New data from The Central Bank of The Bahamas indicates a significantly increased number of businesses struggled to meet financial obligations in 2013, with a 30 percent growth in arrears on commercial loans in large part responsible for a rise in the proportion of total loans which were overdue in 2013.
In its Monthly Economic and Financial Development report for December 2013, The Central Bank of The Bahamas, comparing economic and financial conditions last year and in 2012, found that the country saw a two percent increase in the overall number of loans in arrears last year to 22 percent.
The data provides yet further evidence of the sluggishness of the economic recovery, which the International Monetary Fund (IMF) recently described as "painfully slow", and the fact that for many, their financial situation continues to worsen rather than improve.
Going into detail on the worsening credit quality indicators, the central bank records that commercial arrears rose by $83.1 million to $353.9 million in 2013, with a 45.1 percent rise in "non-accrual loans".
Arrears on non-performing commercial loans, those which have gone unpaid for over 90 days, increased the most, rising to an elevated 15.7 percent of total commercial loans.
Non-accrual or non-performing loans are those on which interest or principal has not been paid in over 90 days, and full collection of the principal is ultimately uncertain, usually due to financial difficulties being experienced by the borrower.
Meanwhile, another sign of challenges among businesses in 2013 was registered in the area of new credit to the private sector, which declined by $75.9 million in 2013, a larger fall than the $39.7 million registered in 2012, suggesting that investment confidence was down amidst a tough economic environment. The central bank attributed the decline to "sustained weakness in domestic demand".
Mortgage arrears also contributed to the deterioration in domestic banks credit quality indicators, although not to the extent that commercial arrears did, growing by $31.4 million, or 4.5 percent, to $730.9 million.
One area where levels of delinquencies showed an improvement in 2013 was consumer loans. Here delinquencies declined by $12.9 million, or 4.6 percent, to $267.4 million. While there was a reduction in new consumer credit extended, the fall in this area was significantly lower than in 2012, at $8.9 million from $25.8 million last year. In the area of new credit in the form of mortgages, the $2.5 million fall-off reversed the prior year's $16.5 million gain.
This reduction in consumer loan arrears fits with comments recently made by a senior banking source who spoke on condition of anonymity with Guardian Business. The executive, commenting on government plans to implement a Homeowners Protection Bill, said that consideration should be given by the government to the fact that people are choosing to prioritize their consumer loans over their mortgages, or other loans.
The worsening credit quality indicators, particularly in the area of commercial loans, is likely to add fuel to concerns that the implementation of value-added tax (VAT), which is anticipated to increase administrative costs to businesses and potentially to result in cash flow challenges, may push a number of businesses "over the edge" in 2014.
More broadly, the central bank said that preliminary indications are that domestic economic conditions were mildly positive in December, supported by ongoing foreign investment projects and a slightly improved tourism outcome.
Looking forward, it added that the domestic economy's "growth momentum is expected to be sustained", with the potential for an improved outcome in 2014, based on gains in the tourism sector, amid the ongoing strengthening in several key source markets, increased room capacity and greater airlift.
"Construction sector output is also anticipated to remain relatively brisk, as a number of varied-scale foreign investment projects gain traction. A potential upside of these developments is a gradual improvement in employment conditions, especially in the services sector, and recovery in domestic demand. Meanwhile, inflation trends will continue to mirror the evolution of international oil prices and be influenced, to some extent, by the implementation of government's new value-added tax regime," said the bank.
Contacted for comment, Edison Sumner, chief executive officer of the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), referred this newspaper to the organization's Chairman Chester Cooper. Up to press time, a message sent to Cooper seeking comment was not returned.

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