Credit demand strengthened mid-year from both personal and business sectors, with demand for personal loans surging to the highest level since the start of the Bank of Jamaica’s (BOJ ) Quarterly Credit Conditions Survey two years ago, the central bank indicates.

The results of the survey for the June 2016 quarter, which were released on Monday, indicate a stronger than anticipated increase in the demand for loans during the quarter, the BOJ said in its Quarterly Monetary Policy Report where survey results were discussed.

The upsurge in the index from 106.3 to 111.8 reflected stronger demand for both business and personal loans denominated in local currency.

“Of note, credit demand for personal loans surged to the highest since the start of the survey. This uptick mainly reflected increased demand for unsecured personal loans, motor vehicles and mortgages,” the BOJ said.

The BOJ suggested the increase was influenced by the increase in the income tax threshold in the September quarter, as people were more able to satisfy debt obligations given the expectation of higher income.

At the same time, lenders reported continued easing in credit market conditions with an increase in the maximum debt service ratio and maximum credit lines, as well as a reduction in the fees applicable to unsecured loans.

In the September quarter, growth in the stock of private sector credit was 14.3 per cent, significantly stronger than the expansion of 7.8 per cent a year earlier.

Borrowings were $25.49 billion, compared to $10.7 billion the year before. Indeed, there was a relatively sharper pace of increase in lending to households compared to businesses, the central bank reports.

A growth in personal lending was mainly reflected in increases in mortgage loans and instalment credit, while increases in business lending continued to be directed to the tourism, electricity gas and water, as well as professional and other services sectors.

In contrast, there was a moderation in the demand for foreign currency loans, which continued to reflect the impact of the exchange rate costs on such loans.

In terms of the factors supporting credit demand to June, lenders cited increased business activities, loan promotional activities, as well as a reduction in interest rates as important factors.

It was also reported that due to a more stable economic environment, macroeconomic risks and changes in government policies were no longer important factors affecting loan demand.

Average interest rates on local currency loans decreased for the June 2016 quarter relative to the March 2016 quarter, especially in business loans which were associated with a reduction in the interest margins on loans to large and medium-sized firms.

To a lesser extent, the BOJ observed, the lower price of credit was due to a slight reduction in the interest rates on unsecured personal loans — more specifically for credit cards.

The average interest rate on local currency loans fell by 0.3 percentage points (pp) to 16.7 per cent for the June 2016 quarter. Rates on local currency business loans declined by 0.4 pp to 14.9 per cent, while the average rate on personal loans increased to 18.4 per cent from 18.2 per cent during the review quarter.

With respect to interest rates on foreign currency loans, the survey results indicated an overall increase in the price of credit by 0.6 pp to 9.3 per cent.

The BOJ said that for the September 2016 quarter, it expected a further expansion in the demand for credit.