Survey shows sharp decline in consumer credit demand

A survey on lending conditions in the banking sector showed that during the second half of 2020 there was a sharp reduction in consumer demand for credit, represented by a 58.3 percent decline in the number of credit applications made to commercial banks.

The Central Bank of The Bahamas (CBOB) attributed the sharp contraction to the economic downturn from the COVID-19 pandemic.

Of the 11,398 credit applications processed between July and December last year, only 67.4 percent were approved, or a little more than 7,600.

“Most loan denials were due to high DSRs (debt service ratios), lack of collateral and underemployment. Consumer loan applications continued to dominate, representing 89.3 percent of total loans; 67 percent of which were approved. In the mortgages market, applications received were lower by 19.6 percent, when compared with the second half of 2019. Demand for commercial credit also declined vis-à-vis the latter half of 2019,” the CBOB states in its just released March Monthly Economic and Financial Developments report.

The consumer loans denial rate was 28.4 percent while the mortgage application denial rate was 12.3 percent.

Broken down by category, the majority of loan applications (4,681 applications) were for the consolidation of debt, followed by a miscellaneous category (1,823 applications), private cars (848 applications), travel (688 applications) and credit cards (468 applications).

Banks said the majority of those applications (1,387) were denied because the applicants’ debt service was above their threshold, and second to that 855 applications did not have sufficient collateral.

As for the mortgages component of the survey, 62.4 percent of applications were for existing dwellings, 19.7 percent for rehabilitations and additions and 17.9 percent for new construction.

Banks said the bulk of those mortgage applications denied were due to debt service above the applicant’s threshold, followed by underemployment, a category called other, and no down payment.

Speaking to banking sector trends during a quarterly press briefing yesterday, Central Bank of The Bahamas Governor John Rolle said additional credit losses continue to be expected over the course of the recovery from the pandemic, although the system is not forecasted to experience the magnitude of write-offs that occurred after the 2008 recession.

“Already, banks have more than fully provisioned for losses on existing non-performing loans (NPLs) and they hold more than adequate capital for other shortfalls that could materialize. The NPL rate at the end of March was 8.7 percent, compared to a decade low of around eight percent before the pandemic struck.

“As to the overhang of loans that are still benefiting from deferred payment arrangements, these were only about seven percent of private sector balances in March, compared to just over one-third of total loans earlier on in the pandemic,” he said.

“The deferrals highlight the pool of potential borrowers from which new delinquencies are most likely to be estimated. However, as employment is resumed, more of these arrangements are expected to return to payment status.”

Rolle continued, “Banks also screened applications more carefully, approving only two-thirds of requests. In comparison, in the year earlier an average of four out of every five applications were approved. The most common reasons for unsuccessful requests continued to be assessments of already high debt levels or insufficient earnings. Banks also refused applicants who were considered to lack sufficient security or collateral backing for new debts.”

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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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