Bermuda mortgage-holders have proven more resilient in the face of economic downturn than borrowers in many recession-ravaged countries.That is the view of Butterfield Bank chairman and CEO Brendan McDonagh, who told The Royal Gazette that unique local factors had helped Bermuda to avoid the rash of foreclosures seen in some areas of the US, for example.Mr McDonagh was speaking after Butterfield’s third-quarter results showed that non-accrual loans — the result of borrowers slipping behind on repayments — rose to become 3.1 percent of Butterfield’s loan book in the third quarter, up from 2.7 percent at the end of last year.Butterfield also added $2.9 million of provisions to cover such loans during the quarter.Although pressure continues to build on borrowers, in a shrinking economy and with ten percent of Bermudians unemployed, non-performing loans have not reached anything like the levels seen in the US during the depths of the housing slump.Three factors, in particular, had prevented Bermuda from suffering a level of delinquency, Mr McDonagh said.“To a large extent, Bermuda has been protected from the negative effects of an equivalent downturn seen in other countries,” Mr McDonagh said.“Bermuda is a small market and we’ve not had the overbuilding here that we’ve seen in other parts of the world. If you look at the worst-hit states in the US, they are places where there has been a lot of overbuilding. The absence of overbuilding here is one thing that has held prices up.”A second aspect that gave strength to the Bermuda market was that property ownership was often a family affair.“In many cases there may be more than one member of a family connected with the ownership of a property,” Mr McDonagh said. “This can mean there is a greater will to protect ownership.”The Butterfield boss, who succeeded Brad Kopp in the bank’s top two months ago, added that fewer people than elsewhere were “underwater”, owing more on their mortgage than their property was worth, because there had not been a “housing bubble” on the Island and lending standards had been conservative relative to other countries.However, the recession in Bermuda had stressed borrowers and hurt their ability to make repayments. In such cases, the bank would be willing to work with them to keep them in their homes, he added.Mr McDonagh pointed out another difference in Bermuda. “In those places where you’ve seen problems, there have also tended to be a high level of consumer debt and you don’t really have that here,” Mr McDonagh said. “I don’t sense that we have high levels of credit card debt here. That means the mortgage is the highest obligation that the family has.”While these positive factors helped to keep delinquency from soaring for the moment, the situation could worsen if the economy continued to struggle, he added.Butterfield, like other banks, has seen low interest rates put a strain on its profitability. Rates are likely to remain low through 2015, as has been indicated by Ben Bernanke, chairman of the US Federal Reserve. This poses challenges for banks like Butterfield in squeezing a return from their $4.3 billion in investments and cash.“Some banks could have been flattered by high interest rates,” Mr McDonagh said. “An extended period of low interest rates puts the emphasis on other sources of revenue and cost structures.”There had been a focus on getting Butterfield to an optimal size, he said. This had involved selling off its Barbados subsidiary, as well as its interests in Hong Kong, Malta and the insurer Island Heritage.Those disposals have made Butterfield a leaner organisation, with its main operations in Bermuda, Cayman, Guernsey and the UK, and smaller interests in The Bahamas and Switzerland.There had been more focus on carrying out functions on a group basis, rather than by jurisdiction, to avoid duplication. The upgraded IT platform would also result in efficiency gains over time.Mr McDonagh said cash return on equity of 8.6 percent in the third quarter was lower than he would like. But strong capital levels — indicated by a tier one capital ratio of 18.3 percent — provided a solid foundation on which the bank could work on initiatives that would bring benefits in the long term.“Having a strong capital support base allows us a level of comfort in pursuing our strategy without having to be constantly looking over our shoulder, “ he added.One of the bank’s efforts to increase revenue was to levy a $1 a month fee on many savings accounts. This elicited an angry response from some customers that Mr McDonagh admitted had taken the bank somewhat by surprise.“I think it’s fair to say that we underestimated the customer reaction — not in the numbers of people who complained, but the noise,” the CEO said. “It’s important for a bank to be able to price appropriately, but when you put up prices, people want something in return -especially at this stage of the economic cycle.“Going forward we should be in a position to give clients more options around pricing,” he said, adding this would mean options to pay more for additional services.Commenting on the struggling Bermuda economy, Mr McDonagh said the Island was primarily dependent on money coming in from overseas, through international business and tourism. The important thing for the Island’s economic future was to be “open for business and friendly to business”, he said.