WITH interest rates continuing to climb in the general marketplace National Commercial Bank Jamaica Limited (NCBJ) is observing a slowdown in loan growth, particularly in the auto and home lending segments.

This was noted by NCBJ Chief Executive Officer (CEO) Bruce Bowen at NCB Financial Group Limited’s investor briefing on Friday.

“We have seen a slight reduction in mortgage bookings, slightly greater reduction in auto lending. We haven’t seen it on the unsecured consumer loans as yet, which is a little surprising, but I think the relative interest rate changes maybe haven’t been as much there. We’ve seen it on the commercial side, as that typically flows through much quicker. It’s that discipline that we’ve introduced,” Bowen explained.

Loan growth for deposit-taking institutions (DTIs) is up 6.71 per cent, since September 2023, to June 2024 when total loans were valued at $1.48 trillion. This growth is slower than the prior two years when loan growth was averaging around 12 per cent.

The slowdown in loan growth reflects the impact of higher interest rates across the marketplace and a general reduction in commerce in Jamaica. Apart from banks increasing the interest rates on existing loans, they’ve also increased the headline interest rates on new loans, which has made negatively impacted the affordability of financing.

According to Bank of Jamaica’s (BOJ) date, residential mortgages were up nine per cent from $396.63 billion in September 2023 to $433.91 billion. This is half of the average mortgage book growth of 18.14 per cent over the last two years when residential mortgages moved from $284.39 billion in September 2021 to September 2023’s figures.

Mortgage lending is likely to see further contractions in the coming months, based on different banks raising their lending rates on new mortgages. CIBC Jamaica and Bank of Nova Scotia Jamaica Limited (BNSJ) have the lowest mortgage rates among DTIs — under nine per cent — while most other DTIs hover around double-digit territory.

NCBJ raised its lending rates on new loans earlier this month while BNSJ raised its headline rates in March. The move by Jamaica’s two largest DTIs to increase interest rates has seen several others adjust their rates so they’re not too far out of range with the largest players.

“The other thing we’ve found is that the market has generally followed as we’ve done that. We saw some information earlier this week that was confirming, if you back out the interest rates that our new loans are going on out of the market data, it shows that the other banks in the market on average are similarly moving rates. That being said, it’s then what you would expect in economics — that as the price goes up, demand is going to reduce,” Bowen added on the impact of NCBJ adjusting its own rates.

BOJ’s data do not have a specific disaggregation for auto loans but the transport, storage, and communication segment is down in 2024 while the individual term loans continue to trend up and stood at $126.28 billion as of June 2024.

Listed company Jetcon Corporation Limited, a firm which specialises in used vehicles, has bemoaned the rise in interest rates, which it has described as leading to stagnation in used car sales. Used cars tend to carry higher interest rates and shorter loan terms than new cars. Even some banks have been doing loan promotions, with certain auto dealers recently advertising five per cent interest rate until 2025.

There has also been an uptick in past due loans, ranging from one to three months, which has increased by 17 per cent from $38.08 billion in September 2023 to $44.41 billion in June 2024. This represents three per cent of DTI loans.

Non-performing loans (NPLs) has also been trending upwards and currently stands at $35.61 billion as of June 2024. This figure hasn’t swung in wide ranges over the observed period since banks can write-off these loans from their books.

“There isn’t anything I’m concerned with in the trending. The loan loss provisions in the retail book are very reflective of the growth in that loan portfolio, which has been very focused on the consumer lending side as opposed to auto or mortgage lending in particular. There has been a specific transaction that has been in our loan net for several years as being non-performing. We’re just in the process of wrapping up the disposal of the underlying asset there,, and that is the most significant transaction impacting that number. That isn’t expected to reoccur. Looking forward, I don’t have any concern that number is going to be moving substantially higher. I think we’ve got the loan book under control,” Bowen added on NPLs for NCBJ.

NCBFG noted in its third-quarter report that its consolidated NPL’s were up 11 per cent year over year to $27.2 billion. However, NCBFG’s numbers account for subsidiaries in other jurisdictions and do not reflect NCBJ’s Jamaican loans.

NCBJ’s loan book was $476.28 billion in March 2024 or about 75 per cent of NCBFG’s total loan book at the time. NCBJ is Jamaica’s largest commercial bank. BOJ should be publishing the assets and liabilities of the different deposit-taking institutions (DTIs) later this month. This willl be about the same time its monetary policy announcement should be published, on August 20.