Banker: Continued loan deferrals would be catastrophic for banks

While individual banks have developed their own policies regarding loan deferral assistance for borrowers still adversely impacted by the COVID-19 pandemic, President of the Clearing Banks Association Kenrick Brathwaite said continued deferrals into 2021 would be catastrophic for the banking sector.

In March The Central Bank of The Bahamas mandated that lending institutions offer loan deferrals to borrowers who lost their jobs because of COVID-19 for a three-month period, which as of April, stood at $1.9 billion which represented approximately 38 percent of private sector credit.

Brathwaite said government employees make up the majority of private sector borrowers, followed by hotel employees and then businesses.

He said with hotels still closed and many not opening until next year, it could be disastrous for local banks.

“It would be catastrophic. And I suspect it would be the hotel industry (employees) that are hardest hit. Government is good, the government decided to leave those people on the payroll. The government is fine,” Brathwaite told Guardian Business yesterday.

“Government people hold the highest loans, hotel people are second to them and the businesses would be third. The middle group, that hotel industry, where the dates have been stretched, that’s going to be catastrophic.”

While the Central Bank has said that bank liquidity remains stable and credit quality is still intact, Brathwaite said the banking sector’s response to the pandemic is going to be driven by two things: the composition of the individual banks in terms of who they’re lending to and whether those people can get jobs as quickly as possible.

“The worst case scenario is that we go into 2021 and the unemployment rate is still 40-50 percent. Because at a 40-50 percent unemployment rate, you’re really only talking about banks, the insurance companies and government and a few retail businesses, Super Value and those types of businesses that are still operating in this pandemic. The hotel industry is going to be gone, anything related to tourism is going to be gone. So what we’re saying is that for those persons, if this situation persists the balance sheet and the profit and loss will change significantly for the banks, because now we have to call those persons in and those loans become delinquent,” he said.

“And if another three months pass, in other words nine months from the original directive of the Central Bank, those loans are now nonperforming, which means that from that $2 billion there’s going to be no income from those loans. So that is going to be significant for the banking industry.”

As for what commercial banks are doing to support borrowers who remain unemployed and unable to repay their loans, Brathwaite said the position that all the banks have taken is that they will do their own thing.

“The Central Bank did initially give us the mandate up to six months mandatory. As long as the customer wanted it, they were allowed to get it. But beyond that point each bank has agreed that they will do their own thing. Most of them have agreed to the same thing basically, if a customer needs it and comes in and asks, then they will look at it for them. But I think the general consensus is that they will all assist the customer wherever possible,” he said.

Asked how he would advise those borrowers stuck between a rock and a hard place with mounting bills, Brathwaite said, “that’s a tough one, because if you don’t have the money I can’t tell you to pay. If you don’t have it, you don’t have it. There’s not going to be those persons who live paycheck to paycheck, that doesn’t exist anymore.

“Under a scenario where they live paycheck to paycheck, you could say make a choice what to pay, but they don’t even have that choice if they don’t have any income. We know that Bahamians traditionally, even though they have an insatiable appetite for borrowing, they never had savings accounts. So there’s never been something to fall back on. So I would say to them you really need to go into the bank, you need to preserve your history – those that have good history – and your relationship with your bank. And the only way to do that is through communication. You have to talk about it.”

However, Brathwaite – who is also the Bank of The Bahamas’ general manager – said the way banks deal with those deferred loans will not change.

“If you do not pay for three months they’re going to go nonperforming. Me rewriting a loan for you and you saying to me you’re not employed, is not going to change the situation. The only thing that may help is if I say to you that I’ll give you another three months’ deferral,” he said.

“That’s a huge challenge for a bank, that’s a huge challenge for even a country to say that we have $2 billion in loans that have not gotten a payment in nine months. That’s almost a year without payment. The way we handle it is going to be very delicate and I’m sure each bank is going to have their way of doing it. It would be nice if the customers had come to us and say, well I cannot pay you and why. That allows us the opportunity to at least rewrite that facility.”

Of the loans deferred since the start of the pandemic, consumer loans accounted for $832.4 million (45 percent) of the deferred facilities; residential mortgages, $725 million (39.2 percent); and commercial loans, $292.3 million (15.8 percent).

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