge hit to net income because of massive provisioning for bad loans. In fact of the 20 traded companies just 7 are negative for the year, 13 are either flat or positive. Smaller companies have been doing well, especially so considering we have been in a pandemic for the last year, two of which are up more than 20% already for the year and that is not counting dividends! Deposit rates are not modest as you suggest they are minuscule and in many cases non existent with many savings and checking accounts drawing less than 1% return. This pales in comparison to many companies on BISX which pay in excess of 3% in dividend yield. As for waiting to invest remember the old adage buy low and sell high. Now is the time to buy, before the economy recovers and share price corresponding increase as well. There is an economic boom coming by the end of year with the recession of the pandemic but few realize it, savvy investors however, see it clearly coming.

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tribanon 2 years, 10 months ago

Bahamians who have money to invest know the local stock market is not a real market by any stretch of one's imagination. There's no liquidity and most of the listed companies have a controlling majority shareholder which allows for way too much mischief. There's also a myriad of other conflicts of interest arising from the very small cartel of brokerage firms that effectively control all aspects of BISX's security registration systems, depository systems, and transfer, clearing and pricing systems. All of this means the whale-size insiders have much too great an information edge over the minnow-size outsiders in the long run.

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