The Central Bank of The Bahamas has reported that consumer loans were far and away the majority of loan applications in the second quarter of 2015. A slight majority of consumer loan denials was because of elevated debt service ratios, with much smaller ratios due to underemployment and a lack of down payment.
The bank conducted its Bank Lending Conditions Survey (BLCS) during the second quarter of 2015, with the aim of improving the analysis of developments in the loan market by augmenting the existing quantitative data collected on credit extended by the commercial banks. The BLCS contains 12 questions on lending to households and businesses, seeking information on the number of loan applications received, approved and denied. It therefore provides a perspective on the demand for credit in New Providence, Grand Bahama and the Family Islands. Overall, given what the bank described as "sluggish domestic growth momentum", most banks anticipate that private sector demand will remain weak for an extended period.
During the second quarter of 2015, private sector lending conditions remained subdued, constrained by the prevailing weakness in domestic economic activity and the coincident high unemployment rate, which offer little opportunity for unwinding the elevated levels of consumer indebtedness and loan arrears.
Mortgage applications
The survey found that more than 90 percent of mortgage applications were for private housing purposes. The survey also found that the majority of applications were to acquire existing dwellings, with a much smaller number of potential owners seeking new construction homes.
The majority of applicants sought financing to purchase single-family homes. The bulk of new construction applicants were seeking new single-family properties, and less than 10 percent of applicants were in the market for income generating properties. Only eight applications were received for commercial mortgages, all of which were to purchase existing structures.
The bank reported that just over 80 percent of the mortgage applications received were approved. For applications denied, the most frequent reason was that the applicants' debt service ratios exceeded the 45 percent benchmark set by the Central Bank, in August, 2004. New Providence branches had the highest approval rate, at 82.5 percent, while Grand Bahama and the Family Islands had rates of 69.4 percent and 52.6 percent, respectively. The highest approval rate was among applications for new construction of single dwelling homes (96.4 percent), the survey found.
Consumer loan applications
According to the survey, consumer loans accounted for the majority of loan applications at 90.5 percent, with a total of 10,350 loans processed. New Providence applications represented some 90.6 percent of the latter, with Grand Bahama at six percent and the Family Islands at 3.4 percent.
The majority of loan applications were for miscellaneous purposes (35.9 percent), covering areas such as utility bills, funeral arrangements and repayment of existing credit lines. Credit for debt consolidation represented 25.2 percent of loans processed, with private car purchases and credit cards accounting for 19.6 percent and 8.9 percent, respectively. The balance (10.4 percent) captured borrowings for travel, education, medical, home improvements, furnishings, land and rented cars.
"Overall, consumer loans had an average approval rate of 83.7 percent, with locational distributions of 84.0 percent, 85.6 percent and 72.7 percent for New Providence, Grand Bahama, and the Family Islands, respectively."
By consumer loan type, the "other miscellaneous" segment -- which had the largest number of applications -- secured an 88.1 percent approval rate. The second highest volume category, debt consolidation, had an approval rate of 80.8 percent. However, loan applications for medical care registered the highest approval rate of 89.3 percent, to contrast with the lowest of 57.9 percent for land purchases.
The bank reported also that nearly 57 percent of consumer loan denials was because of elevated debt service ratios; 7.6 percent due to underemployment; five percent explained by a lack of down payment; four percent because of an inability to verify income; 3.9 percent due to prior loan delinquencies and 3.9 percent owing to insufficient time on the job.
Commercial loan applications
For the survey period, some 337 persons applied for a commercial loan, with nearly 96 percent approved. This approval rate was similar for the 321 applications processed in New Providence. Of the 15 applications filed in Grand Bahama, 14 or 93.3 percent received a favorable outcome, while one application was accepted and approved in the Family Islands. The four applications denied were due to high debt service ratios, and the remaining 10 were not approved because of insufficient information.
Lending conditions
The survey found that, collectively, banks conveyed that lending conditions had not changed for most of the indicators. However, there were a few banks, which stated that the indicators had worsened over the year -- one entity reported an improvement in borrowers' loan eligibility.
Five of the seven respondents indicated that overall lending conditions had remained unchanged over the review period, with only one reporting that they had worsened and one observing an improvement. In terms of borrowers' loan eligibility, five of the responding banks noted that this indicator was stable, while one reported that it had worsened and one reported that it had improved.
The quality of collateral was viewed as unchanged by most banks, while one entity suggested that it had worsened. One of the respondents indicated that borrower's debt servicing had deteriorated, while the remaining banks reported no variation.
Click here to read more at The Nassau Guardian
