The rate of loan repayments delinquency in The Bahamas – despite a recent downward trend – is still beyond “terrifying” from an international perspective, Governor of the Central Bank of The Bahamas (CBOB) John Rolle said on Friday.
Rolle explained that the country’s nine percent delinquency rate is not “complimentary” and that he would like to see it at less than half its current rate.
Rolle said The Bahamas has done a good job at reducing non-performing loans (NPLs), but contended that the number remains too high.
“Internationally if your delinquency rate is even at five percent that is a terrifying number,” Rolle said.
“So when we say yes it’s being reduced and we say we want to see it further reduced, we’re thinking about getting back into a comfort zone that we would like to see.”
Rolle said financial institutions have to find credible ways of liquidating properties, or of cutting their losses and writing off toxic loans.
According to Rolle, once those bad loans are removed from a bank’s balance sheet, it will be able to lend more confidently.
The central bank governor has continually commented on the high liquidity in the banking sector that is a product of banks’ conservative lending practices.
Rolle said there is a cost to banks to have NPLs on their books, and the lack of income from those NPLs has to be made up in other ways.
“Something else has to pay for the non-performance,” he said. “There is always a cost for the loans that are not working.”
The central bank said in its most recent Financial Stability Report that institutions have been aggressively increasing their debt collection measures, coupled with loan restructuring efforts.
“An analysis of the average age of delinquencies, showed that NPLs decreased further by 8.9 percent to $517 million, following a 22.2 percent decline in 2017, while the corresponding ratio to total private sector loans contracted by 80 basis points to 9.1 percent,” the report states.
“This outturn reflected declines in commercial, consumer and mortgage long-term delinquencies, of 26.6 percent, 13.4 percent and 3.6 percent, respectively. In addition, short-term arrears (31-90 days), decreased by 7.7 percent, a reversal from a 12.7 percent gain in the prior year, resulting in the ratio to total private sector loans falling by 30 basis points to 5.2 percent. Specifically, mortgage and consumer delinquencies fell by 11.9 percent and 8.0 percent, respectively. In contrast, the relatively smaller commercial component expanded by 21.9 percent.”