Sat | Jan 19, 2019

Lenders tighten up on loans

Published:Sunday | May 24, 2015 | 12:00 AM

The latest credit conditions survey done by the central bank indicates that lenders tightened up on credit in the December quarter leaving loan demand from small firms largely unmet.

However, lenders also offered some Jamaican dollar loans at a cheaper rate, which reflected slowing demand overall from those groups that lenders want to provide with funds, the Bank of Jamaica survey results indicated.

During the quarter, large businesses received 67 per cent of all loans, up from 63 per cent the quarter before. Medium sized business saw a one per cent uptick to 21 per cent of loans while small entities saw their share fall to nine per cent from 14 per cent the quarter before. Micro-entities were flat at three per cent.

In the September quarter, the micro sector - which had previously registered no more than one per cent of all loans - achieved three per cent loan share in what the central bank said was its first statistically significant performance.

The central bank classifies micro companies as those with annual sales or turnover of less than US$100,000 annually, and assigned loans of less than US$10,000; and small businesses as having turnover of US$100,000 to US$5 million, and access loans of US$10,000 to US$100,000.

Medium-sized businesses have annual turnover of US$5 million to US$25 million, and are assigned loans of US$100,000 to US$1 million; while large companies are those with annual sales greater than US$25 million, with access to loans in amounts greater than US$1 million.

The tightening of credit conditions in the quarter under review was due to more restrictive lending policies applied to unsecured and secured loans, the credit survey said.

Credit reports

One banker with whom Sunday Business spoke on Thursday said the only change implemented during the period at the policy level was the requirement that all loan application reviews include credit reports on borrowers generated by credit bureaus.

This is now causing banks to take a more critical look at each borrower, he said, noting that the standard would have taken full effect in the December quarter.

At year end, the loan market shifted towards large companies, leaving the micro sector flat. Loan demand fell in all firm sizes, with the exception of micro firms. The survey also showed an increase in demand for foreign currency loans from micro firms in the entertainment sector.

Overall, despite the tightening in lending conditions for small businesses, there was an increase in demand for both local and foreign currency loans. For medium and large enterprises, lenders told the BOJ that demand for credit from these business segments may have been affected by "changes in business activity and government policy."

During the December 2014 quarter, average rates on local currency personal loans fell by 0.42 percentage point to 19.59 per cent, while rates on local currency business loans declined from 14.93 per cent to 14.78 per cent.

For the March 2015 quarter, the survey noted that lenders generally anticipate further tightening in credit market conditions, largely attributed to the more stringent policies for secured loans. But they also expect to do more business in the motor vehicle loans and unsecured loan categories - and at better rates.

Lenders also expect a general increase in interest rates in the March 2015 quarter, the survey shows.