The head of a local bank has argued that no improvement is likely to be seen for at least "a couple of years" in worsening loan delinquency levels as he predicts that the Baha Mar resort will not be the economic "panacea" it is hoped by many to be.
Anwer Sunderji, chief executive officer of BISX-listed Fidelity Bank (Bahamas), told Guardian Business that he "does not see anything happening" over the next one to two years that should significantly boost economic growth or lower loan delinquency rates.
Baha Mar is anticipated to open in December 2014, hiring a significant number of people as it brings an additional 2,200 rooms to the market, although some have speculated how many of these will be available at that time, given the current status of construction.
Sunderji made his comments as the bank released its second quarter results, revealing a 54 percent rise in the bank's comprehensive income for the first six months of 2014, to $6.74 million. Net income attributable to ordinary shareholders was $6.34 million, or $0.22 per share, compared to $0.14 for the six months in 2013 - 57 percent higher.
The rise came notwithstanding a five percent jump in expenses due to higher business license fees that rose from almost $1.5 million to close to $2 million, contributing to a deterioration in the bank's efficiency ratio to 49 percent. The bank's total expenses grew due to a jump of 16 percent in general and administrative costs.
Sunderji said the bank was "very pleased" with the results, particularly given the "fact the economy is struggling a bit. We've got headwinds from the recession, and there continues to be a high delinquency rate".
However, while the bank's loan loss provisioning - funds set aside as a provision for bad loans - eased during the quarter, Sunderji said the bank's consolidated delinquency rate - taking into account consumer, commercial and mortgage loans - currently stands at eight percent.
With respect to the non-payment of loans, the CEO noted that mortgages in particular are "hurting really badly", contributing to the risk/reward equation for mortgage lending to deteriorate substantially.
"It's getting worse," said Sunderji of the delinquency rate. "Until we see a recovery in employment, and there's a lot of money being wagered on Baha Mar kind of sorting the situation out, I think it will be a while before we see any improvement in
delinquency.
"I'm a little pessimistic about Baha Mar and the impact it will have on the economy in the near term. In terms of being the panacea and turning around the economy, I don't think so," said Sunderji, clarifying that he is referring to the impact over the next one to two years.
Sunderji added: "I don't see anything happening in the next couple of years to help us with economic growth and lower delinquencies. Really truly my sense is that we are all optimistic and hopeful that things will happen and the government says there are lot of projects on the way, and we're not all familiar with what's going on, but certainly VAT will have a dampening effect, and I suspect 7.5 percent will not be where it stops," he said, pointing to the possibility that the government could further increase the rate.
On the plus side, Sunderji noted that the bank's upbeat performance was attributable in large part to the performance of Royal Fidelity Merchant Bank & Trust Limited, which it owns 50/50 with Royal Bank of Canada (Bahamas).
Sunderji said: "We've benefited from a strong six months in capital market transactions. They've booked some fairly large transactions and made money."
In its statement on the quarterly results, the bank said results show that the liquidity of Fidelity Bank (Bahamas) remained "robust, fueled by growing deposits", giving a loan to deposit ratio of 85 percent.
"The bank's risk weighted capital ratio met and exceeded the Central Bank's guidelines. Since year-end 2013, total assets grew by nearly $27 million, or six percent, to $470 million with loan assets growing by some $6 million, or two percent, to $320 million," it added.
For the 12 months leading up to June 30, 2014, comprehensive income was just over $12 million for the period, with a return on average assets (ROAA) of 2.7 percent and a return on average equity (ROAE) of 26 percent.
Writing in a statement issued, Sunderji said the bank is cautiously optimistic that the next six months will look like the previous six months, but added that there are "many headwinds to manage".
Referring to the high levels of delinquency, the CEO said: "The bank continues to work diligently with delinquent mortgagors and provides loan restructuring where feasible. Competition for loans remains keen as there is a dearth of credit-worthy borrowers. Low credit demand, coupled with high levels of system liquidity, is expected to keep deposit rates low."

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