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Growth in banking sector despite non-performing loans

HAMILTON — Bermuda’s banking sector swung back to profitability despite a continued rise in non-performing loans.

The Bermuda Monetary Authority released its Quarterly Banking Digest for the first three months of 2013.

It said the sector posted positive net income due to greater efficiency. The BMA said this resulted from higher non-banking and other income being up $13.5 million, lower charge-offs (down $19.9 million) and declining operating costs (down $13.4 million.

The annualised return on equity for the sector increased to 6.4 per cent while the return on assets increased to 0.7 per cent.

Amid this good news, there still lingers a dark cloud.

Non-performing loans are now 11.1 per cent of all loans up from just 2.0 per cent from the first quarter of 2008. Or, put another way, just 1 in 50 loans in March 2008 were non-performing, whereas one in nine were in March 2013.

As Bermuda has suffered through a recession, the NPL rate has continued a steady upward rise in nearly every quarter.

Only twice in the past 20 quarters has the NPL rate decreased. One was a slight blip from 3.2 per cent in September 2009 to 3.1 per cent in December 2009 and the other was from 5.7 per cent in December 2010 to 5.4 per cent in March 2013.

The BMA defines non-performing loans as those loans classified as substandard, doubtful and loss as per the BMA guidance on the completion of the prudential information return for banks. A loan is classified as substandard when the delay in repayment is between 31 and 90 days, as doubtful when the delay is between 91 and 180 days, and as loss when the delay exceeds 180 days. (Bermuda Sun)

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