The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamians are struggling to finance “big ticket items”, the Central Bank’s governor said yesterday, given that debt consolidation accounts for 36 percent of all consumer loan applications.

John Rolle, unveiling the results of the regulator’s 2021 first half lending conditions survey, confirmed that this category again led the way for consumer credit requests made to the Bahamian commercial banking industry with almost 4,000 (3,978) submissions during the 2021 first half.

However, year-over-year, debt consolidation requests declined by 8.3 percent during the six months to end-June 2021, with the softening perhaps indicating that the worst of the COVID-19 pandemic’s fall-out for Bahamian households may have passed.

“Debt consolidation relief was the largest single reason for consumer credit applications - about one-third of the total,” Mr Rolle said. “Such active lending for debt consolidation also signals less capacity, even for qualified borrowers, to finance new big-ticket items.”

Debt consolidation loans, which typically sweep up all credit facilities and merge them into one in a bid to slash a borrower’s debt repayments, are typically viewed as a last resort restructuring designed to avoid a default.

The fact they remain the most “popular” form of consumer loan application, despite the year-over-year drop, still signals the growing stress many Bahamian families and individuals are under when it comes to making loan repayments amid the joblessness and under-employment of a COVID-scarred economy.

“Indications from the latest lending conditions survey reveal that the volume of applications for business and personal loans increased during the first half of 2021, and there was a corresponding overall net increase in the volume of approved credit,” Mr Rolle added.

“Consumer credit applications had both a higher success rate and also a significantly greater number of approved requests. For mortgage applications the success rate was slightly lower, but more loans were approved overall.

“Nevertheless, more than half of the unsuccessful applications for both mortgages and other personal credit were due to lack of affordability around pre-existing debt servicing levels that were considered too high. Under-employment is also a factor in unsuccessful credit applications.”

The survey’s results showed that a collective 13,744 loan applications were received by the Bahamian commercial banking industry during the 2021 first half, representing a 25.2 percent year-over-year increase and also a 20.6 percent jump compared to the 2020 second half.

Some 10,292 loan applications were approved for a 74.9 percent approval rate, which the Central Bank said was down 10.3 percentage points from the June 2020 survey but up 7.5 percentage points compared to the 2020 second half. However, just 51.7 percent of mortgage applications were approved, compared to 76.3 percent and 90 percent for consumer and commercial loans.

Loan denials, though, more than doubled year-over-year to 2,024 compared to 788 in the 2020 first half. Some 56.1 percent of rejections, or more than half, were due to the applicants having existing debt service ratios that were too high for the banks to feel comfortable in extending further credit. A further 13.4 percent of submissions were declined due to under-employment.

“For personal credit applications lenders continue to cite insufficient time on the job, high debt service ratio (or DSR), and delinquency in prior loans as top reasons for rejections in the review period,” the report said.

“The largest concentration of applications (87 percent) continued to be for consumer credit, increasing over most categories except for debt consolidation. The average approval rates for such applications narrowed to 76.3 percent compared with the first-half of 2020, but was recovered by 9.4 percentage points relative to the second half of 2020.

“The number of mortgage applications increased by 61 percent both year-on-year and in comparison to the six months to December 2020. The approval rate stabilized at 51.7 percent over the same period last year, but decreased by 3.2 percentage points vis-à-vis December 2020.”

Mr Rolle, meanwhile, voiced optimism that plans to create an online registry for “moveable collateral” will improve lending conditions, and options, for both borrowers and lenders. This he explained, would allow businesses and individuals to pledge non-real estate assets as security for loans, while lenders would have the ability to “track” the collateral and ensure there were no rival liens.

“As a further push to improve the environment for lending, particularly for enterprises, the Central Bank along with the Ministry of Finance are at the advance stages of a diagnostic exercise to establish an online registry for moveable collateral,” the Central Bank governor said.

“Broad private consultation on the proposal will begin as soon as the Government is fully briefed through the Cabinet. A moveable collateral registry would facilitate and encourage increased, secure lending for business ventures by both banks and sophisticated private financiers.”

Expanding on this strategy, Mr Rolle said: “What a moveable collateral registry does is that it gives borrowers access to using more of their assets other than real estate or fixed assets to secure credit. From that standpoint it complements and expands the range of options that individuals and businesses would have in terms of raising capital.”

As examples, he explained that companies can “structure and assign their accounts receivables” owing to them in exchange for credit, or do similar with their intellectual property rights. Individuals could do similar by borrowing against the investments they hold in government bonds and stocks once these are “lodged in secure places”.

“From that point of view it allows for the centralised tracking of where such assets have been pledged,” the Central Bank governor added, “and it allows investors to give credit against such assets knowing their credit against the asset is unique and the asset is not being pledged multiple times against the credit from creditors.”