Commercial banks in The Bahamas are "reluctant" to lend, given The Bahamas' low growth environment, despite those banks being well capitalized, the International Monetary Fund (IMF) pointed out Wednesday.
In its "Staff Concluding Statement of the 2017 Article IV Mission", the IMF states that The Bahamas has struggled with a stagnant economy since 2012.
However, under these conditions, commercial banks are still able to remain liquid. But with no economic growth, banks have tightened their lending policies.
"As of March 2017, the average capital adequacy ratio stood at 27.8 percent, well above the regulatory requirement of 17 percent, and liquid assets represented 25.6 percent of total assets," said the IMF.
"Non performing loans (NPLs) declined to 11.1 percent of total private sector loans, down from 14.2 percent in 2015, due mainly to a large disposal of distressed mortgage debt by one institution.
"However, Bank of The Bahamas, a majority state-owned commercial bank, continued to face losses, triggering a new recapitalization by the government in late 2016.
"Despite ample capital and liquidity for the sector as a whole, the stock of commercial bank credit to the private sector has remained flat.
"The loss of correspondent banking relationships (CBR) has not resulted in major disruptions so far."
IMF noted that strong compliance with anti-money laundering and combating the financing of terrorism (AML/CFT) and tax transparency standards "should help stem the withdrawal of CBR".
"It is critical to work closely with the Caribbean Financial Action Task Force (CFATF) and the Financial Action Task Force (FATF) to swiftly address the deficiencies in the AML/CFT regime identified in the recent Mutual Evaluation Report (MER)," the IMF added.
"Heightened global focus on tax transparency also calls for efforts to promptly comply with international standards (such as the OECD's Common Reporting Standard)."
The IMF also asserted the need for banks to "step-up" loan restructuring efforts in an effort to improve financial stability and "support economic recovery".
"An intensification of the restructuring of distressed mortgage debt, including through increased enrollment in the government's mortgage relief program, should free up additional balance sheet space to support the economic recovery," the IMF explained.
"Restructuring Bank of The Bahamas is necessary to strengthen its profitability, enhance financial stability and reduce fiscal contingencies."

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