Nearly 18 months after the devastation of Hurricane Maria, the economy of Puerto Rico is in recovery, but officials say something fundamental is still broken and needs fixing. It's not a neighborhood, or a bank branch, or a bridge — nothing visible that could have been captured in social media and news images of the catastrophic damage.
It's the island's flawed economic data.
The Bureau of Economic Analysis, a division of the U.S. Commerce Department, is set to become more heavily involved in the production of economic forecasts and statistics for the island territory. Past economic stats — payroll, gross domestic product and other numbers — have been incomplete and untimely, making it harder for policymakers to craft financial plans and steer aid to the right places.
Puerto Rico’s banks stand to benefit indirectly, as the overall island economy should get a boost from better economic indicators and planning, said Jason Mercer, an analyst at Moody’s Investors Service. With a healthier economy, more underbanked consumers are expected to enter the banking system and take out more loans, he said. Small businesses could also see a lift.
“If you enact policies to reduce the burden of establishing a new business and bring more of the unbanked population into the system, it will have a multiplying effect,” Mercer said.
All five banks headquartered in Puerto Rico should see a boost, but especially the three that Moody's pays special attention to, Mercer said. Those are the $38 billion-asset Popular, the $12 billion-asset FirstBank Puerto Rico and the $5.2 billion-asset Banco Santander Puerto Rico. Representatives from Popular and Santander declined to comment. FirstBank did not return calls seeking comment.
The other two banks based in Puerto Rico are the $6.5 billion-asset Oriental Bank and the $4 billion-asset Scotiabank de Puerto Rico.
Sounder economic data could provide a tailwind to the robust rebound that’s already occurring in Puerto Rico, said Alexander Twerdahl, an analyst at Sandler O’Neill.
“We think that there will be additional lending opportunities in Puerto Rico as federal aid money continues to flow to the island,” Twerdahl wrote in a January research note.
Observers have paid special attention to consumer lending on the island. Since homeownership there is relatively low, and car ownership is fairly high, auto lending provides a good barometer.
The storm hit in September 2017, and third-quarter auto loan balances fell 3% from a year earlier to $2.8 billion, according to call report data compiled by FedFIS. They stayed relatively flat for the next three quarters and then strengthened in the second half of last year. Total auto loans held by Puerto Rican banks reached $4.9 billion at Dec. 31, or 75% higher than in the third quarter of 2017.
The changes in how Puerto Rico’s economic statistics are managed may not have an immediate financial impact on Puerto Rico’s banks, said Joe Gladue, an analyst at Alden Securities. But it should help provide outside investors with a more nuanced view of the island’s economy, giving them more confidence and perhaps boosting the banks’ stock prices, he said.
“That could reduce some of the discounted valuations applied to Puerto Rico stocks,” Gladue said.
In June the U.S. Government Accountability Office issued
Those studies culminated
“Consistent granular payroll data continues to be a challenge for the government,” the report’s authors said.
The Bureau of Economic Analysis plans to generate a more reliable forecast of gross domestic product for Puerto Rico, as well as more-detailed reports on trade figures, business investment and consumer spending.
However, the plans as they are currently crafted could still use some refinement, said José Villamil, CEO at the consulting firm Estudios Tecnicos in Hato Rey. Because of Puerto Rico’s unusual status as an unincorporated territory of the U.S., accounting of the island’s economy is handled differently than that of any U.S. state. Commerce Department officials have not taken that into account in formulating how they will collect the new data, Villamil said.
But the program for generating the new data is a work in progress and can be enhanced over time, Mercer said. The Commerce Department will likely work out those kinks, giving Puerto Ricans keener insight into how their economy is performing, he said.
Moreover, the department’s effort shows how the U.S. government is trying to take a more active role in helping Puerto Rico recover from the hurricane’s damage, Mercer said. John Williams, president of the Federal Reserve Bank of New York, is scheduled to visit the island later this month to meet with local elected leaders and with members of the Puerto Rico Bankers Association.
“Stepping in to take over data reporting is the most recent evidence of the U.S. government’s efforts to support Puerto Rico’s change efforts,” Mercer said.
