Cornerstone Trust and Merchant Bank Limited (CTMB) has become the latest deposit-taking institution (DTI) to hike its interest rates on variable interest rate loans which will increase by 1.50 per cent effective September 1.

CTMB is the sole merchant bank in Jamaica and has a loan portfolio of $3.72 billion as of March which is split $1.61 billion for personal loans and $2.11 billion for business and government. Its balance sheet stood at $6.99 billion in total assets and $2.74 billion in customer deposits as of September 2021 when it had $2.72 billion in loans. CTMB is a wholly owned subsidiary of Cornerstone United Holdings Jamaica Limited which is led by president and Chief Executive Officer Paul Simpson.

“Like all other deposit-taking institutions, our cost of funding has been rising in direct response to the five percentage point increase in the Bank of Jamaica’s (BOJ’s) policy interest rate in recent months. Regrettably, we have no choice but to pass on a portion of the increased costs of funding to you, our valued clients,” said the notice signed by head of sales and service Carlton Stewart.

CTMB earned $155.66 million in interest income on loans and bank deposits with the remainder of its $302.67 million in interest income coming from finance leases, investments and resale agreements. CTMB’s net profit shrunk 91 per cent to $4.09 million in 2021 due to larger non-interest expenses.

Apart from the foreign owned Bank of Nova Scotia Jamaica Limited, First Caribbean International Bank (Jamaica) Limited and Citibank NA — Jamaica, every other BOJ licensed DTI has increased their interest rates on variable rate loans in the last three months. JN Bank and Sagicor Bank Jamaica both hiked rates in June, the Victoria Mutual Building Society and First Global Bank (FGB) and National Commercial Bank Jamaica (NCBJ) in July and JMMB Bank (Jamaica) on August 1. Most banks have set a maximum rate hike of up to 1.50 percentage points on variable rate loans held by its customers with NCBJ specifically raising rates on its personal and small and medium enterprise (SME) customers by an average of 1.14 percentage points. All of the banks have cited the BOJ’s policy rate which has increased from 0.50 per cent in September 2021 to 5.50 per cent in June.

The BOJ’s next policy rate decision will be on August 18 to determine. The rate hikes are keenly watched as the central bank attempts to deal with runaway inflation that has been exceeding its desired four to six per cent band since late 2011. Point-to-point inflation was 10.9 per cent in May and June with the next consumer price index (CPI) update set to be made public on August 15 by the Statistical Institute of Jamaica. The BOJ mentioned in its recent monetary policy committee release that core inflation remained at 9.7 per cent in May and that it wanted to see a definitive fall in commodity prices consistent with global forecasts plus a reduction in core inflation before it moderates its tight monetary policy stance.

With First Global Bank (FGB) raising the interest rate on its variable debt by as much as one percentage point in July, FosRich Company Limited more than likely will be paying more interest on its FGB loans which range from seven to 8.50 per cent in variable interest rates. FosRich owed $387.87 million at the end of 2021 spread across seven loans with the commercial bank.

The Federal Reserve — the US central bank — hiked its fund rate by 75 basis points (0.75 percentage point) on July 27 to 2.25 to 2.50 per cent after the United States saw point-to-point inflation hit 9.1 per cent for June, a four-decade high. Many Wall Street analysts expected the Fed to hike its rate to 3.25 per cent to 3.75 per cent by the end of 2022, but the Jerome Powell-led central bank has three more meetings to decide its next course of action, including its September 20 to 21 meetings. The United States Bureau of Labor Statistics will release CPI data on August 10 and September 13 for the months of July and August.