THE Bank of Jamaica (BOJ) is not expected to change its key policy rate when the decision of its monetary policy committee (MPC) is announced later today, but consumers are already feeling the pinch with interest rate hikes on loan products — from mortgages to car loans — squeezing disposable income ravaged by inflation.

Earlier this year, National Commercial Bank Jamaica Limited (NCBJ) advertised 8.50 per cent as the headline interest rate for residential mortgages with new motor vehicles being advertised at 6.85 per cent in May 2022. However, a check on their website now reveals 9.15 per cent as new headline interest rate for mortgages and 10.35 per cent for motor vehicles.

Even the Bank of Nova Scotia Jamaica Limited (BNSJ), which had 6.99 per cent for mortgages and 7.00 per cent for new motor vehicles in June 2022, has increased rates to 8.49 per cent and 8.75 per cent, respectively. NCBJ and BNSJ control 38 per cent and 20 per cent of the $1.148 trillion in commercial bank loans and advances up to March 2023.

“A survey of selected commercial banks for May 2023 indicated that there were marginal changes in interest rates on new bank loans in Jamaica but no increase in deposit rates. All institutions surveyed maintained interest rates on outstanding and new deposit balances, and some increased rates on new secured loans,” said the BOJ’s June 2023 monetary policy committee minutes.

The minutes also stated, “Notwithstanding the slow response of savings and lending rates to the Bank’s monetary policy signals, respondents to the Bank’s quarterly credit conditions survey indicated that banks had tightened overall credit terms for the March 2023 quarter. Credit terms were expected to tighten further for the June 2023 and September 2023 quarters.”

Nearly every deposit-taking institution (DTI) has reported an increase on interest rates on existing variable rate loans since the BOJ began increasing its policy rate in September 2021. At the start of July NCBJ, JN Bank Limited and Sagicor Bank Limited recently increasing mortgages rates on existing customers.

The rise in rates has come at the expense of the average consumer as one person told the Jamaica Observer a DTI issued them a 10.75 per cent mortgage recently. The average mortgage credit among commercial banks hit a historic low of 6.94 per cent in April 2022 before it crept back up to 7.19 per cent at the end of June.

The loan book of commercial banks has increased over the last year by 14 per cent from $1.05 trillion to $1.20 trillion.

These rate hikes on existing loans have pushed many consumers to consider switching mortgage providers or sell the asset due to the significant increase in the monthly financing cost. One Twitter user mentioned how the hikes by her commercial bank over the last year on her mortgage has translated to an extra $17,000 payable monthly, while another user referenced how they’re paying an extra $50,000 monthly now.

Even listed used-car company Jetcon Corporation in its latest quarterly report referenced the decline in sales to higher interest rates and stated, “This was mostly due to increased rates by the Bank of Jamaica which also saw lenders preferring to invest available funds with the Bank of Jamaica rather than lending to those wishing to purchase vehicles.”

Other listed companies on the JSE have noted a rise in their financing costs due to sourcing debt at a higher interest rate in the current environment.

“I’d say the broad context in which we set rates is heavily influenced by the BOJ policy rate. We do believe that at 7 per cent, they’re pretty close to terminal rate give or take maybe another 25 basis points. We would have already done a set of increases in respect of new facilities and those new facilities reflect increased interest rates. In terms of going forward, outside of the context that I just mentioned and if that holds, we don’t expect any significant further pass through in interest rates,” said NCBJ Chief Executive Officer Septimus Blake at a recent investor briefing.

While the BOJ noted no change in interest rates by DTIs in the May survey, different commercial banks have begun to adjust rates and bands on savings accounts and other products. NCBJ increased the rates on its regular savings account by 50 basis points (0.50 per cent) on February 1, while BNSJ saw the effective interest rate on its primary savings account rise by 100 basis points on February 1. Even Sagicor Bank increased the interest rates on its savings accounts between 45-100 basis points on savings accounts on January 26. JN Bank Limited’s rates remain unchanged on a comparative basis for savings accounts listed on their website.

However, JMMB Bank (Jamaica) Limited has sought to significantly increase its deposits following its May 1 adjustment of interest rates on its deposit products. JMMB used to offer five bands for its bonus saver account ranging from 0.75 per cent to 1.50 per cent. There are now 11 bands ranging from 1.00 per cent to 5.00 per cent which is the highest in the sector and is almost comparable to repurchase agreements offered by different securities dealers. The weighted average savings deposit rate by commercial banks moved from 0.08 per cent to 0.11 per cent over a year up to May 2023.

Prior to the COVID-19 pandemic, Jamaica’s economy saw a significant growth in commercial bank lending with loans growing by 18 per cent to $842.65 billion in 2019. This was accompanied with the BOJ cutting its policy rate from 1.75 per cent to 0.50 per cent. The weighted average lending rate also came down from 13.46 per cent to 12.47 per cent.

Higher interest rates has resulted in securities dealers like Mayberry Investments Limited posting two consecutive quarters of consolidated net interest expense with VM Investments Limited reporting a net interest expense in its second quarter. Even Barita Investments Limited reported a sharp 83 per cent cut in net interest income from $359.85 million to $62.33 million for its third quarter.

Scotia Group Limited’s interest income from its larger loan book has grown at a faster pace than the increased interest expense in its most recent quarterly report. However, this wasn’t the same experience for JMMB Group Limited whose net interest income fell 28 per cent to $2.10 billion as interest expense grew a faster rate of 57 per cent.

“From a macroeconomic perspective, we’re now at the top of the cycle. What we expect over this year is we will see some monetary easing. We already see it in DR [Dominican Republic] and we expect that as the central bank in Jamaica has indicated, that they’re on hold and towards to the mid to end of the year, I think they’re projecting towards the end of the year where they will begin reduce interest rates. What happens when they begin to reduce interest rates is the very opposite of what occurs when interest rates rise. Therefore, your margins start to improve, the opportunities for trading begin to improve and the whole market environment is a lot more favourable to our growth strategies,” said JMMB Group CEO Keith Duncan at a recent investor briefing.