Jamaica’s lending institutions are forecasting an increase in the demand for loans during the March and June quarters of 2021, evidenced by the results of the latest Quarterly Credit Conditions Survey (QCCS) undertaken by the Bank of Jamaica (BOJ).

The results of the December 2020 survey, which was conducted between January 14 and February 11, 2021, indicated that lenders are expecting an uptick in loan demand during these two quarters. The QCCS is conducted online on a quarterly basis among commercial banks, building societies, merchant banks, credit unions and development banks.

It is designed to elicit qualitative information on changes in the demand and supply of credit to various types of businesses as well as individuals. The December QCCS showed growth in credit demand, as measured by the Credit Demand Index (CDI), where a measurement of less than 100 indicates a decline in the particular variable, whereas an index greater than 100 indicates an increase in the variable in question.

The CDI increased to 104.2 for the December 2020 quarter. The increase in credit demand reflected a significant increase in demand for personal loan, while demand by businesses declined.

Increased borrowing for refinancing and debt consolidation

The increased demand by households mainly reflected increased borrowing for refinancing and debt consolidation. The acceleration in the growth in credit demand by individuals in the review quarter was reflected in an increase in the growth in demand for all categories of personal lending, in particular mortgages, credit card, other unsecured personal loans and motor vehicle loans.

Increased demand for the March 2021quarter is expected to reflect higher demand for individual credit while demand by businesses is expected to contract particularly small and large-sized businesses. Respondents indicated that this reflected borrowers’ reluctance to incurring additional debt as the economic recovery appears to be slower than previously envisioned.

For the June 2021 quarter however, increased demand is expected for both individual and business loans.

Price of Credit

Based on the survey responses, average indicative interest rates on new local currency loans declined by approximately 111 basis points (bps) to 12.03 per cent during the review quarter, relative to the previous quarter. This reflected a decline of 127 bps in rates for business loans, while there was a decline of 46 bps in the rates for personal loans.

Lower rates were seen across all business sizes primarily reflected in loans to micro and small-sized firms. Some respondents indicated that they were able to offer significantly lower rates given their partnership with public lending entities.

The interest rates on new foreign currency loans also declined, 19 bps slower relative to the previous quarter, bringing average indicative rates to 7.67 per cent. This reflected lower rates to micro, small and medium-sized businesses.

For the March 2021 quarter, lenders reported that they plan to increase interest rates on new local currency loans by 247 bps to 14.50 per cent and further increase rates by 10 bps to 14.60 per cent for the June 2021 quarter.

The increased rates for the March 2021 quarter relative to the review period are expected to be applied to Mining & Quarrying, Manufacturing, Transport Storage & Communication, Tourism and Electricity & Water industries.

For foreign currency loans, respondents indicated their intention to increase loan rates in the March 2021 quarter by 38 bps to 7.85 per cent but reduce rates by 4 bps to 7.81 per cent June 2021 quarter. The increase is expected to affect mainly small, medium and large-sized businesses.