Dennise Williams, Staff Reporter
One of the vehicles on show at the Scotia Wheels Grand Car Show at the National Arena last Saturday. Scotiabank used the opportunity to promote its new car loans. - CARLINGTON WILMOT/FREELANCE PHOTOGRAPHER
SCOTIABANK HAS thrown down the gauntlet before the competition and lowered their base rate to 18.75 per cent effective June 1. This is their second rate drop for the year.
Scotiabank dropped its base rate just three months ago on March 1 to 19.75 per cent.
Canvassing the competition, RBTT Bank currently has a base rate of 22 per cent down from 23 per cent in 2004.
The National Commercial Bank's (NCB) base rate is 19.75 per cent and First Global Bank's (FGB) base rate is 21.75 per cent. And while First Caribbean International Bank's (FCIB) base rate is 21 per cent, a credit officer said, "This rate is our across the board rate. We don't have a rate like BNS which adds on three or four per cent to their base rate."
And that is the catch. According to a credit officer at NCB, "The base rate is the prime rate or the lowest rate given to the best customer. Usually, it is the rate given on cash secured loans and some special negotiated situations."
Tailored products usually attract a rate slightly higher than base rate.
For consumers in the market for a car, BNS offers 19.75 per cent on brand new car purchases on loans of $1 million upwards.
FGB recently launched a loan package where car loans can be booked either in U.S. dollars or local currency. The interest on U.S. dollar car loans is 11 per cent while the Jamaican dollar rate is 20.75 per cent.
HOME EQUITY LOAN
And homeowners have not been left out of the sights of bankers. At least two institutions have been aggressively marketing these loan packages.
Jamaica National launched a Home Equity Loan plan where by one can borrow at 17.95 per cent on the reducing balance against a loan-free title over a ten-year period.
Last month, NCB unveiled its Home Equity programme at a rate of 21.75 per cent for 12 years.
And banks have tapped the font of creativity because the tide has turned.
Speaking recently to Wednesday Business, Cedric Stewart, manager of the JMMB Tropical Plaza branch mused, "Yes, banking is about spreads, but high interest rate is not what drives profits by itself."
Just last year, profits could be derived from carefully managing interest rate spreads earned on money markets. Now it is a different game.
First there was the massive advertising and media campaign by the Jamaica Manufacturers Association (JMA) and the Jamaica Agricultural Society (JAS) to pressure banks to lower their lending rates last month.
Then the Bank of Jamaica (BOJ) lowered interest rates on their open market instruments on May 26 to between 12.6 to 13.6 per cent.
And on May 31, the Ministry of Finance (MoF) successfully floated a US$300 million debt instrument that was gobbled up by international investors at a very attractive rate of nine per cent over the ten-year life of the bond.
This bond represented 60 per cent of the MoF US$500 million programmed borrowing for the year.
Given its goal of having a balanced budget, the government's appetite for local funds, long blamed for the persistent high interest rate policy, has been significantly reduced.
Mr. Stewart said, "The trend in the industry will be to use your position to encourage people to borrow money."
Comparitive interest rates
| Bank | Loan Type | Rate(s) |
| Scotiabank | General | 18.75% |
| Jamaica National | Home Equity | 17.95% |
| C&WJ C/Union | Motor Vehicle | 18-22% |
| First Global Bank | Motor Vehicle | 20.75% (J$) |
| First Global Bank | Motor Vehicle | 11% (US$) |
