Loan market hits trillion-dollar mark under the pandemic

Outstanding banks loans hit a new record of $1 trillion at the end of last year, but unserviced loans grew by more than 40 per cent, which signalled one of the most difficult years on record for the payment of bills and debt, according to data newly released by the Bank of Jamaica, BOJ.

The BOJ said loans grew despite the economic fallout arising from the COVID-19 pandemic, albeit at an attenuated pace. Total loans across the banking system increased by nine per cent, from $915 billion to just over $1.03 trillion at the end of December, but grew nearly twice as fast in 2019, at 17 per cent.

“Loan growth has remained fairly resilient although the pace of growth has moderated. It remained above what was expected, given the sharp fallout in economic activity, bolstered by continued demand for loans by businesses for working capital needs,” BOJ said in its Quarterly Monetary Policy Report released in February.

Since the start of the pandemic, the BOJ has implemented a number of initiatives aimed at supporting Jamaica dollar liquidity, including reducing the cash reserve requirement for deposit-taking institutions, implementing a GOJ-BOJ bond-buying programme, reactivating the BOJ Intermediation Facility, a special repo facility for credit unions, and conducting occasional term repurchase operation. Deposit takers include commercial banks, merchant banks, credit unions and building societies.

The BOJ said that it continues to focus on low single-digit inflation – its target range being 4 to 6 per cent – and also ensuring that Jamaica’s financial system remains sound and well capitalised. In its monitoring of unserviced loans, the central bank’s data shows that 2020 witnessed the largest rise since 2011 in non-performing loans, or NPLs, for periods over 90 days.

NPLs across the banking system grew to $29.3 billion as at December, up 42 per cent over the $20.67 billion of unserviced loans in 2019. The growth across commercial banks alone was 43 per cent, and 33.5 per cent for building societies, according to BOJ data.

The size of the NPLs as a portion of total loans grew to 2.8 per cent, up from 2.2 per cent. The NPL ratio remains historically low and under the limit that would cause concern for the regulator. Comparatively, in 2011, NPLs were 8.9 per cent of total loans; and in the 1990s, they represented, at times, half of the total loan portfolio.

In 2020, a number of banks instituted a series of measures to attenuate the possible rise in NPLs induced by the pandemic, including loan payment deferrals and moratoriums. The virus was first detected in Jamaica on March 10, 2020.

BOJ has said it is keeping close watch on NPLs as it monitors the health of loan portfolios in the system.

Jamaica felt the effects of recession in 2009 and 2011. As the prospects for the local economy worsened, so did conditions for businesses and jobs, leading to an inability to service loans and a concurrent rise in NPLs.

steven.jackson@gleanerjm.com

Top 5 loan portfolios:

NCB $339 billion

BNS $190 billion

JN Bank $107 billion

Sagicor $86 billion

FCIB Ja $79 billion