By NEIL HARTNELL
Tribune Business Editor
A BISX-listed bank’s chairman has branded 2021 “the comeback year we all hoped for” after his institution cut loan loss provisions by almost $19m due to borrowers becoming current with their obligations again post-COVID.
However, Scott Elphinstone, writing in Fidelity Bank (Bahamas) just-released 2022 annual report, said the post-pandemic recovery prospects for both the commercial lender and wider Bahamian economy are facing rising global economic headwinds from 40-year high inflation and other factors. He warned that the prospect of major countries falling into recession in 2023 was “high”.
“I am encouraged that my optimism that the 2021-2022 winter tourist season would be back to near normal actually happened,” he told shareholders. This had a significant positive effect on the performance of the economy of the Commonwealth of The Bahamas, which impacted favourably the financial performance of Fidelity Bank (Bahamas). While the effects of the COVID-19 crises still linger, 2021 can only be thought of as the comeback year we had all hoped for.
“The conservative provision for loan losses established as of December 31, 2020, proved adequate and therefore had no drag on the current year, improving the expense for provision for loan losses by $18.968m. One of the lasting impacts of the COVID-19 crises is that loan demand remains lower than in the recent pre-COVID-19 era, contributing to a reduction in net interest income of 3.58 percent over the prior year.
“In response, there is a renewed focus on card merchant acquiring services, which contributed to an increase in non-interest income. Inflation is the major consequence of the global health crisis. Not unexpectedly, the bank’s non-interest expenses grew by 6.31 percent year-over-year and cost management will be important to maintaining profits in the years ahead.”
Acknowledging a much grimmer global outlook, he added: “Unlike this time last year, the global economic backdrop is concerning. Consumer inflation measures have moved up sharply to levels not seen for 40 years. In response the central banks in all large, western, developed countries are increasing interest rates. The likelihood that they will increase interest rates to levels that put the global economy into a recession in 2023 is high.
“In a recession, consumers will be quick to reduce discretionary expenses such as travel. As we all live in a small island country, we know that when the big economies catch a cold, we get the flu. The stability of the fiscal performance of the Government of The Bahamas in the context of a global recession requires very close monitoring, which is continuous by the Board of Directors.”
Meanwhile, Gregory Bethel, Fidelity Bank (Bahamas) president, said the BISX-listed lender was “moving towards normal. We are not quite there yet, but we are moving in the right direction”. Recalling its growth prior to COVID, he added: “We closed the last decade with an overall growth of $428m or 152 percent on our consolidated statement of financial position.
“We expanded our customer base by 13,000 accounts or almost 100 percent, whilst the share price moved from $2.17 to $13.75 based primarily on a highly successful credit business. However, due to the global pandemic, we began the new decade with a ‘reset’ of our credit business.
“The restrictions imposed due to the global pandemic suppressed demand for credit and increased the risk of default. Therefore, we declined to focus on growth but focused instead on the retention of quality borrowers. Nevertheless, these unwelcome restrictions also presented an opportunity to relaunch our enhanced card merchant acquiring services and digital banking platforms...
“A return on average ordinary shareholders’ equity of 24.61 percent, an efficiency ratio of 49.14 percent and a threefold increase in net income are evidence of their performance and the highly competent leadership of the executive management and managers.”