Aug 2010 Financial News

Banks' bad debt jumps another $1b in Jun Q

Aug 18, 2010

Non-performing loans at commercial banks jumped by another billion dollars during June 2010 quarter, while loans to the private sector continued to decline.

In its quarterly monetary policy report (QMPR) for the three months ending June 30, 2010, the BOJ said that the quality of the private sector loan portfolio, measured by the ratio of NPLs — loans that have been unserviced for more than three months — to total private sector loans was 6.4 per cent at end-June 2010 compared with the ratio of 6.0 per cent at end-March 2010 and 4.2 at end-June 2009.

Business Observer calculations showed that the nominal figure increased from $13 billion at end-March 2010 to $14 billion at end-June 2010, or by 7.7 per cent.

"There was also an increase in the ratio of past due loans (three months and over) to total loans to 5.6 per cent at end-June 2010 from 5.1 per cent at end-March 2010 and 3.6 per cent at end-June 2009," added the report.

The ratio which measures the quality of loan portfolios at banks are still below the central bank's benchmark of 10 per cent, by the rise in bad debt comes at a time when size of loan portfolios continue to decline.

"There was a reduction of $656.6 million, or 0.3 per cent, in loans and advances during the review quarter, compared to a decline of 0.1 per cent in the June 2009 quarter," said the BOJ's report. "This was also the fifth consecutive quarter of contraction."

The most significant decline were reflected in tourism and manufacturing.

Loans to the manufacturing sector declined by eight per cent while tourism sector credit plunged 16.2 per cent, which represented the fifth consecutive quarter of decline for loans issued to the prominent services sector.

The decline to tourism was partly influenced by the reclassification of a US dollar loan to construction and land development, which in turn translated into an 18 per cent increase in loan amounts issued to construction, but continued reduction in investment in the sector as a result of the global recession, also dragged down banks' loan amounts issued to tourism.

However, there was an increase in the stock of loans to distribution, electricity, gas and water, agriculture as well as personal Loans.

Agriculture and fishing loan amounts increased by 7.8 per cent for the June 2010 quarter, following two consecutive quarters of expansion and which compares to an average growth rate of 9.2 per cent for the previous five June quarters.

There was a 5.9 per cent increase in the stock of loans to distribution, which was predominantly granted by one large bank. Personal Loans increased by 1.6 per cent for the June 2010 quarter, following a decline of 1.2 per cent for the March 2010 quarter.

Even though personal loans experienced the largest quarterly expansion since the December 2008 quarter, the outturn for the June 2010 quarter compares to average growth of 4.2 per cent for the last five June quarters.

Personal loan growth was driven largely by credit card receivables, which grew by 0.8 per cent, while the stock of loans for the purchase of motor cars declined by 0.5 per cent.

"The outturn for the review quarter was influenced by the continued decline in employment and income," added the central bank.


Source:
Jamaica Observer
Wednesday August 18, 2010

http://www.jamaicaobserver.com/business/Banks--bad-debt-jumps-another--1b-in-Jun-Q_7884094