Corporate bond market impacts bank borrowing
Published:Monday | May 21, 2018 | 12:00 AM
Jamaica's central bank is reporting that growth in the corporate bond market led to reduced bank borrowings by the business sector last year.
New foreign currency denominated issues grew by 147 per cent to US$82.1 million at December 2017, according to the quarterly monetary policy report produced by the Bank of Jamaica, BOJ. However, the majority of new issues were denominated in local currency, the BOJ said.
The central bank also noted that bank loans to the private sector financing, in local and foreign currency, increased by more than 13 per cent in February, but was a moderation relative to the nearly 15 per cent growth recorded at February 2017.
Corporate bond issues by businesses, including exempt distributions, accelerated 28 per cent, relative to nearly eight per cent in the same period in 2016. Exempt distribution refers to the placement of securities without having to produce a prospectus.
The BOJ notes in the QMPR that the increased activity in the bond market as well as heightened competition in the banking sector led to the easing of credit conditions during the March quarter.
New local currency bond issues expanded by a record 47 per cent or $7.6 billion in the December 2017 quarter. That compares to expansions of $5.2 billion in the 2016 period and just $0.3 billion in 2015.
The BOJ, meanwhile, noted that commercial bank credit to the private sector expanded at an annual rate of 17 per cent at February 2018, with increases to both businesses and individuals, while loan rates were found to have declined by an average of 77 basis points for personal loans and 25 basis points for business borrowings.
The central bank concluded from the new data that growth in private sector credit is projected to trend lower. It now projects credit will expand by 14.9 per cent up to March 2020, compared to a previous forecast of 15.2 per cent.
"This outlook reflects the impact of continued strong growth in exempt distribution as an alternative source of financing as well as the downward revision to GDP growth," the bank stated.