Rolle: Non-performing loans to rise as job uncertainty persists for many

While credit performance indicators improved in the month of June, Central Bank of The Bahamas (CBOB) Governor John Rolle said in the near term he expects non-performing loans (NPLs) to rise as job uncertainty remains for many Bahamians.

The Central Bank’s Monthly Economic and Financial Developments report for June 2021 found that over the first six months of the year, total private sector arrears grew by $7.6 million or one percent, due largely to a 10.6 percent growth in long-term arrears ($50.2 million).

Tangentially, the short-term arrears category declined by $42.6 million (14.3 percent).

Broken down by loan type, commercial arrears advanced 38.5 percent, with short-term delinquencies and NPLs increasing by more than 77 percent and 21 percent respectively. Consumer loan arrears also inched higher by just over nine percent. On the other hand, residential mortgage arrears declined by 7.4 percent, attributed mainly to a nearly 24 percent decrease in short-term delinquencies.

Rolle added that as of June, just over two percent of loans were still being deferred in local banking institutions.

“The associated non-performing loans are expected to continue to rise in the near term, as more clarity emerges about the employment status of borrowers who experienced difficulties as a result of the pandemic. At present, the non-performing loans rate has risen to 9.5 percent of private sector loans, compared to an estimate just below eight percent before the pandemic struck,” he said.

“In June, banks were still extending repayment deferral arrangements on just 2.3 percent of loans to businesses and households. This was a considerable reduction from slightly more than one-third of such facilities one year ago. This, however, understates the remaining difficulties for borrowers, because some forbearance also continues for many who are still only able to partially resume loan payments. Underemployment continues to be a factor for some borrowers who have returned to work.”

The MEFD report highlighted the $10.5 million increase in total loan loss provisions taken on by local banks during the six-month period.

For the six-month period, banks wrote off approximately $51.8 million in bad loans and recovered an estimated $13.5 million.

Rolle said despite increased lending risks and credit losses to domestic institutions, banks continue to maintain high levels of excess capital.

“Bank lending has continued to be constrained, because of heightened risks and subdued demand for credit. As such, there has been a further overall reduction in credit to the private sector in the first half of 2021. On the flip side, liquidity has accumulated further,” he said.

“With the credit bureau now in operation, there are now improved prospects for lending and credit risk management, although favorable results from the credit bureau are most likely over the medium term, in line with the general improvement in the economy.”

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source https://thenassauguardian.com/rolle-non-performing-loans-to-rise-as-job-uncertainty-persists-for-many/