feeds in part off international business, things aren’t as good. We’re going through a fourth or fifth year of recession and the strong consensus in the business community is that we need more people. The decline in GDP is directly proportional to the decline in population, so that’s the political discussion that’s happening now, but the turnaround has to happen quickly and there has to be some decision made to get the growth back into the economy.
So for banks, in a zero growth economy, with historically low interest rates, there’s been a focus on cleaning up the balance sheets and being as efficient as possible. But you hit a certain stage where that’s been done and then you have to figure out how to get growth going again.
Truran: From a Clarien perspective the story is growth. You can shrink yourself into oblivion; we’re asking ourselves how we can be more efficient. From an investment perspective if we’re looking at the injection of foreign investment into the Island, one of the things that they’re all going to look at is not only the health of the balance sheet, but how efficient are you.
Efficiency is a product of both revenue and expense, and so shrinking expenses down while growing revenue has to be what our ultimate goal is. What we can’t lose sight of is the fact that we’re in a community of just under 60,000 people and every time we make gains in our efficiency there is an impact on our economy, directly tied back to GDP.
How important has it been sticking with your customers and client base, and helping them through this challenging period?
Truran: Certainly for Clarien, our existing clients are assisting us in our growth strategy, while we go out and try to attract new revenue streams. Those in the lending business have lent significantly during this period and that should help stimulate the economy. We’ve been working intensively with our more stressed borrowers, we have restructured as much as we can and from a delinquency rate perspective, things are
improving. Those that were non-performing two years ago are still struggling.
Collins: All the banks have taken a relatively consistent approach to non-performing loans because we all recognise in the finite 20 square- mile market if the banks were very aggressive for closing a lot of property, or selling properties, all that does is reduce the value of our remaining collateral. It’s easy to see in most lending situations whether we can restructure a mortgage because one spouse lost a job, so it’s sort of a temporary impairment versus those situations where the property value is falling significantly and it doesn’t look like there’s a way out.
We’re able to differentiate where we can restructure and get people back on track. Our sense is whether we want to use the term ‘bottoming out’ of delinquencies. Thirty-day delinquencies are not getting worse, while the 90-day non-performing loans are going to be a tougher nut to crack. Thirty-day delinquencies are something to look at for the future and they seem to be stabilising. There are green shoots, but it’s a tough time.
Swan: Over the past two years, 2012 and 2013, the BMA conducted two in-depth thematic credit reviews in order to assess the adequacy of Bermuda’s banks’ credit and risk management policies and practices. Over the same period we have also witnessed the proactive activities undertaken by the banks to reach out to struggling individuals to assist with restructuring facilities in line with individual circumstances.
In addition, in Q1 2014 the BMA issued its Guidance Paper on Supervisory LTV and TDSR for Real Property Loans to ensure that current prudent lending practices are maintained in the banking sector.
Bridgewater: There’s been significant stress in the real estate market and in the banking sector as a whole. The banks are interested in ensuring they can recover their loan and mortgage assets, and work with their customers. What we have seen is that they have taken some of the pain up front in order to make sure that those assets are properly valued and collectible.
55 Bermuda Finance | 2014
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