Commercial banks are not under financial stress due to the financial fallout caused by the passage of Hurricane Dorian, Governor of the Central Bank of The Bahamas (CBOB) John Rolle said yesterday.
Rolle, who was speaking at the Counsellors Limited’s Exuma Business Outlook at Sandals Emerald Bay, explained that local commercial banks are highly capitalized and not in any danger as a result of loan payments stopped, and commerce stopped due to the storm.
“Our commercial banks are not under any unmanageable financial stress because of the Grand Bahama and Abaco outages,” Rolle said.
“These institutions have comfortable levels of capital to absorb any losses that might materialize, and they are still collectively in a position where their capital levels will need to be reduced over the medium-term.”
Rolle said the worry for the country’s commercial bank capitalization lies in the threat of a Dorian-like strike to New Providence.
According to Rolle, the Central Bank is currently working with the commercial banks to ensure plans are in place for the continuation of the banking sector should such a storm affect the capital.
“Most of banks’ credit exposures are to New Providence, where economic activities remain intact,” Rolle said.
“The Central Bank’s stress testing simulations show that in a very severe, major hurricane, that might be the case if damage were concentrated in New Providence, banks could face significant loan losses, but would still be able to withstand the setback generally, from their existing capital buffers.
“Where this picture could evolve in an unsettling fashion, however, is changing expectations on the frequency of major shocks, since the system would need sufficient time to recover between events. This takes us back to the issue of having overall macroeconomic resilience, to contain the extent of losses for any major or successive storms.”
Rolle explained that commercial banks’ credit portfolio for Grand Bahama and Abaco totaled $830 million over the July to September 2019 reporting period. That number was 14.8 percent of total private sector credit.
“Collectively, just over half of the exposures were mortgages,” Rolle said.
“Moreover, Grand Bahama represented about four-fifths of the total credit—which is good in the context of the faster pace at which this sub-economy is expected to recover.”
In order to assist homeowners who were affected by Dorian, commercial banks suspended loan repayments for up to six months, and in addition, voluntarily suspended ATM usage fees on Abaco and Grand Bahama.