Oct 2009 Financial News

Cheaper bank rates coming

Oct 12, 2009

The cost of borrowing to commercial and corporate bank customers would soon become cheaper, according to senior economist Dennis Pantin. He said banks would be forced to slash their prime lending rates to match moves by Republic Bank Ltd (RBL) earlier to drop its rate from an all-year high of 12.5 per cent to 9.5 per cent. “I presume they will jump and follow suit. If they (RBL) drop their base lending, that means that they would drop their overall lending rate and other banks will have to follow,” Pantin said. “I would imagine they would have no other choice and follow because it would impact on their business.” Pantin agreed to be interviewed after a meeting of the Friends of Chaguanas at Gaston Court in Lange Park, Chaguanas, on Thursday night. He expressed mixed reaction to decreases in the prime lending rate since the domestic economic activity has slowed, which resulted in fewer consumers borrowing money from banks for cars, homes or vacations.

“It is good in one sense. It depends on if, for example, there is a reduction on mortgage interest rates. People may be burdened by high interest rates, which are flexible, and if those fall, it may be a good thing,” Pantin said. “If it encourages people to go out and buy imports because it cheaper to buy them, that would simply add to the pressure on our balance of payments.” Pantin said there was an expectation that drops in the prime lending rate would address issues of excess liquidity in the local financial system. “The idea is for people to come and borrow, but unless people are borrowing for productive purposes, that is, for reasons of investment, then it simply increases your burden,” Pantin said. “I think we have an overall problem of liquidity that we need to deal with differently. Commercial banks have their strengths and commercial banks also have their weaknesses and we need to discuss reforms to our financial structure,” Pantin said.


Source:
Kimberly Mackhan
Trinidad Guardian
Monday October 12, 2009

http://guardian.co.tt/business/business/2009/10/12/cheaper-bank-rates-coming