The pace at which Jamaicans are consuming debt has slowed to its lowest levels in five years, despite falling interest rates.
Bank of Jamaica (BOJ) reports that private-sector credit grew to J$7.66-billion in the June quarter, compared to growth of J$10.54 billion in the same period last year.
As is traditionally the case, the majority of credit issued in the period was in the form of personal loans. However, the pace and volume of borrowing slowed.
Personal loans grew by J$5.6 billion or four per cent. But in the June quarter of 2012, personal loans rose 8.9 per cent or by J$9.24 billion.
Business borrowing has seen an uptick of 1.4 per cent this quarter, or J$2.13 billion, but underperforms the four per cent increase seen in the previous two quarters, according to the latest BOJ Quarterly Monetary Report covering the April-June quarter.
The growth of loans and advances extended to the business sector is more than the 0.8 per cent increase recorded in the June 2012 quarter, but still underperforms average growth of 3.6 per cent for the June quarters of the last five years, the central bank said.
Borrowing was up in the distribution, tourism and professional and other services sectors, with local currency loans to companies in distribution for the food and drink industry dominating in June.
Across all sectors, the demand for loans, which rose by 2.7 per cent in the review quarter, was less robust than comparative periods, which averaged growth of 3.3 per cent for the June quarter of the last five years.
lending rates
Meanwhile, BOJ reports that lending rates continue to decline, with the sharpest reduction of 85 basis points on personal loans that followed a decline of 60 bps for the March 2013 quarter.
In total, for the first two months of the review quarter - that is, April and May - the weighted
average lending rate to the private sector declined by 18 bps, this following decline of 50 bps for the March 2013 quarter. These contributed to a reduction of 20 bps in the overall weighted average rate to 17.77 per cent.
The BOJ notes that individuals are also borrowing more in local currency and paying off US dollar- denominated loans. Demand for credit cards, however, is down.
Personal borrowings are being used mainly for debt consolidation and car loans.
"The continued strong growth in loans for debt consolidation could be reflecting the efforts of households to restructure their weak balance sheets," said the central bank.
The report indicates that under personal loans, instalment credit expanded by five per cent or J$2.27 billion, which is in line with the rate of growth observed for the past two quarters.
Instalment credit refers to loans granted on condition of its repayment at regular intervals, or instalments, over a specified period of time until repaid in full.
Tourism and professional services companies continued to borrow mainly in foreign currency. An increase in the Jamaica-dollar value of the loan stock was accredited to depreciation in the domestic currency.
The central bank also notes that commercial bank loan quality improved, with the ratio of non-performing loans to total loans at 5.8 per cent compared to 6.7 per cent at end-June 2012.
The improvement is credited to business borrowers who are showing a better record of loan repayment, except for professional services, the central bank said.
avia.collinder@gleanerjm.com
