The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Commonwealth Bank says non-performing loans have reduced by between 1-5 percent across all credit segments since year-end 2022 as its portfolio expands faster than market growth.

Tangela Albury, the BISX-listed lender’s vice-president and chief financial officer, told Tribune Business in written replies to this newspaper's questions that the Bahamian "low interest rate environment" meant the bank has to control interest expense to maintain its margins.

Commonwealth's net interest income grew by 20 percent year-over-year for the first nine months of 2023, rising by $15m from $76.414m to $91.515m, which it attributed to "to strategic management of the bank’s investments and improvement in the quality of loan assets".

Ms Albury added: "Our objective is to maintain positive growth in net interest income through continued control of interest expense, given that we continue to operate in a low-interest rate domestic business environment.

"Specifically, the key factors driving the increase in net interest income have been improvement in the asset quality of the loan book, as well as loan growth, coupled with a revision to our approach to investing the bank's excess liquidity.

"We have seen a growth in loan receivables of 2 percent, year-on-year. This is noted against the Central Bank's quarterly statistics as of September reflecting a year-on-year market growth of 0.7 percent. Exceeding market growth has translated into increased interest income as we also aggressively manage our delinquency levels."

Commonwealth Bank’s net loan book grew to $801.983m at end-September 2023 from $786.245m at year-end 2022. As for credit quality, Ms Albury added: "Across the bank's loan segments, we have seen the non-performing loans reduce between 1 percent and 5 percent since December 2022.

"Based on the Central Bank's report of non-performing loans to net loans industry percentage of 8.1 percent, the bank is trending favourably." The Central Bank, in its monthly economic report for September 2023, said: "Commercial banks’ credit quality indicators improved during September, largely attributed to a decline in non-performing loans (NPLs).

"In particular, total private sector arrears decreased by $4.4m (0.8 percent) to $560.8m, reducing the associated ratio by 11 basis points to 10.33 percent of total private sector loans. An analysis by average age of delinquency showed that NPLs fell by $8.8m (2.3 percent) to $371m, with the accompanying ratio narrowing by 18 basis points to 6.83 percent."

There were "declines in the NPL rates for commercial loans by 38 basis points to 5.08 percent; consumer loans by 16 basis points to 5 percent, and mortgages by 11 basis points to 8.96 percent. In contrast, short-term arrears (31-90 days) rose by $4.4m (2.4 percent) to $189.8m, while the corresponding ratio moved up seven basis points to 3.5 percent."

Breaking this down by loan category, the Central Bank said: "Disaggregated by loan category, commercial arrears fell by $6.7m (10.1 percent) to $59.6m as both the short and long-term segments reduced by $3.5m (26.9 percent) and by $3.2m (6.1 percent), respectively.

"Conversely, consumer loan arrears rose by $2m (1.3 percent) to $156.3m on account of the $5m (9.3 percent) growth in short-term arrears, which overshadowed the $3m (2.9 percent) decrease in non-accrual loans.

"Likewise, past-due mortgage payments edged up by $0.3m (0.1 percent) to $344.9m on account of a rise in the short-term component by $2.9m (2.4 percent), which eclipsed the $2.6m (1.2 percent) retrenchment in non-accruals," it added.

"In September, banks reduced their loan losses provisions by $5.9m (1.7 percent) to $335.5m. As a result, the ratio for total provisions to arrears narrowed by 58 basis points to 59.8 percent. However, the ratio of total provisions to NPLs grew by 53 basis points to 90.4 percent. During the review month, banks wrote-off an estimated $9.8m in overdue loans and recovered approximately $3.9m.

"During the nine-month period, total private sector arrears contracted by $49.4m (8.1 percent) with the associate ratio decreasing by one percentage point. By length of delinquency, the non-accrual segment reduced by $43.9m (10.6 percent), resulting in the relevant ratio moving lower by 89 basis points. Similarly, the short-term component fell by $5.4m (2.8 percent) as the relevant ratio declined by 14 basis points."