Aug 2008 Financial News

Howai: ‘It will be a greater cost for us.’

Aug 06, 2008

CHIEF executive officer of First Citizen’s Bank and president of the Bankers Association of TT, Larry Howai yesterday said that commercial banks were forced to raise their lending rates for consumer loans after the Central Bank raised its cash reserve requirement for banks.

In a telephone interview yesterday, Howai said, “It will be at a greater cost for us now.” In its sustained efforts to temper this country’s increasing inflation rate, the Central Bank raised its cash reserve requirement by two percent, so that commercial banks throughout the country will now have to pay 15 percent instead of the 13 percent that they were previously required to pay.

The Central Bank also increased the repurchasing rate (Repo rate) by 25 points, from 8.25 percent to 8.50 percent. As a result, RBTT Bank and First Citizen’s Bank raised their lending rates from 12.25 to 12.75 percent, effective this month, while other commercial banks are in the process of doing the same. “Costs will go up for the bank,” said Howai, who added, “when the Central Bank takes money out of the system, to tighten the financial system, it will cause interest costs to go up, and will create additional expenses for the bank.”

He explained since commercial banks were also required to pay larger institutions associated with pensions plans, NIS and mutual funds, banks had no choice but to raise their lending rates to meet their own financial commitments.

“Funding that comes from institutional investors such as pension plans, the NIS, and mutual funds will also be asking for higher rates on their deposits.”

Howai also said that interest rates paid to larger financial institutions by banks had increased by approximately 100 percent over the last three years.

As a result of the increased lending rates, consumers will feel the pinch if they are thinking of taking out loans.

Howai said the Central Bank’s strategy was intended to curb consumerism in the country. “If we take up the interest rates, people will borrow less,” he said.

However, he said while the move was commendable, he did not think it would stop people from taking loans.

Meanwhile, some bank customers said the increase in lending rates would affect them. One school teacher, from Lange Park, Chaguanas, said, “I am not happy about it, because I was considering a car loan, and the rise in rates will affect whether I would be able to get a car or not. It will definitely be more difficult to do now,” she said.

A public servant from Carenage said, “because everything is increasing in the country, it would be an additional burden, whereas a year ago, it was more manageable since you would have had to pay a lower rate.”



Source:
Trinidad Newsday
Wednesday 6 August, 2008
http://www.newsday.co.tt/business/0,83889.html