The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Royal Bank of Canada's (RBC) top Caribbean executive says its Bahamian mortgage lending arm will "continue to be challenged" with credit losses and an inability to expand its loan book because of the country's "low growth economy".

Chris Ronald, Finance Corporation of The Bahamas (FINCO's) chairman, told shareholders in its 2022 annual report that, while its non-performing loan portfolio had shrunk year-over-year in both absolute and percentage terms, growth prospects remained depressed.

"Non-performing mortgages of $82.9m (2021: $94.1m) as a percentage of the portfolio were 12.1 percent at the end of the fiscal year. This result is compared to 12.9 percent at the end of fiscal year 2021, and compared to the industry at 10.05 percent as of October 2022," he wrote.

"Operating in a low growth economy overcoming the major financial impacts of COVID-19, RBC FINCO will continue to be challenged with mortgage growth and credit losses resulting from higher levels of non-performing mortgages." Mr Ronald conceded that the mortgage lender's results for the 12 months to end-October 2022 were driven by the recovery of pandemic-related loan loss provisions rather than any organic growth.

"For the fiscal year ended October 31, 2022, RBC FINCO recorded $40.1m in net income. This represents a 2.2 percent increase over net income recorded in fiscal year 2021. This growth was mainly driven from reversals and releases of provisions for credit losses and lower operating costs, which were partially offset by lower revenues," he added.

"Notwithstanding the growth and non-performing loan challenges, the bank continues to maintain a strong capital position well above regulatory guidelines and adequate provisions for non-performing loans. We remain profitable, and there are no liquidity issues. Taking these factors into consideration, the Board of Directors declared quarterly dividends totaling $0.55 per share throughout fiscal year 2022."

Deverson Warner, FINCO's managing director, in his own message to shareholders said the BISX-listed lender had in 2022 "helped over 200 clients with long-term home ownership solutions". He added: "Economic recovery in The Bahamas supported our 2022 financial performance, as the releases of provisions resulted in an increase in net income of $859,791. However, market competitive pressure continues to impact our net interest margins for our interest rate-sensitive business....

"Additionally, with the launch of our RBC FINCO digital banking platform more than a year ago, we leveraged the opportunity to bring more self-service capability to our clients. I am pleased to report that this approach resonated as more than 1,700 clients are now digitally enabled."

Analysing its 2022 performance, RBC FINCO's annual report said: "Release of provision for credit losses was $16.9m, representing a 9.5 percent increase compared to the previous year’s provision release of $15.5m. This favourable movement is due to releases and reversals of provisions taken in previous years in response to the economic shock of the COVID-19 pandemic.

"The total allowance for loan losses is 9.2 percent (2021: 12.2 percent) of the total loan portfolio, and the stage three allowance represents 57.6 percent (2021: 54.3 percent) of non-performing loans.... Loans and advances to customers were $622.2m, a decrease of 2.6 percent from $639.1m reported in 2021. This decrease continues to be a result of credit origination challenges within the current economic environment and non-performing loans which were written off during the year."

RBC's BISX-listed mortgage arm narrowly beat prior year comparatives with $40m in profits for the year to end-October 2022 following recovery of more than $16m in credit loss provisions. It disclosed a 2.2 percent year-over-year net income increase that was driven by the further “release” of credit losses on loans following the Bahamian economy’s continued recovery from COVID-19 and rebound in employment levels.

Profits rose by less than $1m, increasing to $40.095m as opposed to $39.236m for 2021, but in common with other Bahamian commercial banks it was not driven by top-line interest income growth or loan book expansion. Interest income fell by almost $1.8m year-over-year, dropping from $42.346m to $40.558m for the 12 months to end-October 2022.

With interest expense down due to lower deposit rates, FINCO’s net interest income fell by 3.2 percent to $34.788m compared to $35.93m the prior year - a fall of just over $1m. Total revenue was off 3.4 percent year-over-year, standing at $36.465m as opposed to $37.755m.

However, non-interest expenses such as staff and administrative costs fell by more than $700,000 year-over-year to $13.283m. And the “release” of credit losses on loans rose to $16.216m compared to $15.698m the year before. The improvement in these two lines items was largely responsible for driving FINCO’s modest bottom line improvement.

FINCO’s financials also show it has repossessed some $140.45m in real estate assets that were pledged as security or collateral for delinquent loans. This represents a 30.4 percent jump on the prior year’s $107.669m, and is broken down into $126.905m worth of property and $13.544m in land.