Guam weighs down Bankoh
By John Duchemin
Advertiser Staff Writer
A weak Guam economy has become the chief financial worry for Bank of Hawaii officials, who hope that the effects of Typhoon Pongsona don't result in significant defaults among the bank's customers there.
Bank of Hawaii, which is Guam's largest bank, reported in its annual financial statements that Guam has become an "area of potentially weaker credit quality" — meaning the bank is concerned that some of its $430 million in Guam loans are at higher risk for default.
Guam's economy, which subsists largely on Japanese tourism and a U.S. military presence, has sustained repeated damage since the late 1990s. Visitor arrivals plummeted after the Sept. 11 terrorist attacks, and in 2002, the island suffered through two typhoons.
The latest, Pongsona, blasted the island with sustained winds of 150 miles per hour on Dec. 8, severely damaged the island's sewer, water and electrical systems and caused an estimated $150 million to $200 million in damage.
Bankoh officials said the typhoon, which brought tourism to a standstill, had little impact on the bank's "risk ratings" for its Guam loans, which represent 8 percent of the bank's total loan portfolio. But non-performing Guam loans — loans that are significantly past due — rose to $25.9 million as of December 2002, up from $16 million the previous December, Bankoh reported in its 2002 10-K report filed recently with the Securities and Exchange Commission.
Guam now represents almost half of the $9.5 billion bank's non-performing loans, according to the filing.
The bank had already downgraded some of its Guam loans because of the island's long-term economic decline, Bankoh vice chairman Alton Kuioka said.
Kuioka said the bank was being "flexible" with many of its Guam loan clients as the island continues its repairs.
"They've been through some pretty tough economic times, and that's continuing," Kuioka said. "But all in all, Guam is quite resilient. People know how to handle themselves in a typhoon, and recovery seems to be coming along quite smoothly."
Overall, the bank reported markedly improved loan quality after years of struggling with bad debt in Asia and the Pacific Islands. After divesting most of its assets in Asia and the South and West Pacific, the bank's levels of non-performing loans and charged-off loans have dropped. And after the bank was forced to set aside hundreds of millions of dollars as provisions against loan losses in the preceding several years, its loan loss provisions dropped to $11.6 million in 2002.
In essence, Guam has become the bank's only remaining trouble spot — though much less troubling than many of its former Asian assets, Kuioka said. And Guam's troubles could go away, depending on how quickly the island can recover, Hawai'i-based economist Wali Osman said.
Osman predicted that Guam, which gets between 1 million and 2 million visits from Japanese visitors most years, will eventually regain its prosperity as it repairs its typhoon damage and Japan's economy recovers.
"It's not a question of if that will happen, it's a question of when," Osman said.
Reach John Duchemin at jduchemin@honoluluadvertiser.com or 525-8062.
