Lending speeds up as rates fall

CAMILO THAME Business co-ordinator

Sunday, August 26, 2012    

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LENDING to the private sector has stepped up, while interest rates continued to decline over the three months to June 30.

The acceleration in growth in loans from commercial banks is being viewed as positive news for the economy by the Bank of Jamaica (BOJ).

"This augurs well for improved growth prospects in the medium term," said Brian Wynter, governor of the central bank.

Commercial bank loans grew by four per cent, or $10.5 billion, over the three-month period. The pace of expansion was higher than the average expansion of 3.4 per cent for the previous five June quarters, and in particular the 1.1 per cent growth for the three months to June 30, 2011.

Most of the increase in net lending — or how much more is lent out than is repaid — was attributed to personal loans, which grew by $9.5 billion, or 8.3 per cent.

But loans and advances extended to the business sector grew by $1 billion (0.8 per cent) for the review quarter.

The marginal increase in business loans followed two consecutive quarters of growth, averaging 5.6 per cent, but bettered net repayments of $2 billion (or a 1.6 per cent decline in business loans) for the June 2011 quarter.

Expansion in business lending was largely reflected in distribution, professional and other services, and manufacturing, which grew by 15.3 per cent, from $8.2 billion to $9.4 billion. The growth in manufacturing was largely due to growth in lending to the food and drink sector, to which loans increased from $2.7 billion to $3.5 billion.

There were net repayments from tourism, construction and land development, and agriculture and fishing.

The continued growth in commercial bank loans was supported by a trend decline in weighted average loan rates, which fell by an average of 0.34 percentage points to 17.3 per cent, reflecting a decline in all categories of loans.

Mortgage financing rates fell the sharpest. On average, the rate fell by 1.9 percentage points (from 12.2 per cent to 10.3 per cent) over the review quarter.

"The overall decline in the weighted average lending rate to the private sector largely reflected the impact of increased competition in the mortgage financing and personal loans segments of the domestic bank lending market," said the central bank in its quarterly monetary policy report.

Personal credit still had the highest average lending rate of 21.17 per cent, although it was lower than the 21.57 per cent measured by the BOJ at the end of March.

Notably, there was also a marked improvement in commercial banks' loan quality during the review quarter.

At end-June 2012, the ratio of non-performing loans to total loans was 6.7 per cent ($23 billion) relative to 8.4 per cent ($19 billion) at end-March 2012 and 7.9 per cent ($20.1 billion) at end-June 2011.





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