Richards: 'We can't keep going on this way'
Soaring levels of bad debt at the banks show the net is closing in on numerous homeowners and businesses struggling in the economic crisis, according to leading businessman Peter Everson.And Shadow Finance Minister Bob Richards urged Government to change its attitude towards the recession as evidence grows people are failing to make ends meet.Bermuda Monetary Authority announced this week that banks racked up a $73.9 million loss charge for bad debt in the second quarter of 2012 — more than quadruple the $12.8 million figure for the first quarter.Mr Richards said this means the banks are finally accepting people are unable to make their repayments, writing off the debt and attempting to reclaim the cash through other assets.Mr Everson, the economic chairman of the Chamber of Commerce, said those most affected include people who bought homes towards the end of the boom, and those whose businesses expanded quickly before the recession kicked in.“The bad debt data is reflective of the struggles facing many in the business and private sectors,” Mr Everson told The Royal Gazette.“Few are the businesses that make substantive profits. For homeowners, the diminished rental income coupled with reduced earnings in the private sector make for challenging times.“It is only the Government-employed people who have so far not borne the effect of Bermuda's shrinking economy.“For those householders who purchased towards the end of the boom or businesses who expanded too quickly without adequate capital support these last three years have become increasingly challenging.”The BMA's Banking Digest reported on Monday how the banks have sharply increased provisions for bad debt as a result of Bermuda's “poor economic fundamentals”.Mr Everson reflected yesterday: “The increased provisions are reflective of where people or businesses have fallen so far behind in their payments and/or the collateral for the loan has declined in value that the bank cannot foresee any realistic chance of being repaid in full.“Once that have reached that point, the banks then assess whether their interests are best served by continuing to work with the debtor or whether to cut their losses and move to close out the loan and recover whatever they can.”One Bermuda Alliance politician Mr Richards said of the bad debt increase: “It's an indication of the difficulty that Bermuda's economy faces. If the economy is doing poorly, then people get to be in trouble because they don't have the cash flow to service their debt.“People who borrow money for business purposes: their loans become at risk as they don't have enough money to keep them in good shape.“It's a similar case for homeowners. A lot of business owners in Bermuda are secured by Bermuda real estate.“The connection between homes secured by residential properties and business is a very close relationship. A lot of homes in Bermuda are secured by business property.“From the looks of it, one of the reasons provision spiked was because some of the banks have finally recognised some of those loans are at risk.”Mr Richards said the banks would have allowed for a certain amount of time before writing debts off, hoping that people's finances improved.But he continued: “Clearly as things don't get better, the bank looks at this and says, we don't see how the borrower will improve his position. We have to make a hard decision about this particular borrower.”Mr Richards has repeatedly called for Government to stimulate the economy by being more welcoming to international business and removing unnecessary red tape.“We have to change the way we do business in Bermuda. We just can't keep going on in this way,” he said.“These things will not change on their own. There seems to be hope on Government's part that these things will somehow work themselves out.”Capital G Bank and Butterfield Bank both said they work with customers struggling to make repayments.Capital G Bank president Ian Truran said in a statement: “Capital G Bank recognises that Bermuda's residents are facing a challenging economic climate.“We are pleased to report that many of those clients that have been impacted by reductions in income have approached the Bank and we have been able to work with them.“Each set of client circumstances is unique. In some cases, we are able to permanently restructure payment obligations and in others we are able to implement temporary reductions in payments to accommodate a temporary reduction in cash flow.“We encourage all of our clients to be proactive in considering their financial circumstances and where appropriate, to reach out to the Bank and update us on any changes that may require assistance from us.“Addressing these types of issues early is critical in our ability to support the needs of our clients.”A Butterfield Bank spokesman said: “Where we are seeing late or missed payments, we are reaching out to customers and working with them proactively to come up with repayment terms that are manageable for them and acceptable to the Bank.“We advise customers who foresee running into difficulty servicing their loans or mortgages as a result of decreased income, unforeseen expenses, or other factors, to contact us as early as possible.”
Responding last night, Premier and Finance Minister Paula Cox noted the Banking Digest showed banks themselves remain financially strong.
"Bermuda's banking framework has insured that Bermuda banks continue to maintain a strong financial position despite the difficult economic conditions resulting from the global economic and financial crisis," she said.
"While it's clear that things remain difficult for the global economy from which Bermuda is not immune, there are some positive signs."
Asked how Government is helping people struggling in the economic crisis, Ms Cox replied: "Government considers it important to help people and invest in Bermudians during the worst global financial crisis since the Great Depression.
"One way we've helped do this is through a change to the National Pension Scheme (Occupational Pensions) Amendment Act 1998 that helps Bermudians with a real need to get access to a portion of private sector pension funds.
"This amendment allowed persons with mortgage arrears, access to their occupational pensions. This is the sort of reform that shows that this Government stands strong for Bermudians in these difficult economic times.
"Also by the concessions given to the hotels, the retail sector and businesses with payroll tax relief, the Government continues to be sensitive to the fact that there is an economic downturn and has opted to provide the concessions even though it affects our revenue stream as it is a means of providing some assistance and relief to persons and businesses at a difficult time.
"Also there is the focus on continuing to be welcoming to business and providing opportunities to provide an incentive to those who seek to do business in Bermuda. Construction projects like the hospital and our efforts to secure new business and the active engagement in the waterfront steering committees is all part if the process of getting Bermuda back to work and to get Bermuda flourishing again."
