Banks lose $62 million as credit quality indicators deteriorate

Local commercial banks saw a net loss of $62.6 million at the end of 2020, as private sector loan arrears continue to climb.

In its most recent economic review of the first three months of 2021, The Central Bank of The Bahamas (CBOB) noted that the banks’ interest income decreased by five percent to $141.9 million, which overshadowed the nearly two percent drop in interest expense.

Also contributing to the loss was the sharp increase in provisions for bad debt, which increased by just over 81 percent or $32.9 million to settle at $73.4 million.

These added provisions, according to the Central Bank, was in anticipation of a surge in delinquencies, due to COVID-19.

“Further, depreciation costs increased by $1.5 million (50.1 percent), to $4.5 million, while other “non-interest” earnings fell by $14.3 million (28 percent), to $36.6 million. Reflecting these developments, banks’ profitability ratios relative to average assets trended downwards,” the Central Bank stated.

Banks also lost out on commission and foreign exchange income, which fell by nearly 15 percent or $2.1 million and impacted gross earnings margins.

These losses came as operating expenses increased by nearly 67 percent to settle at $165.2 million.

“This was largely attributed to a considerable rise in other non-staff and non-administrative costs – inclusive of an impairment charge against goodwill – to $124.5 million, from $46.2 million a year earlier. In contrast, occupancy costs and staff-related expenses both declined, by 77 percent and by three percent to $3.3 million and $37.5 million, respectively,” the bank stated.

The loss across the sector comes as credit quality continues to face challenges. In the first quarter of 2021, banks wrote off an estimated $28.6 million in delinquent loans and recovered approximately $6.3 million. Still, total private sector loan arrears increased by $22.9 million (three percent) over the three-month period and by $108 million (15.7 percent) year-on-year, to land at $795.9 million.

Broken down by type, short-term arrears rose by just over three percent or $9.5 million, while non-performing loan arrears increased by 2.8 percent or $13.4 million to stand at $488 million, representing nearly nine percent of private sector loans.

“The quarterly increase in total private sector loan arrears was led by a $38.5 million (16.8 percent) growth in consumer delinquencies to $267.1 million, resulting in the attendant ratio firming by 1.9 percentage points to 12.5 percent,” the report states.

“In contrast, mortgage arrears – at 59.8 percent of the total – reduced by $10.6 million (2.2 percent) to $475.6 million, decreasing the relevant ratio by 35 basis points to 18.4 percent. Further, the commercial component declined by $5 million (8.7 percent), to $53.2 million, contributing to a 69 basis point reduction in the associated ratio to 6.3 percent.

“Meanwhile, the NPL rate for mortgages firmed to 11.6 percent versus 10.3 percent a year earlier and for consumer loans, to seven percent compared to 5.4 percent in 2020.”

The Central Bank noted that despite the deterioration in credit quality indicators, banks reduced their total provisions for loan losses by $2.3 million, to $572.9 million during the review quarter.

CBOB also maintained that capital levels within the banking system remained robust over the first three months of the year, with ratios staying well in excess of the Central Bank’s regulatory prescribed target and trigger ratios of 17 and 14 percent, respectively.

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source https://thenassauguardian.com/banks-lose-62-million-as-credit-quality-indicators-deteriorate/