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Loan market stumbles

Published:Tuesday | September 1, 2015 | 1:55 PM

As 2015 cycled towards its midpoint, companies and household reduced demand for bank loans, this despite a reduction in lending rates for most products, the central bank reports.

Personal loans, however, were more expensive and demand for credit in that category dropped by more than 50 per cent year-on-year.

The slowdown in growth of loans and advances was reflected particularly in households among which the growth rate slowed for mortgage and instalment loans.

In addition, there were net repayments of loans for insurance premiums and overdraft accounts, according to the Bank of Jamaica's Quarterly Monetary Policy Report for the June 2015 period. Net repayment means that nominal loan repayments outpaced the distribution of new loans.

The central bank reported that the annual growth in commercial banks' credit to the private sector was 4.5 per cent in June, this compared to the 9.6 per cent expansion recorded at end-June 2014 and the average growth of 8.7 per cent for the last five years.

Business lending was estimated at $4.49 billion in the current period, compared to $9.44 billion at June 2014. Personal loans stood at $11.82 billion, compared to $23.08 billion in the respective periods.

Lending rates down

Lending rates, meanwhile, contracted across the board - linked by the BOJ to improving liquidity and also changes in its policy rate, which was reduced by a quarter point to 5.5 per cent in April.

Across the credit market, loan rates have dipped from 17.5 per cent at the end of June 2014 to 17.17 per cent at June 2015. Within this band, mortgage rates have slid from 9.79 per cent to 9.69, while private-sector loans are down from 17.53 per cent to 17.3 per cent.

Public-sector loans, priced at an average 16.1 per cent in June 2014, were being offered at 10.30 per cent in June 2015.

Personal loans, however, saw an average rate increase from 25.53 per cent to 26.26 per cent.

Overall, the appetite for loans has not been impacted by the offer of better rates.

With the exception of personal loans, rates have declined by around 20 basis points, with a more dramatic reduction of 400 basis points for public-sector credit.

The central bank noted that a fall off in lending rates was reflected in all loan categories, with the exception of personal and local government loans.

"The general reduction in interest rates for the review period occurred against the background of deposit-taking institutions being more confident about the availability of Jamaican dollar liquidity. In addition, the lower rates may have reflected the impact of the reduction in the bank's signal rate and the rates on its lending facilities," the BOJ stated.

The terms 'signal rate', 'policy rate' and 'benchmark rate' are used interchangeably.

The central bank also reported continued improvement in the quality of loan books within the banking sector. The ratio of non-performing loans (NPL) to private-sector loans and total loans declined to 4.76 per cent and 4.37 per cent, respectively.