Aug 2016 Financial News

Small businesses charged more for credit (Jamaica)

Aug 31, 2016

As the year progressed towards its midpoint, local lenders decided to increase the rate at which they lend money to the small business sector but offset this with lower rates for medium and large entities.

The Bank of Jamaica (BOJ) says in its latest quarterly monetary policy report (QMPR), however, that the credit condition in the local market has never been better, at least since it started a credit conditions survey some two years ago.

The BOJ said the easing in the review quarter was driven primarily by improvements in policies for secured loans.

“In particular, respondents cited that low interest rates, increased competition, loan promotional activities and market share objectives continued to be the underlying factors for credit easing for the review quarter,” the BOJ noted, stating that as a result, lenders reduced the fees applicable to secured loans, lowered interest rates, primarily to large businesses, increased the loan to value ratio and extended credit lines.

In the June quarter higher rates on local currency loans came from an increase in the interest margin on business loans, particularly to medium and micro enterprises.

Notably, the BOJ said, this increase was partly offset by lower borrowing costs on credit to large and small-sized businesses.

There was also a slight reduction in the interest rates on secured personal loans, more specifically for motor vehicles and mortgages, which partly explains the increased demand for personal loans in the quarter.

In addition, increased loan promotion activities coupled with the fall in interest rates was consistent with lenders’ efforts to increase market share amidst increased market competition, the BOJ stated.

At end-June 2016, there was a general reduction in interest rates on all categories of loans and advances, with the exception of commercial (business) lending relative to the previous quarter.

Rates ranged from a low of 12.5 per cent to a high of 25 per cent. The overall weighted average lending rates of commercial banks declined by 17 bps relative to end-March 2016 and by 67 bps when compared to the comparable quarter in 2015.

The BOJ noted that, overall at end-June 2016, the annual growth in commercial banks’ credit to the private sector was 14.4 per cent relative to 10.7 per cent at end-March 2016, reflecting growth in loans and advances to both businesses and households.

Business lending which increased a sharper pace year over year was due to demand from the Tourism, Electricity Gas &Water as well as Professional and Other Services sectors.

Foreign currency-denominated loans, as reflected in loans to overseas residents, increased by more than 146.2 per cent when compared to the June 2015 quarter, the BOJ also said.

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter
Jamaica Observer
Wednesday August 31, 2016    

http://www.jamaicaobserver.com/business/Small-businesses-charged-more-for-credit_72455