Bahamas Central Bank Lifts Lending Restrictions

by Amanda Banks, Tax-News.com, London

12 August 2004

The Central Bank of The Bahamas on Monday lifted the restriction on domestic banks' Bahamian dollar lending, citing an improved outlook for the Bahamian economy, particularly in tourism and foreign investments.

In a statement, the Bank said it will place greater emphasis on achieving minimum levels of external reserves relative to the deposit liabilities of the banking system, adjusting its credit polices as appropriate to accomplish this.

However, the Bank has directed lending institutions to pay particular attention to the creditworthiness of borrowers.

“New credit should be provided only after careful review of customers' existing levels of indebtedness, their ability to repay increased obligations, and to the extent of borrowers' ability to provide direct equity contributions to supplement loan financing,” said the Bank.

To ensure responsibility is exercised in marketing and lending strategies, the banks have been advised with immediate effect to limit the existing or resulting total debt service ratio (on the aggregate of personal loans, mortgages, rent, and property maintenance) to 40% - 45% of ordinary monthly income.

A minimum equity contribution of 15% on all personal loans, with the exception of those secured with mortgage indemnity insurance, is also required.

The bank said it may impose additional credit inhibiting measures on individual financial institutions should circumstances so require.

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