Belize has five commercial banks, but the country’s leading bank, the Belize Bank Limited, and smallest, Heritage Bank Limited, are reported to have seriously high rates of nonperforming loans of nearly three in ten, almost six times the prudential benchmark of 5%.
Central Bank Governor Glenford Ysaguirre was quoted in local papers last week as saying that if left unresolved, the problem could cause the Belize Bank, which reports nearly $1 billion in assets, to become financially unstable.
The only commercial bank which, as of March 2010, reported a rate under the prudential benchmark was Scotiabank with a 4.93% rate.
The Atlantic Bank and First Caribbean International Bank were not doing too badly, with rates of 7.5% and 7.82% respectively.
Where the tale is most troubling is with the Belize Bank, whose $680.4 million loan portfolio is showing up roughly $200 million in nonperforming loans, according to official and published information from the Central Bank of Belize. The rate of nonperforming loans is 28.18%.
Heritage Bank, formerly The Alliance Bank, has the smallest loan portfolio – $112 million – but a 28.08% rate of nonperforming loans.
Michael Coye, Deputy Group Chief Financial Officer of the Belize Bank, told Amandala Thursday that the main reason for the high level of non-performance for the past two years has been the economic downturn which affected some large group loans. There are consumer and business loans from both productive and distributive sectors that have been affected. Tourism sector performance was greatly affected, Coye said, noting that agricultural loans have, however, begun to show a turn-around.
According to Coye, the bank has since June this year set up a Remedial Management Unit, headed by Mario Sabido, who will work to bring back the accounts to a performing status. The bank hopes to see a definitive improvement by next quarter, he added.
Amandala was also able to speak Wednesday with Heritage Bank’s managing director, Stephen Duncan, who said that the bulk of the problem is with business loans, which range from agriculture to tourism. Duncan said that the high rates of nonperformance are “…a reflection of the times we are going through.” When businesses hurt, others feel the pinch, he noted.
As to what the bank is doing, on its part, to help address the problem, Duncan told us that the accounts are assessed on a case-by-case basis. There are some who are able to trade out of the situation with them; others are not, he explained.
Central Bank Governor Glenford Ysaguirre told Amandala that, “The ratio of nonperforming loans in the system has expectedly risen since 2008.
“As at June 2010, the average for the banking system is at 17.81 %, which is what the classified loans represent as a percentage of the total loans portfolio (net of specific reserves). The widely applied prudential standard is 5% or less.” (We note that this is the highest average on record since 2005.)
Ysaguirre added that, “Some banks, as you will see from the reports, are relatively stable, albeit over the benchmark, but overall the situation is deteriorating. Banks are working with customers to restructure and refinance where practicable, but delinquency is on the rise, as the economic recovery remains weak.”
He also pointed out that “…not all business failures are directly related to the economic slowdown. Some are as a result of risky lending decisions made in the past by banks.”
Belize Bank was within the prudential benchmark in 2007 and 2008, but its rate of nonperforming loans shot up to 17.86% in March 2009 and then to 28.18% in March 2010.
The amount of bad accounts at Heritage was nearly 18% in March 2009 but increased by about 10 percentage points a year later.
Credit unions are reported as being far less affected by delinquency, with a rate of 3.83% and total loan portfolio of roughly $350 million.