Default settings: Banks offer clarity on troubled loans

Amendments to banking codes don’t normally appear on anyone’s Christmas list. But for local residents, recent changes made by the Cayman Islands Bankers’ Association, regarding how the territory’s financial institutions handle troubled loans, are cause for cheer.

The revisions made by CIBA detail the procedures local banks must follow when borrowers find themselves unable to make payments on loans, such as potential alternative repayment options, or also possible repossession of property. All members of CIBA — including retail banks Butterfield, Cayman National, CIBC FirstCaribbean, Fidelity, RBC Royal Bank and Scotiabank — have to adhere to those procedures. (Neither the Civil Service Association Cooperative Credit Union nor the Cayman Islands Development Bank is a CIBA member.)

In a story that appeared in Wednesday’s Compass, CIBA President Mark McIntyre said the expanded banking code should provide clarity to customers and lenders when financial difficulties develop.

We applaud the bankers’ association for its proactive measure to outline best practices for member institutions. While it is, of course, a far more serious and personal crisis for individuals who are faced with the prospect of losing their home — foreclosing on property is the least desirable outcome for the lending institution, as well. As was demonstrated during the financial crisis that led to the global recession, massive waves of debt defaults can send tremors through the financial sector, and shake the foundations of the banking industry itself.

Mr. McIntyre offered sound advice for clients with mortgages: “If people are in financial problems, please talk to your bank. The bank is not in the real estate business. We don’t want to sell property. Our preference is to renegotiate the terms.”

Also in the story, Mr. McIntyre expressed frustration at “noise in the marketplace that banks are somehow behaving inappropriately” when it comes to foreclosures in recent years. Mr. McIntyre phrased the issue a bit more delicately than we would. We, in fact, would say that a relatively small number of relatively loud people, on radio talk shows, in print publications, and — most troubling — in the Legislative Assembly, have attempted to portray our local banks as villains who lay snares in order to snatch people’s homes right out from under them — presumably, somehow, in order to make a few quick dollars.

That sort of thinking, of course, ignores the costs associated with banks diverging from their core function — that is, banking; and the reality that foreclosures in Cayman are, statistically speaking, fairly rare occurrences.

While we empathize with people who encounter hard times and lose their homes after years of making mortgage payments, it is also important to understand that banks are business entities, and mortgages are partnerships that have been agreed to, and signed, by both parties in full awareness of their terms. Even in the worst-case scenario of a foreclosure, all that can be said of the bank is it is attempting to recoup expenses it has already incurred.

In Cayman, the institutions that hold mortgages are not faceless conglomerates, and should not be conflated with the litany of providers that comprise our international financial services sector. Cayman’s lenders are local banks, and are vital components of our local business community and the workings of our country’s economy.

We hope the community, and our political leaders, will perceive the recent expansion of CIBA’s banking code for what it is: a symbolic and practical gesture of goodwill to the people of Cayman, and a good-faith effort by local banks to preserve people’s mortgages and to keep them in the homes they love.


  1. Banking is good for Cayman ,they pay large fees. They hire Caymanians they get great amenities , staff rates on loans,1 month per year on vacation etc.
    But we are not getting the same banking as in other countries like USA. Banking also makes the cost of living unbearable in this small island . Why are we charged 3% over prime on mortgages? 6% over prime on commercial loans? We also need to pay 3 times more premium after Hurricane Ivan? A company should consider is the house on higher ground, is it made of concrete, are they using hurricane clips and any other material to have less damage.
    If you have car insurance you pay 2 times more on your car insurance? When will Banks and Insurance companies be fair and help this country with its cost of living?

  2. Actually car insurance is less expensive in Grand Cayman than the USA and provides better coverage.

    House insurance is very expensive, partly because of the extra risk. This includes the extra risk of burglary in recent years.

    No lender wants to foreclose on a loan. They are not in the real estate business and unless the Loan to Value of the loan was very low they will usually lose money on a foreclosure.
    But if a borrower cannot make the agreed payments and has no likelihood of being able to make them, the lender has no choice.

  3. Good job, but now its governments duty to look at a Landlord/Tenant Rights Law to protect renters same as mortgage holders. All too often Landlords enter tenants premises unlawfully and evict with no court order, only throwing around their weight and threatening or intimidating the tenants. God help them if they do not support the same Landlords political party!. Landlords should be required to give at least 13 to 24 hrs notice for property inspections and if they enter premises without tenants knowlege orgiving due notice then they have burglarised the tenants home. This law is working in other countries to protect both Tenant and Landlord.

  4. @ Norman Linton

    I don’t know much about car insurance in the USA apart from the fact that American friends of mine say it varies quite dramatically depending where you live. If that is correct any general comparison is invalid.

    What I can say is that car insurance in the Cayman Islands is ridiculously expensive compared with the UK. Annual cover on a small one litre car costs me over CI900 here but my high-performance 1.6 MPV costs me GBP178 (CI220) back home. The cover I get for that money in the UK is also way better than the so-called fully comprehensive policies local insurers sell.

    I hear from people in the motor trade that one of the reasons car insurance is so expensive here is probably poor claims management. They feel that insurers are far too ready to pay out on claims and fail to properly vet them because at the end of the day simply can pass the cost on to their customers.

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