IN a move meant to reaffirm itself as market leader, Bank of Nova Scotia Jamaica yesterday announced a two percentage point cut in its base lending rate, and rolled out a new billion-dollar loan fund for small and medium-sized businesses at a rate so low, it competes directly with the island’s development bank.

BNS’ new Scotia Jamaica Production Fund will lend a maximum $22.5 million at a fixed 9.5 per cent, but only to companies that are export-oriented and already in business, but need financing to sustain their operations or expand.

The minimum loan is $7.5 million.

In an indication of some level of confidence in the local economy, BNS Managing Director Bill Clarke said the fund was “a tangible contribution” to the country’s growth and development.

The loan is for seven years with a two-year moratorium on the principal, and at a rate that is only 50 basis points, or half a percentage point above the lowest rate offered by the Development Bank of Jamaica, a conduit for cheap funds.

DBJ disburses its loans through the commercial, merchant and PC banks, but even with the average three per cent spread they add, end users access the funds at nine per cent (for citrus producers) to 13 per cent, according to Neville Lindo, director of projects.

The BNS fund offers “affordable financing”, and approval is granted within a maximum 10 working days of applying.

“Scotiabank has consistently provided strong leadership in the financial sector and this initiative is another indication of the unreserved commitment to Jamaica,” said Clarke. “Our objectives are to create new jobs, encourage sustainable growth, build capacity and increase production.”

Private Sector Organisation of Jamaica president, Beverley Lopez, said in approval that the fund answers a call from businesses for single digit lending rates.

“This really is a welcome situation,” said Lopez, adding that it was the cheapest rate now in the commercial banking sector.

The fund targets largely manufacturing and agriculture, but other sectors will not be excluded if they satisfy the criteria of exporter and job creation.

Start-up businesses and individuals need not apply, neither is the bank prepared to use the fund as a window to refinance nor consolidate existing debt, nor finance luxury vehicle purchases, said Clarke.

Companies and their subsidiaries that were beneficiaries of Scotiabank’s Economic Growth Fund of 1998/99 are also excluded.

Compared to the production fund, the bank’s base lending rate is more than double at 22.75 per cent. The new rate of 20.75 per cent announced by Clarke, takes effect Saturday, May 1.

BNS’ mortgage rates will not be affected by the base cut, remaining steady at 13.375 per cent, but retail or consumer loans will also be cut by one percentage point, according to Clarke.

The move to crop rates follows criticism that the banks have been non-responsive to the lead taken by the finance ministry and the central bank to push interest rates down.

But Clarke yesterday, having accused the central bank of “aberrant” behaviour when it spiked interest rates to just under 36 per cent a year ago, insisted that his bank acts on market forces only, and on that basis there could be no one-on-one relationship in the adjustment of lending rates and interest rates.

The reduction now is based on Scotiabank’s “assessment of current economic conditions”, the banker said, having suggested that the bank was now satisfied that the economic fundamentals were in place to sustain the rate cut.

Subscribers to the $1-billion fund will face the same rigorous risk assessment as other loan purchasers, and it is a ‘condition precedent’, said Clarke, who added that successful applicants do all their banking with Scotiabank.

Lopez said the latter requirement could well see other lenders moving to reduce rates, if existing clients take up BNS’ offer and shift their business in the process.

Borrowers are also required to be tax compliant, and current in their statutory payments, property taxes and annual returns. BNS also wants to see a business plan, cash flow projections, audited financials, proof that the venture is viable, and be satisfied that the company has competent managers and a proven track record.

The bank will count, as equity, buildings, plant and equipment owned by the company, in satisfaction of a 25 per cent minimum equity injection that the borrower must make in the venture.