Since 2005, only once has Puerto Rico, an unincorporated US territory, seen positive GDP growth, and even then it was marginal. The island’s population has also been steadily decreasing, with more than half a million people leaving since its population peaked at 3.2 million in 2004. It has also suffered with high levels of unemployment and government debt, and Hurricanes Irma and Maria in 2017 took a heavy toll.
So, mid-February’s announcement that it had reached agreement with bondholders to restructure debts previously worth $35bn, is a relatively rare piece of good news for its economy. Puerto Rico first began defaulting on bond payments in 2015. Under the terms of the deal announced on February 10, $35bn of debt will be restructured into $11bn of new bonds, which must be repaid within 20 years. The deal appears to have been a pragmatic move by the Puerto Rico’s Financial Oversight and Management Board to avoid a long and costly legal battle, and may prove a significant moment in efforts to improve the territory’s finances.
Puerto Rico’s banks have also struggled in recent years. All five of its largest banks saw their return on assets (ROA) decrease year-on-year, in either 2015 or 2016. Although ROA improved at all five banks in the two years up to 2018, levels were still relatively low at between 1.10% at Banco Santander Puerto Rico and 2.35% at Scotiabank de Puerto Rico. It was a similar story with pre-tax profits, with all five banks struggling to maintain profit levels in the three years prior to 2017. Although all saw significant pre-tax profit increases between 2017 and 2018.
There is still considerable work to do on getting Puerto Rico’s economy on a secure footing, but if efforts succeed its banks may see their fortunes improve in the coming years.
