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With new market entrant, bank loan rate falls, credit expands

Published:Wednesday | May 24, 2017 | 12:00 AMMcPherse Thompson
The JN Bank logo is unveiled at the launch of the commercial bank on February 1.

Private-sector credit grew at an annual rate of nearly 31 per cent at the end of February, doubling the pace set in December, according to new Bank of Jamaica (BOJ) data.

Much of the expansion resulted from a new entrant to the commercial banking sector, BOJ said a reference to JN Bank Limited, which became operational on February 1.

Excluding the impact of that institution, private-sector credit would have grown by 15.9 per cent, the Bank said in a report in its monetary policy report for the quarter to March 2017. It would have stilled outperformed the growth rate in December when credit expanded by 14.8 per cent and in February 2016 when the pace was estimated at 10 per cent.

The new entrant contributed to a near six-point increase in the stock of private-sector credit to 27.8 per cent of GDP for the March quarter, the BOJ said.

Noting an easing in credit conditions, the BOJ said that was partly evidenced by institutions increasing loan promotional activities through the offer of lower lending rates, fees and collateral requirements for households as well as small, medium-sized and large businesses in anticipation of the imminent entry of new players.

The expansion in private-sector credit for the review period reflected growth in loans and advances to both businesses and households. Lending to households grew relatively faster at 42.9 per cent compared to growth of 17.1 per cent in business loans, the central bank said.

Loans denominated in domestic currency grew 14.5 per cent, whereas foreign currency loans grew by three per cent.

Of note, the BOJ said growth in foreign currency credit for the review quarter was mainly reflected in the electricity, gas and water sector, while the tourism and distribution sectors were the main drivers of domestic currency loans.

As to the cost of borrowing, the central bank said that with the conversion of building society Jamaica National into a commercial bank, the overall weighted average lending rate of commercial banks declined by 123 basis points for the quarter.

"The overall reduction in loan rates for the review period reflected the impact of the inclusion of the new commercial bank which had lower rates, as well as increased competition by institutions as lenders attempted to maintain and possibly increase market share," said the BOJ in its monetary policy report.

"With the exclusion of the new entrant, commercial bank lending rates would have averaged 16.14 per cent."