Damage report: Popular’s running toll of natural disasters

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Nearly $1 billion in mortgages and consumer loans held by Popular, the largest bank based in Puerto Rico, are now tied to disaster areas after a series of earthquakes struck the island’s southern region, executives said Tuesday.

While the earthquakes that began at the end of December and peaked with a 6.4-magnitude strike on Jan. 7 have not been as damaging as Hurricanes Irma and Maria that hit in 2017, they were a setback for Puerto Rico’s still fragile infrastructure and economy. Getting back to normal will largely hinge on how quickly U.S. relief funds can hit the ground after the Trump administration released its hold on them last week, Popular CEO Ignacio Alvarez said on a call with analysts.

“The sustainability and pace of further recovery in the Puerto Rico economy will be heavily dependent on the magnitude and timing of federal recovery funds flowing into the island,” Alvarez said. “The disbursement of the funds has been slower than many hoped.”

Lidio Soriano, executive vice president of Popular’s risk management group, said on the call Tuesday that 8% of the bank’s mortgages held on portfolio and 11% of its consumer loans “pertain to areas declared as a major disaster.”

That would be equal to about $574 million in home loans and $338 million of consumer debt, based on the $52.1 billion-asset bank’s fourth-quarter data.

“So far, customer inquiries and requests for modifications have been limited,” Soriano said.

Allowances for loan losses will likely rise because of the risk of higher charge-offs and anticipated loan growth, the bank said. It did not provide any specifics.

Expenses, too, are set to increase this year as the bank spends more to attract and train more of the island’s shrinking number of skilled workers.

Popular’s net income for 2019 increased 8.5% to $671.1 million. Its fourth-quarter profits of $166.8 million were roughly flat from a year earlier.

First Bancorp., a $12.6 billion-asset bank based in San Juan, said Tuesday that about 4% of its mortgage book, or $117 million, and 10% of its consumer loans, or $228 million, were linked to the southern region of the island affected by the earthquakes.

First Bancorp. CEO Aurelio Alemán-Bermúdez said on a call Tuesday that the earthquakes hit remote areas of the island and they are supporting those who have been affected. However, the impact to the bank’s business has been limited so far, he said.

“Very few of our clients have been affected,” Alemán-Bermúdez said on the call. “It’s quite different in terms of magnitude to the 2017 hurricanes.”

The Trump administration announced last week that it was releasing its hold on more than $8 billion in grants from the Housing and Urban Development Department earmarked for Puerto Rico’s recovery with new restrictions on how the money could be spent. This is in addition to the $1.5 billion HUD had approved in February 2018.

The administration has blamed corruption and mismanagement on the unincorporated U.S. territory for its decision to withhold the funds. All told, Congress has approved roughly $20 billion in recovery aid. It’s unclear how much has reached the island amid the spat over funding. Roughly $11 million from the original $1.5 billion in HUD grants has been spent, according to NPR.

Puerto Rico’s local banking sector had already been undergoing consolidation before the 2017 storms rocked the island. Outside banks with operations there began pulling back amid the disaster. As a result, local deposits have flocked to the remaining banks. Popular reported $43.7 billion in total deposits, up 10% from one year prior and 23% from the end of 2017.

Alvarez said the release of the recovery funds “is definitely positive,” but he indicated that the restrictions announced last week could further slow spending still needed on the island.

“It is difficult to predict whether this ultimately will impact the amount and timing of recovery funds received,” Alvarez said. “However, we continue to believe that these funds will be significant and have a positive impact on the economy.”

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Mortgages Consumer lending Natural disasters Hurricane Irma Hurricane Maria Credit quality Earnings Popular Inc