Back-to-school loans expected to push up rates
INTEREST rates on personal loans are expected to rise in the September quarter to 20.3 per cent or the highest levels for the year based in part on demand for back-to-school loans, reasoned the Bank of Jamaica (BOJ) Quarterly Credit Conditions Survey Report.
“For the September 2015 quarter, credit demand is anticipated to increase in all loan categories excluding mortgages. In particular, there is expected to be strong demand for motor vehicle loans and other secured loans. They highlighted that the demand for other secured loans could be influenced by the need to finance educational expenses for the start of the new school year,” stated the report.
The expected rate equates to a 134 basis point rise from the 18.96 per cent in the June 2015 quarter. The interest rates on personal loans are expected to rise at a faster rate than loans given to large businesses, but slower than the micro businesses. Specifically, micro business loans are forecast to see a rise in interest rates by 183 basis points to 23.88 per cent in the September quarter.
For medium-sized businesses interest rates for the September 2015 quarter are expected to increase further by 70 basis points to average 13.80 per cent.
“This increase reflects higher anticipated lending rates on local currency loans to most economic sectors, particularly manufacturing,” stated the report. Large businesses are expected to see a rise in interest rates on local currency loans to average 11.34 per cent for the September 2015 quarter.
Overall the demand for credit continues to rise for both households and businesses.
“It is anticipated that this uptick will emanate from both households’ and businesses’ demand for local currency credit. More specifically, the demand for local currency business loans is expected to emanate from all sectors. For personal loans, creditors anticipate an increase in all loan categories with the exception of mortgages. In particular, strong demand is expected for personal motor vehicle loans and other secured loans as a result of improved lending terms associated with the approval of these loans.”
The demand is forecast to reach 107.4 points in the September quarter up from 104 points in the June quarter and 106.2 in the March quarter, according to the credit demand index found within the report.
Last January, the BOJ introduced its Credit Conditions Survey to the main lenders in the domestic credit market. The survey aims to increase knowledge of trends in the domestic credit market.
