Banks cautious about lending, expect rate rise

Friday, May 23, 2014

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BANKS and money lenders expect interest rates to rise and are more cautious about lending.

"Lenders reported that interest rates on both local and foreign currency denominated loans were expected to increase for the March 2014 quarter relative to the December 2013 quarter", according to the Quarterly Credit Conditions Survey Report published by the Bank of Jamaica (BOJ) earlier this week.

The report gives an insight into the thinking of lending institutions within a market affected by ebbing consumer demand, currency movements and an International Monetary Fund agreement.

"Lenders attributed the increase to the tight Jamaica dollar liquidity conditions which have impacted both the quantity and cost of funds available to the lenders," said the report.

Jamaican dollar loans to businesses jumped from 13.2 per cent at the end of 2013 to 15.4 per cent in March 2014; personal loans remained flat at 20.6 per cent; while the prime lending rate declined from 18.6 per cent to 18.1 per cent.

Foreign currency loans increased from 8.5 per cent in December to 9.3 per cent in March 2014, while the prime lending rate increased from 7.7 per cent to 8.4 per cent.

"The survey results suggest that the relatively weak domestic economic environment coupled with the pace of depreciation adversely affected the overall demand for credit by both businesses and individuals," the report said.

Large businesses and personal credit account for nearly two-thirds and one-quarter of total loans at some $467.8 billion throughout the system.

Despite the increase in credit availability during the review quarter, lenders reported that they were "cautious about lending" given the weak economic environment.

"This caution reflected the view that economic conditions had adversely affected businesses' working capital," said the BOJ. "Therefore, lending institutions had implemented more restrictive credit requirements in order to prevent an accumulation of non-performing loans.

"With regards to individuals, the reduction in credit availability was influenced by increased cost of funding and the tight liquidity environment faced by lenders. In addition, lenders indicated a perception of relatively higher risks. Lenders anticipated an increase in the availability of funds for businesses and individuals for the March 2014 quarter."

In January 2014, the Bank of Jamaica (BOJ) introduced its Credit Conditions Survey to the main lenders in the domestic credit market. The survey aims to increase knowledge of "trends in domestic credit market". In addition, it is envisioned that the results could help to improve the efficiency and effectiveness of the provision of credit by lenders.

The central bank predicts inflation to range between seven and nine per cent in fiscal year 2014/15 along with growth of about one per cent.

"The Government's success at meeting the economic programme targets to December 2013, the payout of large debt obligations as well as positive credit ratings by Fitch Ratings and Moody's Investors Service, influenced a general improvement in the performance of GOJ global bonds during the March 2014 quarter," stated the QMPR on the average yield on GOJ global bonds composite index which declined to eight per cent during the March 2014 quarter from 8.3 per cent in the December 2013 quarter.




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