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Bermuda dollar lending hits seven-year low

Finance Minister Bob Richards: Targeted the banks for lack of lending

Bermuda dollar loans lent out by banks have hit a seven-year low, according to figures from the Island’s financial regulator.

The Bermuda Monetary Authority’s latest Regulatory Update, released last week, shows Bermuda dollar-denominated loans, advances and mortgages on the books of the Island’s financial institutions in the third quarter of this year totalled $4.34 billion — down by $1 billion, or nearly 19 per cent — from mid-2012.

The figure represents the lowest level of lending since the third quarter of 2007, when loans and advances totalled $4.2 billion.

The banks’ combined Bermuda dollar loan book fell for a fifth consecutive quarter. It peaked in the third quarter of 2010 at $5.39 billion.

The reasons for reduced local lending may include lack of demand for credit from qualified borrowers, coupled with the tightening of lending standards by the banks since the 2008 global financial crisis.

Another reason, highlighted in a report on the Island’s banking sector by rating agency Standard & Poor’s in July this year, may be the write-offs of bad loans. S&P said it expected the Island’s credit losses during the 2009-2016 cycle to total more than $1 billion, of which about half had been realised already.

Shrinking levels of credit in an economy are often reflective of declining economic activity. Bermuda has been through five years of recession from 2009 to 2013. Although gross domestic product rose slightly last year, it fell after inflation was taken into account.

During his Budget statement in February, Finance Minister Bob Richards claimed banks’ policies were “at odds with the national interest”.

“In Bermuda, banks follow the monetary dictates of the Federal Reserve in the US and also their own individual appetites for lending,” Mr Richards said.

“In the last ten years, the combination of these two factors has put bank lending policies at odds with Bermuda’s national economic interests — that is ultra-easy money lending when the economy was already red-hot followed by debilitating ultra-cautious lending during economic weakness.”

He said there was “no appetite for lending”. “This is, on multiple levels, contradictory banking policy at a time when we need to expand this economy,” he added.

“We have stated repeatedly that in order for Bermuda to move forward, all oars must be pulling in the same direction.”

HSBC Bermuda chief executive officer Richard Moseley said in March this year that the banks were keen to lend and had plenty of capital to do so. He said the tightening of lending standards represented a return to historical norms.

“What we don’t want to do is to lend and then for customers to regret it down the road,” Mr Moseley said. “We’ve seen that too often. So what we’re looking for is well structured business plans so the overall risk-reward is right for both parties.

“Our issue is not lack of supply of bank finance — it’s very much lack of demand.”

Other statistics of interest in the Regulatory Update included a slight drop in the number of new company authorisations in the third quarter to 298 from 304 in the corresponding quarter in 2013 and down from 323 in both the first and second quarters.

Also the total number of investment funds based on the Island fell by five to 661, with a combined net asset value of $175 billion in the third quarter.