Banks in Puerto Rico have come a long way in their recovery from Hurricane Maria, which ripped through the island nearly three months ago, leaving behind a trail of destruction.

Most branches are back up and running, though some locations still rely on diesel generators for power. ATMs are also back online, giving residents access to much-needed cash.

But after tackling the nuts and bolts of disaster recovery — accessing electricity, arranging cash deliveries and estimating storm-related losses — bankers are facing a longer-term concern: What if customers who fled the island after the storm don’t come back?

“We are waiting to see if there’s any impact on businesses on a sustainable basis going forward,” said Ganesh Kumar, chief operating officer at OFG Bancorp in San Juan, discussing the recent out-migration from Puerto Rico. “Anecdotally, you can tell the flights are full going out, and then going in, flights are not so full.”

The territory’s population has been shrinking for years, as a decadelong recession has pushed residents to relocate to the U.S. mainland. Adding to the island’s financial woes, the Puerto Rican government in May filed for a type of bankruptcy, unable to pay its more than $70 billion in debt.

PR exodus

Between 2006 and 2016, the territory lost a net of 525,000 residents to Florida, New York and other East Coast states, according to a recent report from the Center for Puerto Rican Studies at Hunter College in New York.

After the hurricane hit this fall, knocking out power and leaving many neighborhoods without clean water, the out-migration accelerated. In the next two years alone, Puerto Rico is expected to lose about 470,000 additional residents, or 14% of its population, according to the report. That could reshape the island’s economy, leaving fewer customers for local businesses — and fewer depositors for local banks.

Kumar said that the $6.3 billion-asset OFG has not yet noticed a financial impact from the population shifts after the storm. As of Sep. 30, just days after the hurricane made landfall, total deposits were up over 1% from a year earlier, to $4.8 billion. Profits plunged, however, on a higher set-aside for problem loans.

Still, Kumar said OFG is keeping a close eye on the matter, as well as for any impact the out-migration could have on retail sales across Puerto Rico.

“That piece [of the recovery] is really hard to interpret and understand,” said Alex Twerdahl, an analyst with Sandler O’Neill.

According to Twerdahl, who recently returned to New York from a tour of Puerto Rico, many professionals have relocated their businesses to Florida and elsewhere, but have said they plan to return once the island’s recovery is further along. Residents have also temporarily relocated to live with family members until their living conditions improve.

In some ways, concerns about the impact of out-migration show just how far Puerto Rico’s economy has come in its recovery from Hurricane Maria.

In the weeks after the hurricane made landfall, officials focused on the more immediate needs of restoring basic services, after the storm downed trees, washed out roadways and pummeled the island’s outdated electrical grid.

Turning the power back on has proved especially difficult. Puerto Rico Gov. Ricardo Rosello has said he hopes to restore power to 95% of the island by mid-December. But the Army Corps of Engineers, which is overseeing the effort, has said that restoring power to the island could take a full year.

Those efforts hit a snag in October, when the Puerto Rican government canceled a $300 million contract it had awarded to Whitefish Energy in Montana to rebuild power lines, amid questions about the company’s ties to Interior Secretary Ryan Zinke.

As of Dec. 4, 68% of the island had electricity, and nearly 90% of bank branches have reopened, according to a government website that tracks the status of the recovery.

As Puerto Rico gets back on its feet, out-migration could affect the island’s prospects for future economic growth, bankers said during the latest round of quarterly earnings calls.

“I think in the short term, [out]-migration will increase,” Ignacio Alvarez, CEO of the $41 billion-asset Popular in San Juan, said on the company’s third-quarter earnings call, pointing to the Hunter College report. “What that number will leave, we really don’t have a good idea.”

Alvarez described the employment picture on the island after the storm as a “mixed bag.” While many small businesses have closed, construction and electrical supply companies are hiring, he said.

Alvarez also noted that only 37 out of the Popular’s roughly 7,000 employees have informed the company that they plan to move off the island.

“I can tell you that the message you sometimes see in the newspaper is incorrect, that every educated person is leaving the island,” Alvarez said.

At the very least, the out-migration could underscore the benefit for local banks of having a diverse retail footprint and operations on the U.S. mainland. Puerto Rico’s largest bank, Popular, has branches in New York and Florida. First BanCorp in San Juan also has several branches in Florida.

Kumar said OFG is exploring ways to expand to the mainland, as well. “It’s part of the strategy,” he said.

Amid worries about a sharp decline in population, a rosier scenario for Puerto Rico is also possible, according to Twerdahl. He noted that property owners will soon begin receiving insurance payments. The restoration of homes and businesses could help the economy roar back to life and produce new jobs for residents who may now be looking for work elsewhere.

“There is a lot of work to be done with the cleanup,” Twerdahl said. “You can look around, and every business you see has an awning that needs to be repaired, or gutters” that need fixing.

Storm recovery could give Puerto Rico — and the island’s banking sector — the economic jolt it needs.

“In a kind of twisted way, it could provide a stimulus,” Twerdahl said.

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Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.