MORE Jamaicans are falling behind on their regular monthly loan payments, but the situation is not at this time causing a worry for either the lending institutions or the central bank.

The data were captured in the figures for past due loans — which are loans that have not been paid from anywhere between 30 days up to 89 days.

“The stock of these loans on the balance sheet of the deposit-taking institutions grew by 32.1 per cent to $42.9 billion at March 2024 from $32.5 billion at March 2023,” the central bank said in response to queries from the Jamaica Observer. Further data show past due loans rose again to $50.1 billion by the end of April before declining to $41 billion at the end of May.

But the Bank of Jamaica (BOJ) said the increase in past due loans must be looked at in the context of the growth in the overall loan book of the nation’s eight commercial banks and one merchant bank. From that perspective, the ratio of past due loans to total loans were up “marginally to 2.96 per cent at March 2024”, the central bank pointed out.

Actors in the nation’s banking sector said the growth in past due loans has been kept under control by financial institutions keeping on top of those whose loans remain unpaid, using e-mail and phone calls to give follow-up reminders within a few days after the loan is past due.

“We have an active team that follows up to avoid these loans reaching the state where they are moved up in the classification from being past due loans to being non-performing loans,” one senior manager in the financial sector said, but asked not to be identified for this article. A past due loan gets qualified as a non-performing loan when it is unpaid for at least 90 days.

The senior financier said “migration and unexpected expenses” are amongst the top two reasons why people are late to pay their loans each month. Still it was noted that the introduction of credit bureaus in Jamaica has also helped, with people mindful of the harm non-payment can cause to their credit history, and the impact that can have on future loan requests also playing a role in modifying behaviour.

Another banker, however, said members of the sector are bracing to see an increase in past due loans for July, with the late payments linked to households redirecting spending to help recover from Hurricane Beryl. Individual/households account for 62 per cent of past due loans in the financial sector. At least one bank said considerations are already in train for some payment relief, but added that the details are yet to be worked out and will depend on the level of increase in past due loans going into August.

Also giving banks headache are people who migrate each year, and turn to banks to borrow money they have no intention of repaying. The senior banker, who spoke with the
Business Observer for this story, said at least one group of migrants is culpable more than another, but declined to name the group. Overall, migrants, listed as overseas residents, were late on payments totalling $6.8 billion in March. That’s about 15.8 per cent of the total for that month. Later data show it has since increased to $10.2 billion in May or about 25 per cent of all repayments that are past due.

Still, these sums owing are not yet a worry for the sector. The central bank said the “system is adequately provisioned”. Its own data show $40 billion has been set aside to deal with losses, a figure that was 20 per cent higher than the total non-performing loans in the BOJ supervised financial system. For its part, non-performing loans only accounted for 2.3 per cent of all loans in March. The central bank, pointing this out, said with non-performing loans being below the 10 per cent threshold, it doesn’t “warrant heightened supervisory concerns”.

What, however, is posing a risk to financial institutions and credit portfolios is the heightened interest rates that are a response to higher than targeted inflation for most of the last three years. And though the BOJ said financial institutions have been recording fair value losses on their balance sheets with relatively high interest rates impacting their assets, particularly bonds and equities, it said those losses have been declined, as entities adjust their portfolios as interest rates stay higher for longer.

“Specifically, fair value losses for deposit-taking institutions have fallen from $9 billion at end March 2023 to $7.8 billion at end March 2024. For securities dealers, the 10 largest securities dealers, fair value losses have fallen from $15.4 billion at end-March 2023 to $13.1 billion at end-March 2024,” it said in responses to Business Observer queries.

Overall though, it noted that inflation has generally settled within the BOJ’s target range over the three months preceding June 2024 but the risks to inflation in the future are now skewed to the upside, particularly in the short term. The Monetary Policy Committee of the bank also initiated a programme of monetary loosening but it noted that future monetary policy decisions will continue to depend on incoming data. Based on the foregoing, DTIs and securities dealers were subjected to market-based and credit-related stress tests. The results showed that the financial system remained largely resilient to these macrofinancial shocks.

The bank will remain vigilant in monitoring and stress testing the credit and investment portfolios of DTIs and securities dealers to ensure that the levels of liquidity and capital are sufficient in the current environment.