Tue | Jan 28, 2020

Loan rates on the rise

Published:Tuesday | July 1, 2014 | 12:00 AM

Local lenders continue to hike interest rates amid rising demand for credit, with lenders claiming that the spike is linked to liquidity conditions which have contributed to a reduction in available capital, according to the central bank's new Credit Conditions Survey for the March quarter.

The Bank of Jamaica (BOJ) report says lenders reported that rates on local-currency loans to businesses were expected to rise from 15.39 per cent to 17.13 per cent for the June 2014 quarter; while rates on local currency personal loans were also expected to increase from 20.69 per cent to 20.78 per cent.

Despite the weak demand for foreign currency loans, lenders also expected interest rates on these loans to increase from 7.94 per cent in the March quarter to 9.57 per cent in the June quarter, the BOJ said.

The higher rates are occurring "despite net injection of liquidity into the system in the March quarter", said the central bank, while "lenders also attributed the increase in rates to liquidity conditions which have contributed to a reduction in quantity and increase in the cost of accessible funds."

Despite the higher demand for personal loans for the March quarter, lending conditions were more restrictive than in the December 2013 quarter, the BOJ concluded.

"This was reflected primarily in higher fees on secured and unsecured loans, higher interest rates on secured personal loans, and an increase in the minimum repayment amount on unsecured loans (including credit cards)," the central bank said.

In relation to business loans, the central bank said funds available exceeded the December quarter, but "lenders reported that the weak domestic economic environment coupled with tight liquidity conditions restrained their ability to respond to credit requests from the productive sector."

The projection from lenders for the June quarter was that more funds would become available arising from "an anticipated improvement in both Jamaican dollar and foreign currency liquidity".

The BOJ's Credit Conditions Survey report is a new quarterly publication based on online surveys by the central bank. The survey was introduced in January.