Bermuda Bankers Association
ON SOLID FOUNDATIONS
Brendan McDonagh, chairman of the Bermuda Bankers Association and chairman and CEO of The Bank of Butterfi eld, discusses developments in the Island’s banking industry and the opportunities and challenges facing Bermuda’s banks.
What is your assessment of the health of Bermuda’s economy?
Bermuda continues to grapple with signifi cant economic challenges. The recession is continuing into its sixth year and we have unemployment at historically high levels; it’s into the low double digits according to some assessments.
During the global economic crisis, we saw international businesses signifi cantly reduce headcount. That wasn’t peculiar to Bermuda—the same thing happened everywhere—but the impact here was magnifi ed. In addition to direct job losses affecting Bermudians working in international business, about 4,000 expats left the island. It was a signifi cant shock to a country whose population had peaked at about 65,000. With less disposable income circulating on the Island, local businesses have also had to scale back, creating further increases in unemployment.
However, I believe the Bermuda economy has probably already hit the low in this cycle and there are some encouraging signs that the economy is beginning to improve. Particularly in the tourism industry, we are seeing new projects getting underway—new hotel construction and renovation— that will lead to construction jobs in the short term and permanent hospitality positions in the long term. We’re also seeing renewed interest in Bermuda as a domicile among international businesses.
How are Bermuda’s banks faring in the current economic environment?
As one would expect, Bermuda’s banks are seeing a higher incidence of delinquency on loans, and there has been a gradual deterioration of the residential mortgage portfolio. I believe that’s because we’re now seeing the effects of the protracted recession, the trickle-down effect of population shrinkage on employment in the local sector and the knock- on effect of affected families no longer able to service their loans.
That said, the percentage of non-performing loans is remarkably low in Bermuda compared with other countries. Unlike in some parts of the world, people here do not walk away from homes when faced with fi nancial challenges.
61 Bermuda Finance | 2014
SHUTTERSTOCK / HUMANNET
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