Total loans are at record levels while bad debts are down, indicating increased health within the financial system, new Bank of Jamaica (BOJ) data indicate.

Total gross loans held by financial institutions hit a record J$386 billion at June 2012, up 10.9 per cent year on year, among the fastest rise in years.

The loan growth comes amid a 2.3 per cent reduction in non-performing loans - those that remain unserviced for at least three months - at J$28.4 billion across banks, building societies and near banks.

Gross loans at banks grew 13.6 per cent to J$287.9 billion and building societies reported a four per cent rise to J$91.4 billion. However, near banks dropped two per cent to J$6.83 billion.

The June 2012 rise in loans is tenfold higher than the 1.2 per cent growth achieved in the June 2011 quarter, when compared with the same period in 2010. It indicates a rebound of activity following the 2008 recession and fallout of unregulated investment schemes, which eventually led to rising non-performing loans in 2009.

The size of the non-performing loans represents 7.4 per cent of total loans in June, and even less at 3.4 per cent, once provisions for bad debts are factored in. Comparatively, during the financial crisis of the 1990s, non-performing loans represented, at times, half of the total loan portfolio.

The two largest banks - Scotiabank Jamaica and National Commercial Bank - reported combined past-due loans of about J$38 billion in their 2011 annual reports, but just J$18 billion met the central bank's criteria for non-performance.

29.8 per cent high

The pre-tax profit margin of all amalgamated entities (banks, building societies and near banks) hit 29.8 per cent, up 11.8 percentage points over year-earlier levels.

The Government's planning agency expects loans to grow this year based on expected rises in business confidence and the continuation of the low interest rate environment, according to the Economic and Social Survey Jamaica 2011, published by the Planning Institute of Jamaica.

Central bank-regulated institutions currently comprise seven commercial banks, two near banks and four building societies, which together have total assets valued at J$838.4 billion.

The nation's 42 credit unions will be added to the BOJ's portfolio once legislation is finalised.

steven.jackson@gleanerjm.com