The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Almost one-quarter of consumer loan requests received by Bahamian commercial banks during the 2021 second half were for “debt consolidation”, it was revealed yesterday, again exposing the elevated strain COVID placed on borrowers.

The Central Bank’s report on bank lending conditions for the 2021 second half also disclosed that the rate of mortgage loan approvals had dropped significantly during the period, hitting 39.6 percent compared to ratios above 50 percent for both the 2021 first half and second quarter. That means just four out of every ten, or two out of five, applications was approved during the last six months of 2021.

Meanwhile, credit applications for 2021’s latter half rose by 25.7 percent compared to the same period the year before, aided by the easing of pandemic-related restrictions, the volume remained well down on requests submitted in both 2018 and 2019. 

With the 14,325 total applications also representing a 4.2 percent increase compared to the 2021 first half, the report also revealed that some 78.2 percent or 11,197 were approved. This represented an 8.78 percent improvement compared to the 2021 first half, and bettered the year-before period by 45.9 percent.

Just 1,494 applications were denied, a 26.2 percent drop on 2021 first half rejects and a 50.2 percent decline compared to the 2020 second half. John Rolle, the Central Bank’s governor, said yesterday: “The latest lending conditions survey covering the second half of 2021 points to increasing applications for credit, and a higher average rate of approval for applications.

“On average, more than four out every five requests were for consumer loans, with the largest single concentration being for debt consolidation. Again, the more common reasons for unsuccessful credit applications were high debt service burden, insufficient or unverifiable income and underemployment.

“Although recent data points to less uptick in average loan delinquency rates than was projected to occur during the pandemic, there is still additional rebuilding needed to improve beyond the pre-pandemic baseline. As the Credit Bureau’s operations mature, confidence around lending is expected to increase,” Mr Rolle added.

“In this regard, a renewed and co-ordinated public education campaign is being organised around the bureau over the remainder of this year. In addition, over the second quarter of this year, the Central Bank intends to launch a public consultation process for the moveable collateral registry in preparation for infrastructure that would increase the potential for secured lending for business purposes.”

The lending conditions report found that consumer loan applications rose by 4.6 percent compared to the 2021 first half while interest in commercial credit and mortgages both rose by 1.6 percent. “On an annual basis, a similar firming trend was revealed broadly across mortgages (66.9 percent), commercial purposes (23.5 percent) and consumer loans (22.9 percent),” the report added.

“Consumer loans represent 87.4 percent of total loan requests, with the number of applications increased by 4.6 percent over the prior six months, and by 22.9 percent relative to December 2020. A disaggregation of the consumer component revealed that requests were concentrated most for debt consolidation (24.5 percent), ‘other’ miscellaneous reasons (20.8 percent), travel (14.9 percent) and credit cards (14 percent).

“A majority of the categories registered gains, although debt consolidation contracted by 22.8 percent on a half-year basis, and by 34.4 percent relative to December 2020. Of significance, travel loan applications almost doubled over the latter half of 20211.

“In addition, increases occurred for furnishings and appliances (53.7 percent), education (28.8 percent), credit cards (22.1 percent) and home improvement (18.8 percent). On an annual basis, applications strengthened considerably for credit cards and travel, while notable gains also occurred for household and miscellaneous purposes and services.”

The Central Bank report indicates that while debt consolidation still accounted for one out of every four consumer loan applications in the 2021 second half, the demand for such credit had slowed appreciably since the COVID-19 pandemic’s peak in 2020. More than half of all consumer loan denials, some 52 percent, occurred because borrowers debt service ratios were just too high.

When it came to mortgages, the report added: “Over the latter half of 2021, the number of mortgage applications grew by 1.6 percent to 1,178. Requests for residential mortgages continued to dominate at 98.6 percent of the total. The total volume of residential mortgage applications also rose by 2.8 percent relative to the previous six-month period, and by 65.5 percent year-on-year.

“Mortgage applications retained the lowest approval rate of all loan categories, at 39.4 percent, softening both from the first half of 2021 (51.5 percent) and December 2020 (54.7 percent). A breakdown by structure revealed decreases in approval rates for existing dwellings (51.6 percent), new construction projects (36.4 percent) and rehabilitations and other additions (22.8 percent).

“Meanwhile, although the 18.8 percent approval rate for commercial mortgages nearly tripled relative to June 2021, it was reduced by 6.3 percentage points year-on-year..... The primary specified reasons for the rejection of mortgage requests was applicants’ breach of the debt service ratio threshold of 40-45 percent (50.5 percent) and prior loan delinquency (12.6 percent). Also, other ‘miscellaneous’ reasons cited influenced one-fifth of rejections.”

The latter factor included low credit scores and lending outside bank policy.