Banks are not the only lenders in town say business stakeholders who urge investors to seek lower cost funds via the equity and capital markets, which in turn can grow the economy.

Interest rates from capital markets can be half that of bank lending rates whilst raising equity bears no interest, argued Christopher Williams CEO of Proven Management Limited (PML) and Christopher Berry chairman of Mayberry Investments during the Observer Monday Exchange at the newspaper’s head offices in Kingston which focused on interest rates and revaluation.

“If you are an aggressive businessman and want to expand go to equity. If the bank says 20 per cent then go for equity it will be interest free,” asserted Berry.

Both these institutions compete against the banks for various forms of lending or investment; and the slower the banks reduce rates, the more attractive the alternative sources of financing become, reasoned Williams.

“I want the commercial banks to stay where they are because it makes my job much easier,” quipped Williams. “We are a big proponent of the capital markets in order to finance outside of the commercial banks.”

Average Treasury bill rates dropped to 9.26 per cent last week, the lowest point in some 28 years but rates remain higher than regional neighbours.

“Our macro-economic pie is already cooked. Trinidad, Guyana and Barbados — they don’t have the debt loads that we do,” said Berry before explaining why Jamaica’s rates are structurally higher than regional partners. “How it works is that the country has a balance sheet and based on that balance sheet it gives you a rating and based on that that determines your international rates and then your Jamaican rates are pegged on the international rates. So if you have a lot of debt your rates are higher because the market sees you as more risky so those (other) countries have lower debt and their economies have been growing at higher rates. So (comparatively) lower rates are off the table for Jamaica. We have to work our way towards that.”

Commercial bank lending rates still remain in double digits despite Jamaica attaining single digit treasury bill rates, which worries Omar Azan president of the Jamaica Manufacturers Association (JMA).

“I would like to see single digit,” said Azan told Monday Exchange. “It is not where we want it to be, but it is better.”

A number of firms have raised equity over the last nine-months including Jamaica Teas which raised over $180 million this month, Proven, which raised US$20 million ($1.7 billion) in January, Barita Investments which raised over $430 million last year and Access Financial which raised some $100 million last year. In May, Proven announced that it begun securing structured financing to businesses including Michael Ammar Jr which operates the retail chain Ammars. More listings are also slated this year on the junior arm of the Jamaica Stock Exchange, which will raise further capital for firms that want to expand. Latest Bank of Jamaica data indicates that the commercial bank loans and advances have actually declined year on year by 0.8 per cent to $256.9 billion by March 2010. It indicates that banks have become more selective in offering loans following the rise in non-performing loans (NPLs) across the financial sector which jumped 78 per cent over 12 months to $19.4 billion to March 2010 according to BOJ. The increase in these loans which are unserviced for three-months was-up to March-equal to investments in failed FX trading firm Olint, which was partially blamed for the NPL rise, previously by analysts.

Karen Fitz-Ritson director of Fitz-Ritson & Associates also a Monday Exchange guest said that banks are constrained in part from lowering rates due to “their cost of funds” secured at higher interest rates.

The banks, however, are not static according to Wisynco Group Managing Director, William Mahfood who added that banks are currently courting large businesses with strong balance sheets in order to offer loans as a strategy to rebalance declining interest income following the Jamaica Debt Exchange earlier this year. He said that large “blue chip” institutions have been able to source funds under 14 per cent, some two percentage points below the stated rates. The Observer invited the two largest banks for the Monday Exchange however representatives from both the Scotia Bank of Jamaica and the National Commercial Bank of Jamaica were unavoidably absent.

Finally, Berry acknowledged that lower interest rates “are positive for everybody. And (that) in the medium to long term it should spur economic activity”.