Demand pushes loan rates higher
Local businesses are moving away from foreign currency borrowing, new central bank data show.
With the exception of agricultural and fisheries, the Bank of Jamaica (BOJ) noted in its quarterly monetary report released on Monday that there were net repayments in foreign loans from all other sectors.
The report also indicated an increase in JMD interest rates, a result of greater demand and higher money-market costs to lenders, the Bank of Jamaica said.
The decline in foreign currency loans for the June quarter was sharper than it was in the March quarter and was particularly evident in distribution, tourism, electricity, gas and water, and construction and land development, the central bank stated.
This decline, the bank posits, "could be attributed to the depreciation in the exchange rate."
The Credit Conditions Survey for the quarter, a new report introduced this year by BOJ, noted that while bankers indicated greater credit availability, demand was down overall.
"Borrowers continued to seek to refinance their foreign currency-denominated loans in local currency in the context of the movements in the exchange rate," the BOJ said.
For the period, there were increases in the interest rates on business loans denominated in JMD, even while the prime lending rate declined.
Rates at mid-June 2014 averaged 17.13 per cent, up by more than two percentage points from 15.9 per cent in mid-March.
The prime lending rate in mid-June was 16.93 per cent, compared to 18.6 per cent in mid-December 2013.
"The changes in these rates occurred in the context of the relatively strong demand for local currency loans relative to foreign currency loans and higher cost of funds in the money market," the quarterly report said.
Despite a deceleration in the growth in business lending for the quarter, there were expansions in agriculture and distribution, consistent with the increase in output emanating from these sectors, the central bank said.
This was due to new local and foreign currency loans to businesses engaged in livestock and citrus production, as well as those engaged in the marketing of non-export crops.
The agriculture sector borrowed $860.2 million in total.
Distribution and the 'electricity, gas and water' sector were the two biggest borrowers, but the central bank said they stuck to JMD loans.
Loans to the distribution sector totalled $6.52 billion, compared to $3.2 billion borrowed in the same period in 2013. The utilities sector borrowed $4.97 billion, up from $1.69 billion.
Total business lending amounted to $17.23 billion.