By JAMMAL SMITH
Guardian Business Reporter
The net income of banks operating in The Bahamas grew by 10 percent to$64.4 million in the first quarter compared to the same period last year, but a pair of financial experts say the increase shouldn't be interpreted as a breakthrough for financial institutions.
The figures were revealed in the Quarterly Economic Review recently released by the Central Bank of The Bahamas.
Former Minister of State for Finance James Smith toldGuardian Businessthe growth in net income shouldn't be viewed as a massive improvement because progress made in previous years should be taken into consideration.
"The 10 percent net income increase could represent growth from a historically low level."Smith said, who is also a former Central Bank governor."It means that it has turned around but it hasn't returned to pre-recession levels. If there is two successive quarters of positive growth then basically you can say that[banks]have turned the corner."
Smith's statements are backed by the previous Quarterly Economic Review released in July, which indicated a sharp decline in net income after a strong performance in the first quarter of 2008.
The report said:"Since achieving a level of$80 million in the first three months of 2008, banks'net income fell sharply, by an annualized average of 18.0%($14.7 million)during the subsequent quarters to end-2009, and contracted by a further 9.2%($5.3 million)to$51.8 million over the review quarter."
While Smith said it's too early to tell what direction net income is heading, another financial analyst said the approach taken by local banks led to the improvement.
President and CEO of Providence Advisors Ken Kerr told Guardian Business that financial institutions have taken the proper steps that resulted in an increase in net income compared to last year.
"What[banks]have done is tighten up like all other businesses, contained cost significantly and stepped up on collections and that has allowed them to remain[profitable]and increase profitability,"Kerr said."Notwithstanding the fact that times are uncertain and challenging, people still need money and those who qualify have gone to access the banks for cash."Compared to the same period last year, operating costs for banks rose by 1.6 percent to$70.2 million and net interest income grew by 4.4 percent to$125.6 million. Provisions for bad debts decreased by$2.3 million, and earnings from non-core activities turned a profit for the first time in over a year at$3.6 million.
Kerr said banks have stepped it up, which is the reason why they have experienced a productive first quarter.
"Stepping up on collections and better underwriting of loans has led to the improved profitability,"he said."So it's not necessarily that the economy is turning around although it might be very slowly, the banks have done a better job of management." Original Article HERE