Business
Republic Bank slashes lending rates
By Curtis Rampersad
Friday, July 03, 2009
Commercial and corporate bank customers have been given a huge break on borrowing costs.
In what is described as an "unprecedented" move, Trinidad &Tobago's Republic Bank Ltd announced a decision to slash its prime lending rate by 125 basis points to 11 per cent.
The prime lending rate has come down to 12.5 per cent at most commercial banks while mortgage rates have fallen to about 9.5 per cent and credit card interest rates have dropped one per cent to 24 per cent a year.
The latest decrease in the prime lending rate by Republic Bank comes amid a slowing in domestic economic activity as fewer Trinidadians and Tobagonians are borrowing money from the banks for cars, homes or vacations.
It has led to a massive build-up of excess liquidity amounting to several billion dollars in the local financial system.
Last Friday, the Central Bank announced a reduction in its Repo or overnight lending rate to banks from eight per cent to 7.5 per cent in what was regarded as a signal to commercial bank to lower rates in a move to stimulate activity. Simultaneously, the Bank also announced a reduction in the rate of inflation to 10.3 per cent in May from 11.9 per cent a month earlier.
Republic Bank's managing director David Dulal-Whiteway said in a statement the decision was in keeping with the bank's commitment to stimulate economic activity in the financial system.
He recalled that following the Central Bank's previous Repo reduction in April, Republic had dropped its prime lending rate by half a per cent.
He said the bank expected further reductions in the Repo in the coming months and in anticipation, "took the decision to immediately offer the benefit to customers", by making this "unparalleled" reduction by 1.25 per cent and not by the corresponding reduction in Repo.
He stressed this was being undertaken in anticipation of further Repo declines and it was unlikely that future actual changes in Repo would result in any further reductions in the prime lending rate by Republic Bank.
What it means is that the reduction in prime will substantially reduce the cost of borrowing to businesses whose loans are tied the prime lending rate, Dulal-Whiteway said, adding that it would ultimately reduce the cost of goods and services they provide to the national community.
Customers seeking loans and mortgages to purchase property will also benefit from the prime reduction as the bank is also making reductions in these, as well as retail rates, thereby making loans more affordable.
Conscious of the subdued economic activity over the last eight months, Dulal-Whiteway said that Republic Bank's first responsibility was to its customers in good times as well as challenging times.
Banking sources said it was likely other commercial banks would also reduce their prime lending rates but could not say if the cuts would be as immediately steep as the one implemented by Republic Bank.
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