Smith: Banks should extend loan deferral programs

With tens of thousands of Bahamians still unemployed, former Central Bank Governor James Smith said the government should discuss an extension of loan deferrals for credit holders who are still faced with financial instability.

In March, The Central Bank of The Bahamas made special arrangements with domestic commercial banks and credit unions for a three-month loan deferral for borrowers adversely impacted by COVID-19 that ended in June.

Smith said with hotels – the major private sector employers – still closed the government should consider brokering further assistance for borrowers.

“Given that as recently as this week the government has expanded the opening of the economy and there are indications that toward the end of the year, maybe October or November, some of the hotels are preparing to open. And given that the bulk of our employment is in the hotel sector, it would seem to me that where there are prospects for people to resume employment in different sectors or individually as a group, it might be useful for some dialogue between the government and the banking system to really ask them to extend the repayment of loans and mortgages until the people are fully engaged again, so they won’t have that burden,” he told Guardian Business.

“You know as soon as they go to work they will need to get something to get back to work after being out of a job for seven or eight months, and they only have additional bills.”

The CBOB reported in June that nearly $2 billion in loans held by Bahamian credit holders had been deferred during the three-month period.

In a recent interview with Guardian Business, Deputy Prime Minister and Minister of Finance Peter Turnquest said the government had some difficulty in getting some entities to formally enter into wholesale agreements for the deferrals or forbearances of the various loan payments or insurance premiums.

Smith said he would hope banks would be more responsive to such arrangements.

“It’s in the banks’ interest as well, because if they don’t pay back because they don’t have it, then you have to write off the loan in any event, but if they are re-employed they have prospects somewhere in the near future, they will be able to service their loans,” he said.

“So, I think that would be a useful conversation to have and I would hope the banking system would be responsive to it.”

Asked if he believed the current economic crisis would influence banks to change lending patterns in the near term, Smith said it shouldn’t be expected.

“To the extent that we are faced with a global pandemic that has affected all countries, no individual nor family nor even business can be faulted for not being able to service a debt because the economy went sour. So, it’s not like bad management or over expenditure,” he said.

“This in fact also includes the banks, their head offices won’t look and say ‘oh, you guys are not going to make any profits this year I’m going to take some action against you’. So having said that, I can’t see them drastically changing their pattern or their business model to accommodate something that was beyond the control of any of us. So I wouldn’t expect that.”

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Paige McCartney

Paige joined The Nassau Guardian in 2010 as a television news reporter and anchor. She has covered countless political and social events that have impacted the lives of Bahamians and changed the trajectory of The Bahamas. Paige started working as a business reporter in August 2016. Education: Palm Beach Atlantic University in 2006 with a BA in Radio and Television News

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