COVID loan defaults “not as serious as feared”

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By NEIL HARTNELL

Editor-in-chief of the Tribune

[email protected]

The central bank governor said yesterday that the increase in COVID-related loan delinquencies was not as severe as feared, with the increase expected to fall “well below” the previous peak of 15%.

John Rolle, speaking as the Central Bank unveiled its third quarter 2021 economic update, expressed optimism that the Bahamas commercial banking sector will not suffer from the levels of non-performing loans endured after the recession from 2008-2009 “this time”.

Non-performing loans, which represent facilities for which borrower payments are more than 90 days past due, peaked at around 15% of total banking sector outstanding credit in the aftermath of this recession. However, according to the Central Bank’s monthly economic report for September, they currently stand at 9.1% or $ 506.5 million of all loans issued.

“I think a reasonable expectation is that we will see them settle at a peak during 2022,” Rolle replied, when asked to give a timeline by this newspaper. “Right now, the average NPL rate is just over 9%. We have not seen the level of rise in the rate on NPLs that we feared the pandemic would cause.

“At the same time, we understand that until employment or labor market conditions are fully resolved for many people who may owe loans to banks, there will not be complete clarity on the issue. place where the rate of non-performing loans settles. But we don’t anticipate that there will be a drastic amount of adjustment that remains to be made.

Asked by Tribune Business how far he thought NPL ratios could reach, as a percentage of total outstanding loans, Rolle said, “I don’t want to speculate too much but we are in the range. of 9%. We don’t expect the levels that NPLs increased after 2008 to be the levels we see this time around.

“We expect to be considerably below these levels in the past. NPL rates peaked at just over 15 percent. We don’t expect to be in that range for this current episode. We expect that beyond 2022 the industry will be able to focus on reduction again and work to bring these rates down. “

Loan arrears rates, which include all loans past due for more than 30 days, stood at 14% at the end of September 2021, up from 12.4% at the same date a year earlier. Data from the Central Bank revealed that 17.8% of all outstanding mortgages are in arrears, up from 15.3% at the same time in 2020, while consumer loan arrears were up by 10, 4% to 11.9%.

Commercial loans were the only category to see a year-over-year reduction, with loan arrears falling from 8.3% to 7.7%. Meanwhile, the governor called commercial bank lending to businesses and individuals “slightly restrictive,” which he said reflected difficulties in finding good quality borrowers even before the COVID pandemic began. 19.

“This reflects the risks and credit quality challenges that institutions were managing even before the pandemic. The credit bureau, which has become operational, will help improve the medium-term lending climate, ”Rolle said.

“Meanwhile, given the dominant nature of bank lending to households and businesses that depend on tourism fortunes, a necessary requirement for a larger increase in lending is also the pass-through benefits of tourism in the expansion of the tourism basin. viable borrowers. “

Outstanding credit to the private sector contracted by $ 67.7 million in the nine months leading up to the end of September, more than six times the decline of $ 10.2 million seen in the last six months. the same period in 2020, highlighting the persistent difficulties in accessing credit.

While trade credit, i.e. business loans, increased by $ 44.7 million in the nine months to the end of September 2021, the stock of consumer credit declined by $ 86 million over the same period, while mortgages decreased by $ 26.4 million.


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