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HomeInsightsHigh non-performing loans can have serious implications for customers, banking system

High non-performing loans can have serious implications for customers, banking system

By ECCB

BASSETERRE, St Kitts – Experienced banker and managing director, Grenada Co-operative Bank Limited, Richard Duncan has cautioned that non-performing loans, if allowed to get out of control, can have a serious impact on the Eastern Caribbean Currency Union (ECCU) banking system.

Speaking on this week’s episode of ECCB Connects, Duncan explains that when a borrower fails to meet the obligation to service his/her loan, as arranged with the bank, for a 90-day period, the loan is deemed to be non-performing.

Duncan outlines that the Eastern Caribbean Central Bank (ECCB) has set a benchmark for banks, that the percentage of non-performing loans to total loans should not exceed five per cent.

Duncan says that the ECCU has seen, over a long period of time, that in aggregate, the ratio is twice that amount, rising to as high as 11.5 percent.  He says that there are implications for individual banks as well as the banking system, in aggregate, should the level of non-performing loans exceed the established level. “If we are above five percent and other jurisdictions are lower, it means that globally your banking system is deemed to be displaying higher risk, higher vulnerability and of course, there are macro-economic implications as to how we are perceived globally,” Duncan explains.

For persons who find themselves in financial difficulty and cannot continue to service their loans consistently, Duncan advises that the most important step to take is to reach out to their banker to discuss a plan. He says that in the pandemic, the ECCB has been extremely gracious to allow banks to engage in moratorium arrangements such that the banks can be more accommodating and understanding of customers’ situation.

 

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