(Extracted from the Gleaner dated July 1, 2014)
Strong demand for local currency loans and tight Jamaican dollar liquidity have driven interest rates charged on business loans by as much as six percentage points since the start of the year.
Large businesses on average saw the highest increase in interest rates on loans, from 7.12 per cent reported in the December 2013 quarter to 13.7 per cent for the March quarter, with firms in mining, entertainment and utility sectors being offered the highest lending rate, according to just released Bank of Jamaica (BOJ) data.
"Rates are expected to decline by 0.55 percentage points to 13.15 per cent for the June quarter," said the BOJ Quarterly Credit Conditions Survey Report for the March 2014 quarter.
Lenders of local currency loans to micro businesses reported an average 22.8 per cent interest rate in the March quarter relative t o 12.1 per cent for the December 2013 quarter.
For the June 2014 quarter the rate on Jamaican dollar loans to micro businesses was expected to climb 1.72 percentage points to 24.52 per cent.
Micro manufacturers, small-scale transportation and other services felt the brunt of the rate increases, with micro firms in distribution seeing the highest priced rate.
"The weighted average lending rate on local currency loans to small businesses across all sectors averaged 12.94 per cent relative to 11.26 per cent for the December 2013 quarter," said the BOJ report. "Firms in construction and land development, distribution and electricity, gas and water were offered the highest lending rate while the lowest rate was offered to the firms in Entertainment."
Lenders reported that the rates at which new loans were approved in the quarter was based on the increased cost of funds due to the liquidity environment which existed.
"For the June quarter, interest rates on local currency loans (to small businesses) were expected to increase by an average of 2.2 percentage points to 15.16 per cent."
Medium-sized business actually saw a slight reduction -- seven basis points -- in interest rates in the March quarter, when the average rate on local currency loans was 12.11 per cent compared to 12.18 per cent in the quarter before.
"The overall decline in interest rates was reflected in lower rates charged on loans accessed by firms in all sectors with the exception of distribution, manufacturing, mining & quarrying and transport, storage and communication," said the BOJ report.
However, rates on local currency loans are expected to increase by 3.58 percentage points to 15.69 per cent for the June quarter.