By NEIL HARTNELL
Editor-in-chief of the Tribune
The Governor of the Central Bank forecast yesterday that investments by Bahamians in foreign capital markets and real estate this year could increase by 25% compared to the pre-COVID period and reach $100 million.
However, John Rolle told a webinar hosted by the Chartered Financial Analyst (CFGA) Society of The Bahamas that the currency regulator was likely to ease further exchange control liberalization so they could focus on protecting exchange rate peg one: one US dollar given the uncertainties hanging over the global economy.
“What we’re saying is that in the immediate current environment, we have to proceed with caution,” he said of further easing of exchange controls. “One of the significant liberalizations we have achieved in the last two or three years has been the way the public has access to investment currencies to invest abroad, in particular by reducing the premium that people pay for buy international currencies.”
Noting that this bonus now stands at 5%, having previously reached 20%, Mr Rolle said Bahamians had previously paid collectively $20 million a year – going up to “nearly $30 million” per year – to access foreign currency. .”
With Bahamians investing $80 million overseas through the Investment Currency Market (ICM) in 2019, the year before it temporarily closed due to the COVID-19 pandemic, the Central Bank Governor said added: “I think in 2022 it could reach $100 million, and that’s because we reformed the system so that Bahamians can set up business accounts with local banks and trust companies.
With these institutions acting as custodians, Mr Rolle said the move gave Bahamians “the flexibility to buy and sell their portfolio”. This is a major change from the days when to buy or sell your shares you had to get approvals. This business flexibility has been essential in giving Bahamians greater access to portfolio investments through investment currency channels.
“The same channels exist for those looking to invest in cryptocurrency, crypto assets,” he added, “and we see a lot of people coming to us asking for permission to engage in this type of activity. We approve of them.
In the same way that authority to approve foreign exchange has been delegated to commercial banks for commercial transactions, Mr Rolle said “at one point it was suggested that a similar type of structure be put in place for portfolio transactions requiring investment currencies”.
However, he added that the Central Bank’s near-term objectives were firmly focused on managing the peg of the one-to-one US dollar currency and, by extension, the Bahamas’ external reserves. “If there were to be changes in the short term, rather than liberalizing access at the local level, we would focus more on administrative processes,” Mr Rolle confirmed.
“Much of the risk and outlook in the environment influences how we proceed with exchange control policies.” Noting that the Central Bank had implemented “a policy of progressive liberalization” before COVID and Hurricane Dorian, he added that currently “the focus is better on how to strengthen the administrative process while maintaining the medium-term objectives of liberalization and foreign exchange access”.
Mr Rolle said it was “prudent to manage risk” and keep foreign exchange reserves healthy, so they could maintain the peg “without any interference or intervention from monetary policy”. However, due to a lack of eligible borrowers, he added that there was no expectation of an increase in credit demand which will put pressure on external reserves.
“The economy is now at a point where we believe the banking system is nearing the end of any deterioration in its delinquency rates or its non-performing loan rates,” the central bank governor said. “We expect these delinquency rates to peak this year and before the end of this year we will see a gradual easing of delinquency rates.”
However, Mr Rolle described the Bahamas’ non-performing loan ratio as high by international standards. “We don’t expect net banks to increase credit to the private sector this year,” he added. “That possibility is greater in 2023.”
As for the Bahamas’ foreign exchange reserves, Mr Rolle said they are expected to contract in 2022 “as the economy gets back on its feet” thanks to increased consumer demand and the government finances more of its deficit needs. in Bahamian dollars.
“We should expect some contraction in the balance of foreign exchange reserves during 2022. It is possible that in 2023 we will see reserves increase again,” said the head of the Central Bank. “As far as reserves are concerned, the Central Bank has the tools to manage reserves appropriately and have support for the Bahamian dollar exchange rate.”
While purchases and sales of foreign currencies fell by 20-30% in 2020 at the height of COVID-19, when the economy was plagued by lockdowns and other restrictions, Rolle said that the subsequent recovery had “nearly reached 2019 levels in terms of revenue from the banking system.” Sales and purchases for 2021 were both around the $5 billion mark.