Bad loans ‘too high’ - yet at 14-year low

with the extremely high loan delinquency rate by international standards that persisted since the great recession, have discouraged growth in lending to the private sector.

“With the recovery of the economy from COVID-19, the non-performing loans rate has fallen close to 7 percent of total private sector loans. This improvement places the system just below where the rates were before the pandemic started, but it is still too elevated by international standards.”

At end-February 2023, the non-performing loan ratio stood at 7.4 percent, with both that and the $397m figure representing the lowest delinquency levels for 14 years since the peak of the 2008-2009 recession. Mr Rolle spoke as he moved to clarify reforms to the Central Bank Act that lower the regulator’s “lending limits” to 15.5 percent of the Government’s “average” or “estimated” ordinary revenue, decreasing it by almost half or 50 percent in percentage terms from the current 30 percent threshold.

He explained that this “redefined” limit applies only to loan advances made to the Government, while “capping” the latter at its current borrowing position with the Central Bank. “The Government does not lose the benefits from the bonds it had already issued,” Mr Rolle explained. “It just can’t use those channel for renewals or rollovers of any debt received through the Central Bank.”

Additional changes to the Central Bank of The Bahamas Act, tabled in the House of Assembly on Wednesday, will also prohibit the monetary policy regulator from acquiring any central government debt securities - or those it has guaranteed or have been issued by a public corporation - at their initial public offering (IPO) stage.

While the Central Bank will still be permitted to buy and sell such debt securities via secondary market trading, as part of its normal operations and to ensure there is sufficient system liquidity, he added that the Government will “not be able to raise any new money” from the regulator via these instruments once the reforms become law.

Mr Rolle, meanwhile, described The Bahamas’ first-ever credit bureau as the Central Bank’s most critical move in facilitating greater credit creation for the private sector. Commercial banks will be better able to identify good credit risks, and those most likely to repay their facilities, thereby ensuring solid borrowers gain better access, faster approvals and, potentially, lower interest rates.

“The most important Central Bank intervention to encourage lending growth is allow the credit bureau to mature in its operations,” the Governor added. “It will allow lending institutions to manage credit risk better, and be more confident about how to direct credit. The credit bureau helps to support responsible lending and reduce credit losses since it provides lenders with credit histories of borrowers.

“Where potential borrowers are overextended, banks will have an informed basis to deny credit. Conversely, where potential borrowers are not over-extended and can afford to repay loans, lenders can grant credit and offer concessionary terms. The Central Bank has observed in the last six months that banks and credit unions are recognising the benefits of the credit bureau and are starting to use the data retrieved from the bureau in their credit adjudication processes.

“The next needed support for improved lending outcomes is to have the moveable collateral assets registry established. It will give lending institutions an expanded set of secured collaterals against which to provide credit, especially for small and mediumsized businesses,” Mr Rolle continued.

“The Central Bank expects to complete the draft legislation for the registry in 2023, which would be recommended to the Government to enact, and to work with the Government