Economic rebound is 'five years away'
By NEIL HARTNELL
Tribune Business Editor


THE consumer demand slump has made it "extremely difficult" for most Bahamian companies, whose net returns on investment average 12-15 per cent per annum, to remain profitable, the Chamber of Commerce's president warning yesterday that this nation might be "five years away from beginning to see meaningful economic recovery".

Describing this recession as "infinitely worse" that the post-September 11, 2001, 'short, sharp shock' to the Bahamian economy, Khaalis Rolle told Tribune Business that using the 36-48 months that it took this nation to completely recover from those events as a benchmark, it seemed that the rebound from current events might take up to five years.

Acknowledging that the $188 million in outstanding non-performing loans by Bahamian commercial banks to the private sector showed the business community was going through "extremely difficult times", Mr Rolle said: "If you look at the structure of a typical company, their profit and loss statements, most companies are doing an average return of 12-15 per cent in good times."

Linking this to the estimated 20-30 per cent fall-off in Bahamian consumer demand, he added: "From a sales standpoint, if you take 30 per cent of gross revenues away, this 20-30 per cent from off the top line, and calculate the average net return of around 12-15 per cent, it's extremely difficult to see where companies can remain profitable.

"Debt servicing becomes a very difficult proposition; it becomes very difficult to service debt. Many companies have cut significantly. But how far do you cut to remain in business, and provide the value customers expect without compromising the business?"

With many Bahamian companies in the private sector "on the brink" of failure, and many others holding on in the hope of a Christmas boost, Mr Rolle - without mentioning the $2.6 billion Baha Mar project by name - again questioned whether MPs and policymakers "fully understand" the urgent need for a "catalyst" to revive the economy.

"We're going through troubled times in the business community, and the longer we take to get to a point where people feel comfortable they're able to spend money..........," Mr Rolle said, tailing off.

"I know many businesses that are on the brink, holding on, and the longer we delay these projects that have the potential to encourage economic activity, the worse it gets."

Speaking about the survival prospects for many struggling companies, the Chamber chief painted a relatively bleak but realistic picture. "Once you get to the brink, the edge, there's no coming back from that," Mr Rolle told Tribune Business.

"Those that survive it, for the next 24-36 months they end up operating in panic mode, hand-to-mouth mode. The recovery lasts a couple of years, and we're in year two of this recession, going into year three of this shortly."

Acknowledging that the $188 million in loans to the Bahamian private sector that were more than 90 days past due could act as a further drag on recovery when it came, Mr Rolle added: "The recovery will take a significant period; it is not automatic.

"The first thing in the recovery period is to stabilise the business, and that's a 12-18 month period. Then, you go into a 24-36 month window where you start to rebuild the business, and the rebuilding process usually takes a couple of years.......... unless there's a significant catalyst for activity."

The Chamber president pointed out that it took the Bahamian economy some three-four years to fully recover from the effects of the September 11, 2001, terror attacks on New York and Washington. Once that recovery was completed, he noted that many Bahamian companies saw top-line per annum sales growth of between 7-10 per cent between 2005 and 2008.

"This is infinitely worse than 9/11, because it impacts the entire economy," Mr Rolle told Tribune Business. "No one was insulated from this. If you use that as a gauge for recovery, we are five years away from beginning to see meaningful and measurable recovery.

"And in that period we still have to recover from what was accumulated during this difficult period, all the debt and negative aspects of the balance sheet have to be worked out."

Tribune Business revealed yesterday that some $188 million in loans to Bahamas-based businesses, representing 18.11 per cent of all bank credit to the private sector, were non-performing as at September 30, 2010.

Data provided to Tribune Business showed that the picture on Bahamian dollar mortgage loans and consumer credit was little better. Some $287 million worth of mortgage loans were non-performing (over 90 days past due and upon which banks have stopped accruing interest) as at September 30, 2010, an amount equivalent to 9.76 per cent of the total $2.917 billion in mortgage credit outstanding.

As for consumer loans, such as auto credit, some $154 million worth - equivalent to 7.34 per cent of the $2.134 billion in such outstanding loans - were more than 90 days past due as at September 30, 2010.

November 18, 2010

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