First Global Bank (FGB), a subsidiary of GraceKennedy has announced the reduction in its base lending rates by 200 bases points, or two per cent.

On Wednesday, the Bank stated that it reduced its rates effective September 1, 2010, from 20.75 per cent to 18.75 per cent per annum.

“The change, which becomes effective September 1, 2010, will benefit customers with loans that are linked to the base rate,” First Global outlined in a written statement.

The base lending rate is a base interest rate calculated by financial institutions according to a formula which takes into account the institution’s cost of funds and other administrative costs. It informs the rate at which other loan rates are calculated. A reduced base rate should mean lower rates for customers holding variable rate loans.

“The decision was made in response to a reduction in market interest rates and FGB’s commitment to provide our customers with affordable solutions to meet their personal and financial goals, while stimulating the economy,” president of FGB, Maureen Hayden-Cater said.

The rate reduction comes as major banks such as National Commercial Bank (NCB) and Scotiabank also reduced interest rates within the last three months. On June 1,2010 Scotiabank reduced its rates by 200 basis points to 17.75 per cent, while NCB reduced its rate by 300 bases points to 17.75 per cent in August this year. Both cited the very competitive market for loans as one reason for the reduction in lending rates.

Following the Jamaica Debt Exchange (JDX) which effectively reduced the interest earned on Government of Jamaica securities, and signalled a gradual reduction in lending rates, financial institutions have had to adjust to the new operating environment in which lower interest rates means lower returns both from net interest income and interest bearing instruments. Many have had to bolster their earnings with income from other sources including loans, fees and commissions.