By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Central Bank’s governor yesterday said he expects the country’s $2.63bn foreign currency reserves to “contract” in 2025 due to a “stronger pace” of lending by Bahamian commercial banks.
John Rolle, speaking at the regulator’s latest quarterly economic briefing, said greater credit expansion is expected to produce a reversal of last year’s growth which saw the external reserves expand by $270m to close 2024 at $2.62bn.
The reserves secure The Bahamas’ one:one currency peg with the US dollar, and he added: “The foreign exchange market trends also support the assessment that, post the pandemic recovery, the economy is expanding slower on both the earnings side and in business and consumer spending.
“At commercial banks, total purchases of foreign exchange from the private sector grew by just 2.3 percent to $7.3bn in 2024, being only incrementally varied for the second consecutive year. The rate of growth in foreign currency sales to the private sector, which fund imports, and payments abroad on investments and other activities, increased marginally by 1.5 percent , also varying just slightly for a second year in a row, in the neighbourhood of $7.2bn.
“Since inflows still dominated, the commercial banks had a larger net purchase of foreign exchange from the public and were therefore able to make a larger net sale of foreign exchange to the Central Bank. This development, and a reversal in Central Bank transactions with the public sector, to a net purchase of foreign exchange rather than the notable net sale of foreign exchange in 2023, contributed to a net boost to the external reserves by approximately $270m to $2.62bn in 2024,” Mr Rolle continued.
“A third factor, which helped to grow the foreign reserves in 2024 - adding to almost one-fourth of the gains - was stronger earnings on the investment portfolio of the Central Bank. As of the beginning of February 2025, the reserves were estimated at $2.63bn, just ahead of the rebound, which should occur during the busy portion of the tourist season.
“Nevertheless, external reserves are projected to contract overall in 2025 because domestic banks are expected to grow credit to the private sector at a stronger pace than in 2024, and the system should continue to sustain a larger net share of the Government’s borrowing needs in local currency as opposed to foreign currency.”
Describing credit growth and lending by Bahamian commercial banks as “significantly accelerated” in 2024, Mr Rolle said: “Lending to the private sector rose by almost $350m, or by about 6 percent, as compared to about $60m or just 1 percent in 2023.
“This pick-up was across consumer credit and business lending, and it included a rebound in mortgage financing. In the meantime, the average non-performing loans rate, or the share of loans that were three months or more behind in payments, was further reduced to 5.5 percent by the end of 2024, down from 6.7 percent in 2023. This improves the climate for future lending.”
And, looking ahead to the remaining 11 months of 2025, the Governor added: “It is the economy’s expansionary prospects, declining credit delinquency and the more entrenched support of the credit bureau that favour continued strengthening in lending to the private sector in 2025.
“From a monetary policy perspective, the Central Bank is supportive of this outlook, which corresponds to potential reduction in external reserves but in an otherwise healthy foreign exchange environment. This would also target some reduction in bank liquidity.
“In line with broader objectives to remove liquidity from the system, the Central Bank will also accommodate faster repatriation of excess capital or dividends from the banking system in keeping with medium-term plans that were paused during the pandemic.”
Mr Rolle added that lending and credit growth failed to match the Central Bank’s expectations in 2024. “In the monetary sector, domestic credit growth strengthened significantly, with lending conditions more improved and average loan delinquency rates further subsided, he added.
“Nevertheless, as activity still subsisted below the levels that the Central Bank anticipated, the banking system’s liquidity further expanded and the external reserves grew modestly.”
Focusing on employment and job prospects, Mr Rolle said the chance in methodology by the Bahamas National Statistical Institute (BNSI) meant comparisons with prior year data would not provide accurate trends. However, he added: “One noteworthy shift in the data, though, was the improved labour force participation rate for males, which now better tracks how the economy is benefiting males.
“In the meantime, as interest rates have fallen in the US and other major industrial countries, the funding environment for foreign direct investments also improved, making it easier for The Bahamas to sustain current inflows. As a caveat though, the near-term pace of interest rate reduction is expected to pause until there is a better understanding of any impact to inflation from the new trade policies being pursued by the US.”
Comments
ExposedU2C 1 week, 1 day ago
LMAO. Meanwhile our domestic banks are awash with massive amounts of Bahamian dollars that they are unable to profitably lend or invest for the longer term because they claim there are insufficient credit worthy borrowers or investment opportunities to do so. This fact has resulted in the build up of massive amounts of excess Bahamian dollar liquidity on the balance sheets of the domestic banks which they can only invest, for risk management reasons, in very short-term treasury bills issued by the Bahamas government to monetize (soak up) the Central Bank's ongoing printing of Bahamian dollars to finance the ever increasing national debt.
Repatriation of the humongous profits being made by the Canadian banks (RBC, CIBC, BNS, etc.) by way of upstream loans and dividend distributions to their ultimate parent entities in Canada is the real reason why our foreign currency reserves are about to take a severe downward turn.
Our Central Bank is also allowing too many foreign controlled businesses in our country to automatically convert and directly repatriate their profits made in the Bahamas to their home country. Ever notice how often things you pay for using your credit card issued by a card issuer domiciled in the Bahamas appear on your monthly credit card statements as U.S. dollar denominated credit card charges?
Sign in to comment
OpenID