Banker sees room for household debt to grow
Jamaican debt at nearly 57 per cent to disposable income appears high, but a top banker says the figure by itself is misleading.
David Noel, who heads Jamaica’s No. 2 bank and is also the chief spokesman for the banking sector, says half of the debt held by Jamaicans is in the form of mortgages and is therefore ‘good debt’; as it converts to an asset over time.
On that basis, he argues, there is room for households to borrow even more.
The level of household debt stands at $56.60 for every $100 of disposable income, according to the latest data from the Bank of Jamaica (BOJ). This represents the highest level on record, the central bank said.
“The quality of Jamaica’s debt is such that well over 50 per cent is mortgage debt,” said Noel, who is president & CEO of Scotia Group Jamaica as well as president of the Jamaica Bankers Association.
“The lower interest rates mean that individuals can afford to handle more debt. So, I am not concerned about the level of household debt.”
Noel added that with the recent reductions in transfer tax and stamp duty, and lower interest rates, he expects mortgages to grow at a faster pace than consumer loans, but that both will rise, given the Jamaican economy’s positive track.
Noel added that a professional earning $10 million a year, with low debt, who then acquires a $15-million home, would equate to having 150 per cent household debt to income, he said.
“That individual is not imprudent, as the mortgage repayments would be small relative to their income,” the banker said, having drawn comparisons between Jamaica and developed countries.
Official data from some of those countries shows debt levels at 100 per cent for the United States, 179 per cent for Canada, and some 200 per cent for Nordic countries.
Noel later clarified that that $10 million cited was not representative of the general population, but allowed for ease of calculation. He said a household earning $5 million, which then acquires a $10-million home, would have 200 per cent debt which would not be unreasonable, and better than a similar household which runs up a $2.5-million credit card debt for expenditures such as vacations.
“That would be imprudent even though the ratio would be 50 per cent,” he noted.
A decade ago, in 2009, household debt in Jamaica was at 37.6 per cent. Initially, the estimate was 17 per cent for that year, but the figure was later revised by the central bank.
The BOJ’s Financial Stability Report describes household debt as the summation of personal loans, mortgages and NHT loans, but it did not provide the underlying figures utilised for the calculation.
Noel cited two changes that he says allow an increasing number of Jamaicans to secure loans: The reduction in Government’s appetite for debt, which resulted in banks focusing more on private-sector lending; and the reduction in interest rates, which in turn, has brought down debt-servicing costs.
“So monthly payments are more manageable,” he said. “People who couldn’t afford a home can do so now. This is good for the economy,” he said.