Low take-up closes US$300-m IDB liquidity support

BY JULIAN RICHARDSON Assistant business co-ordinator richardsonj@jamaicaobserver.com

Wednesday, February 03, 2010

ONEROUS pricing and limited fund use may have led to limited take-up of the US$300-million liquidity support programme provided by the Inter-American Development Bank (IDB) and caused the programme to automatically close out last month, with less than one-third of the facility taken up.

The programme was launched by Government last year to provide the financial sector with liquidity -- through the Development Bank of Jamaica -- to regulated financial institutions that have to deal with limited access to foreign lines of credit and interbank credit, so that they can also provide lines of credit for international trade to exporters and to producers of the domestic market.

Under the agreement signed on January 19, 2009, the disbursement period was supposed to be 12 months from the date of the signature of the loan.

The Ministry of Finance did not immediately respond to the Business Observer for comment, but Marjorie Seeberan, National Commercial Bank (NCB) general manager for corporate banking, suggested that some of the issues that could have contributed to the level of take-up at the outset included limitations of fund use and onerous pricing.

"The only eligible purpose was working capital use, mainly consumables. Infrastructural and other capital investment were not included," Seeberan told the Business Observer in response to queries. "The Government and foreign-owned companies were not eligible so this limited the number of borrowers; and for small borrowers, the pricing was onerous."

According to Seeberan, "There was a one per cent front-end fee to the IDB."

"That plus bank commitment fees and a 75 basis points non-utilisation fee impaired flexibility to revolve the loan in order to minimise total interest cost to borrowers," she added.

Scotiabank's vice-president of treasury, Hugh Miller, concurred with Seeberan that the conditions of the agreement were "fairly onerous" and also suggested that this may have played a role in the low overall take-up of the funds. But in reference to Scotia specifically, he indicated that the firm didn't have a need to source from the facility.

"Based on the demand in our pipeline we decide to lend from our own resources first before tapping into this facility -- as long as the customers would not be any worse off," explained Miller.

Seeberan, however, said that in the middle of 2009 "...there was subsequent relaxation of the criteria (of the facility) to include, for example, government borrowings limited to 30 per cent of loans booked and without support of GOJ guarantees, expansion of the purpose to include general business expenditure and ownership relaxed to include foreign-owned entities registered and doing business in Jamaica."

These revisions, she said, had started to add momentum to the programme when the IDB window was closed.

The one-year timeline would have been automatically extended to 18 months if 50 per cent of the proceeds of the financing was disbursed during the first 12 months of execution.

However, according to the IDB website, the programme only disbursed US$98 million out of the US$300 million within the 12-month timeline.