Private sector loan arrears up nearly ten percent

Private sector loan arrears grew nearly ten percent between July and September, which the Central Bank of The Bahamas (CBOB) indicated signals the conclusion of some COVID-19 loan deferral programs.

Those loan arrears grew by $61.4 million or 9.7 percent, pushing the ratio of arrears to loans in that category up more than a percentage point.

Still, the Central Bank stated that private sector loan arrears are still down seven percent compared to the same period last year.

“A disaggregation by the average age of delinquencies showed that short-term (31-90 day) arrears rose by $36 million (18.3 percent) to $232.1 million, with the corresponding ratio moving higher by 63 basis points to 4.1 percent of total private sector loans,” the CBOB’s Quarterly Economic Report for September stated.

“Similarly, the non-performing segment – arrears in excess of 90 days and on which banks have ceased accruing interest – grew by $25.4 million (5.8 percent) to $465.2 million, leading to a 45 basis points rise in the relevant ratio, to 8.2 percent of total private sector loans.”

The sharpest increase was in the consumer loan segment, which grew by $50.7 million, representing a 28.6 percent increase, while commercial arrears grew by $8.5 million or 13.9 percent.

The non-performing loan rate on consumer loans grew from 5.5 percent in the second quarter to 6.1 percent in the third quarter, however mortgages remained the same, the regulator noted.

“Data obtained from domestic banks, insurance companies and the Bahamas Mortgage Corporation revealed that the total value of outstanding mortgages declined by $2.9 million (0.1 percent) to $2,987.1 million, contrasting with a $5.7 million (0.2 percent) increase in 2019,” the CBOB noted.

The dominant residential component – which comprised 94.3 percent of the total – reduced by $2.1 million (0.1 percent) to $2,817.1 million, following a $1.9 million (0.1 percent) uptick a year earlier. Similarly, the commercial component decreased by $0.8 million (0.5 percent) to $170 million, a reversal from a $3.8 million (2.1 percent) growth in the preceding year. At the end of September, domestic banks held the majority of outstanding mortgages (87.9 percent), followed by insurance companies (6.5 percent) and the Bahamas Mortgage Corporation (5.6 percent).”

On the new mortgage front, the CBOB noted a nearly 16 percent decrease in domestic financing support, a continued trend from the nearly 13 percent decrease reported during the same period last year.

“Underlying this development, the residential component contracted by 12.5 percent ($3 million) to $21 million, although below the 16.5 percent falloff in the prior year. Similarly, commercial disbursements reduced by 47.5 percent ($1.2 million) to $1.3 million, a reversal from the $0.8 million uptick in the preceding year,” the Central Bank stated.

“Compared to the same period in 2019, total mortgage commitments for new buildings and repairs – a forward looking indicator of domestic activity – decreased by 17 to 98; however, the corresponding value grew by 28.3 percent to $23.3 million. In terms of loan category, the number of undisbursed approvals for residential commitments fell by 20 to 91, while the associated value remained unchanged at $16.9 million.

“In addition, seven commercial commitments were approved, valued at $6.4 million, compared to four, valued at an estimated $1.2 million last year. In terms of interest rates, the average financing costs for commercial mortgages moved lower by 90 basis points to 5.47 percent. Further, the average rate for residential mortgages narrowed by 15 basis points to 6.27 percent.”

Profitability

Along this line, profitability across the banking sector contracted, owing primarily to a rise in provisioning for bad debt, according to the bank.

“The overall money supply decreased by $30.9 million (0.4 percent) to $8,057.6 million, vis-à-vis an expansion of $111.5 million (1.5 percent) in 2019, which was bolstered by hurricane-related insurance inflows. Growth in narrow money moderated to $20.6 million (0.6 percent), from $56.8 million (1.9 percent) a year earlier, as demand deposits gains slowed to $17.7 million (0.6 percent) from $63.3 million (2.4 percent) in the previous year, largely attributed to a decline in private sector holdings,” the report stated.

“This outweighed an uptick in currency in active circulation of $2.9 million (0.7 percent), following a reduction of $6.5 million (2 percent) in the prior period. In contrast, the rise in broad money quickened to $31.2 million (0.4 percent) from $1.5 million in 2019. Contributing to this outturn, savings deposits recovered by $21.4 million (1.2 percent), from the $22.7 million (1.5 percent) falloff registered a year earlier, while the reduction in fixed balances tapered to $9.7 million (0.4 percent) from $32.7 million (1.3 percent) last year. However, residents’ foreign currency deposits declined by $63.1 million (11.9 percent), contrasting with a growth of $110.0 million (27.3 percent) in 2019.”

In its overview of economic developments for the quarter, the CBOB stated while there was less growth in domestic credit, both bank liquidity and external reserves increased during the review period, primarily because of foreign currency inflows from the government’s external borrowings.

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