By Dennise Williams, Staff ReporterAVERAGE BANK lending rates stood at 23.80 per cent at September 2003 and have remained around that level since.
But just this month, the Bank of Jamaica (BoJ) lowered their rates across the board to the 14.85 per cent to 19 per cent range for 30 day to 365-day open market instruments. This reduction represents the tenth since April 2003.
During the quarterly press briefing put on by the BoJ on February 18, the Governor of the BoJ, Derick Latibeaudiere called for lending institutions to follow the central bank's lead and lower lending rates.
Mr. Latibeaudiere stated that, "interest rates have been coming down. We could use this opportunity in asking the commercial banking sector to join us in general reductions."
But Bill Clarke, managing director of the Bank of Nova Scotia says current financial market conditions do not allow for lowered lending rates.
"Interest rates are a function of many factors," Mr. Clarke said. "One is the rate paid on foreign currency investments."
These rates are in the range of nine per cent to 11 per cent, he said. "I don't see how Jamaican dollar interest rates could hover in that region. I can't speak for other banks, but the one I work for can't change interest rates just like that. We must watch the market and see what is happening." Mr. Clarke questioned whether the lowered BoJ rates were part of an orderly reduction or a cyclical event. He said, "We must look at repo rates and T-bills to see where they are trending. Scotiabank would lose creditability if we moved our loan rates up and down with the market."
At the National Commercial Bank (NCB), the response was much more guarded. Patrick Hylton, deputy managing director of NCB stated, "we are willing to sit down with our regulators and discuss factors affecting loan rates and how we can work together as an institution and an industry to lower rates."
In comments made on September of 2003, Aubyn Hill, managing director of NCB, touched on the interest rate issue while addressing members of the Jamaica Manufacturers Association (JMA).
"Think of the deposit rate you get now," Mr. Hill said. "That is the source of money I have to lend. The money lent to you is borrowed from depositors."
Mr. Clarke said, "Jamaican investment rates must be greater than the US dollar rates, even more so lending rates."
Basil Naar, general manager of Churches Co-operative Credit Union, said it was not the actual interest rate that is the problem, but the perception that business financing is too risky.
"The conundrum is what interest rate will spur the entrepreneur from investing in paper to invest in their business," Mr. Naar asked. "I believe that businesses can borrow at the current lending rates and survive."
Mr. Clarke said market forces will prevail and the banking sector, "cannot create artificial interest rates."
