Tuesday, December 28, 2010

Retailer fears lengthening consumer recovery

Tribune Business Editor

A leading Bahamian retailer fears that the sector is likely to struggle during the 2011 first half due to the ever-lengthening time it is taking consumers to recover from their Christmas spending and pay down debt, warning that the period was going to be "very telling" for some firms' survival.
Christopher Lowe, operations manager at Grand Bahama-based Kelly's (Freeport), told Tribune Business that retail top and bottom lines across the Bahamas were likely to suffer even more in 2011 from the protracted debt hangover many consumers experienced as a result of festive shopping.
Stating that Kelly's (Freeport's) Christmas sales had held firm, essentially being flat when compared to 2009 data, Mr Lowe said: "It's going to be very telling in the February, March, April period, because every year it takes longer for the overwhelming majority of Bahamians to recover from Christmas expenditure, which is definitely bad for Bahamians in retail.
"The recovery period has increased by a month every year for the past six years. That's what we see in terms of historical trending with respect to an individual's financial recovery taking an additional month each year, and that's not going to bode well for us. We see it in our sales figures."

Apart from paying down Christmas shopping-related debt, Bahamian consumers also had to deal with bills such as mortgages, utilities and all manner of existing consumer loans, causing Mr Lowe to bemoan the general lack of budgeting among his fellow countrymen.
"We've held steady to flat to last year," he added of Kelly's (Freeport's) sales performance, "but it doesn't bode well going into the New Year with respect to what's going to happen in the first six months of 2011. It's going to be pretty tough for most people. Like it or not, we don't manage our funds very well in relation to what's around the corner.
"That's something we've been watching for the last six years. The recovery used to take until January/February, but then it lengthened to February/March, then March/April, and by last year it was well into June before we saw an increase in sales.
"Based on the recovery getting stretched out further and further, the banks will be watching that very closely."
Tribune Business reported on Christmas Eve how Bahamian commercial banks saw their hopes for a third consecutive month of bad loan declines dashed by a 3 per cent November increase, prompting one senior executive to say that the $1.169 billion delinquent credit portfolio was becoming "more hard core the longer the recession lasts".
Expressing disappointment that November 2010, during which total private sector loan arrears increased in value by $34.3 million, did not match September and October and create a three-month trend of bad credit declines, Paul McWeeney, Bank of the Bahamas International's managing director, warned that it would be another 18-24 months before the Bahamian commercial banking industry saw "substantial improvement".
November's 3 per cent bad loan increase took the total arrears ratio, as a percentage of all loans to Bahamian businesses and households, to 18.6 per cent - the latter increasing by 0.4 percentage points.
That means that $18.6 out of every $100 loaned by Bahamian commercial banks is in arrears. And, more critically, non-performing loans - those 90 days and more past due, and upon which the banks have stopped accruing interest - rose by $12.6 million or 2 per cent during November to hit $648.4 million.
The latter figure is a sum worth 10.2 per cent of all outstanding loans to Bahamian companies and the private sector, meaning that $10.2 out of every $100 in credit extended by the private sector is non-performing.
Consumer loan arrears rose by $12.3 million or 4.6 per cent during November 2010 to hit $279.6 million, out of a total $2.174 billion in outstanding consumer credit, with short-term defaults up by $6.5 million or 5.5 per cent, while credit 90 days past due was up by $5.8 million or 3.9 per cent.
Commercial loan arrears, which grew by $7.1 million or 2.6 per cent, saw an increase of $4.3 million or 5.2 per cent in the 31-90 days past due category, and a rise of $2.8 million or 1.5 per cent in the non-performing segment.
The November arrears growth was again led by the mortgage sector, where bad loans increased by a collective value of $14.9 million or 2.5 per cent to hit a total of $608.6 million.
Non-performing mortgages, those 90 days or more past due, increased by $4 million or 1.4 per cent, while those between 31-90 days past due increased by $10.9 million or 3.6 per cent.

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