Apr 2009 Financial News

Bank lending rates coming down

Apr 03, 2009

The cost of borrowing money from T&T’s commercial banks is coming down.
First Citizens (FC) jumped ahead of the pack yesterday becoming the first bank to reduce its prime lending rate, dropping the rate from 13 per cent to 12.75 per cent effective April 6. The bank announced the reduction following a meeting of the T&T Bankers’ Association (BATT) yesterday.

The country’s other commercial banks are expected to follow suit. President of the Bankers’ Association, Catherine Kumar, said liquidity (money) is currently very high in the banking system. Beyond that she declined to comment on yesterday’s meeting. The move to reduce interest rates is in direct response to the Central Bank’s release of its most recent ‘repo’ rate announcement last Friday in which it reduced the ‘repo’ rate by 25 basis points from 8.75 per cent to 8.50 per cent.

In announcing the reduction, the Central Bank said it was a “signal for the lowering of bank lending rates, especially to businesses.” The Central Bank said the global recession was leading to a “softening in domestic economic activity.” It said that consumers and businesses in T&T had become “somewhat more cautious” and were cutting costs and reconsidering spending plans to the extent that “excess reserves in the financial system” had reached “unprecedented levels,” and unemployment was increasing.

Banks increased their prime lending rates to 13 per cent last year in response to tight monetary policies introduced by the Central Bank to restrain credit growth, which the bank said was fuelling inflation. Inflation peaked at 15.4 in September 2008. But in last Friday’s ‘repo’ rate announcement, the Central Bank said that “monetary policy faces the dual challenge of addressing double digit inflation while trying to moderate the economic slowdown and contain the negative employment impact.”

The Central Bank stated in January that during 2008, net fiscal injections remained generally high and contributed to relatively elevated levels of liquidity in the domestic financial system. It said that in the 12 months to November, private sector credit by the consolidated financial system slowed to 11.9 per cent from an average of 18.0 per cent during the first half of 2008.

“Consumer and business credit also displayed similar trends slowing to 9.9 per cent and 13.1 per cent, respectively, on a year-on-year basis to November from averages of 19.4 per cent and 16.1 per cent in the first six months of 2008. The declining trend in bank credit has contributed in part to an increase in bank liquidity,” stated the Central Bank report. Commenting on FC’s decision to be the first to reduce its rates, FC chief executive officer Larry Howai yesterday said each bank will determine its rates.

Howai said Central Bank Governor Ewart Williams had signalled he’d like to see interest rates go down. Howai said FC had not taken a decision on its deposit rates, but other rates are likely to be adjusted along with the prime lending rate. “We’re hoping it would result in a bit of a stimulus for investment, but it’s difficult to say. A quarter of one per cent. I don’t know that people will make a lot of decisions on the basis of a quarter per cent. I think most business people would give it a second thought,” Howai said.


Source:
Sandra Chouthi
Trinidad Guardian
Friday April 3nd, 2009

http://guardian.co.tt/business/business/2009/04/03/bank-lending-rates-coming-down