Increases in ‘bad loans’ troubling for economy – analyst

– says asset quality of banking sector vital to economy

By Samuel Sukhnandan

Given the reported deterioration in non-performing loans in the local banking sector, when compared to last year, a Guyanese financial analyst says it tells a bad picture that things are not going right in the local economy and the banking sector is performing poorly.
In citing the recent Bank of Guyana 2017 Half Year Report, Sasenarine Singh said the Central Bank recorded 12.6 per cent or $3.4 billion deterioration in non-performing loans compared to a year ago. This is 11.6 per cent of total loans. In addition to that, non-performing loans was 10 basis points higher as a result of the 1.1 per cent decrease, along with a 1.5 per cent contraction in total loans.

The financial analyst told Guyana Times on Tuesday that the coalition Government’s performance has been very poor and he hopes they will pull their act together and work towards putting the economy back on a path of sustainable five per cent growth and build one that can protect the financial sector.
“Everyone suffers when the banking sector is underperforming. The banking sector is underperforming as we speak. 12.6 per cent increase is significant over one year. On average most societies in normal times see two to three per cent deterioration in bad debts,” he explained.
Singh said everyone must also acknowledge that the bad loans at the end of June, 2017 was almost $30 billion and the possibility of these loans being repaid is extremely slim. But another issue is in addition to businesses not being able to repay their loans, the banks saw the bad debts by ordinary householders expanding by 24 per cent.
“In addition to businesses being unable to pay some of their loans, the ‘ordinary John’ who borrows on a car, mortgage or medical emergency, these guys are falling behind on their payments. So the expansion of the bad loans is nothing to celebrate,” the analyst added.
The former Alliance For Change (AFC) member stressed also that the “asset quality of a banking sector is everything in an economy,” and that it gives a clear indication as to the financial viability of the economy in the present as well as what is going to happen next year.
According to him, around the world, the ratio of non-performing loans to the total loans is tracked closely by every single country, reiterating that this performance is a major issue.
Bad loans are defined as those loans which the borrowers cannot make interest payments or principle payments over 90 days. And according to Singh, this is not someone making a part payment; these are business people and individuals not repaying a single cent on their debts for 90 days.
The financial analyst who is currently based in the United States told Guyana Times also that five years ago, the percentage point when it comes to deterioration of non-performing loans has always been within the bracket of five to six per cent, but this figure has now doubled under the current Government.
Asked whether this should be a cause for worry among those in the local banking sector, Singh said while that might not be the case, bankers may worry about what is taking place in the economy that is causing businesses and individuals not to repay their loans.
“At the end of the day, the bankers are instructed by the Central Bank to provide for it. So, they have to put aside money. The only thing about it is that the banker’s profitability will go down significantly. We have also seen this with one bank. So, when bankers are making less profit it is not good for Guyana.”
On that note, Singh pointed out that banks are one of the largest contributors of taxes to the Treasury. “The greater their loss, the less their profits and that means less taxes are paid to the Government. So the people of Guyana will have less benefits coming from Central Government,” he said. He continued, “What is extremely important is these bad loans do impact on everyone.”