National Commercial Bank (NCB) will reduce base lending rates next week, against the backrgound of an increasingly competitive market for loan income.

Patrick Hylton, NCB Group managing director made the disclosure at the firm’s investor and quarterly press briefing, held at the NCB Wellness and Recreation Centre on Phoenix Avenue in Kingston on Friday.

Effective August 1, NCB will reduce its base lending rates by 300 bases points or three per cent, from 20.75 per cent, to 17.75 per cent Hylton said, to benefit investors whose loans are tied to base rates. There will also be a reduction of one per cent or 100-150 bases points for other loans not tied to the base rate.

“We compete very aggressively. There is very limited appetite in the market for loans. The banks outside compete aggressively on a daily basis and one of the main basis on which we compete is the interest rate which we offer,” Hylton said.

Hylton also said the bank would be adding value to customers through product innovation and superior service. Consequently, NCB will launch by early September, a new unit for medium sized businesses.

“We have embarked on a programme to establish a middle market unit which is a derivative of our small and medium enterprises unit. This unit will be focused on the larger tier of the SMEs, in other words the more middle market type of institutions,” Hylton outlined.

He said by virtue of size and relative success, these businesses deserve special attention.

In response to further questions regarding the sluggish reduction in interest rates following the Jamaica Debt Exchange (JDX) which saw the government reduce its own exposure to high rates with a debt swap, Hylton said that the JDX framework was specific to the GOJ and those who held government paper and so could not be applied wholesale to the financial sector. He said members have made an effort to reduce interest rates in general, and make special rates available to certain types of borrowers. He added that post-JDX, interest rates will come down, but that there are structural issues that will affect the pace at which they do so.

“One issue for example is the pace at which investors and depositors are willing to take a lower rate of interest for their own funds,” said Hylton. “The fact of the matter is that we operate in an environment where we have high costs. We have high cost of security, high cost of transportation, high cost of energy… other structural issues will need to be addressed. My own view is that at the end of the day the market will determine what is the appropriate rate for loans and if there is an institution that is not pricing in accordance with the market, the market will punish them,” Hylton said.

In the meantime, NCB will contact customers who qualify for the base rate reduction.