Ashford W. Meikle, Business Reporter

( L -R ) Wittingham and Davies

Government will pick up the tab for administering two loan financing packages of $600 million, nullifying a quarrel between the Bank of Nova Scotia and the Development Bank of Jamaica over the interest rate spreads, which the state-owned bank had insisted was insufficient to cover the cost of disbursing the funds.

"I have given them the okay - it has been settled," Finance Minster Dr. Omar Davies said Wednesday during his press briefing on the economy at the ministry's offices at National Heroes Circle, Kingston.

DBJ and BNS both acknowledged that the matter was 'amicably' resolved, but the size of the subsidy has not been made public.

"We do not have specific information on the mechanics of how the minister and the DBJ will deal with this internally," said BNS in emailed responses to the Financial Gleaner.

The financial institutions have been at odds over a combined 0.25 per cent spread on two loan packages, funds for which are being seeded by BNS to be retailed to farmers and hoteliers by DBJ.

But DBJ has been trying to negotiate higher spreads, saying that when it wholesales funds through commercial banks, the private institutions typically demand a three per cent margin to cover the cost of disbursing the loans.

On Wednesday, acting managing director of the DBJ, Wayne Whittingham, said the ministry's commitment had solved its problem.

"We are satisfied that we can work with the matter as it now stands," said Whittingham. "The subsidy that we are going to get, as announced by the Minister, will cover the administrative costs."

The quarrel between the two institutions had been made public by BNS president William 'Bill' Clarke.

On Wednesday, Clarke's office said he was on vacation when the Financial Gleaner sought his comment.

Two months ago, the bank president had lashed out at the DBJ, charging that it was stonewalling BNS' attempts to help government follow though on a commitment to provide loans to small and medium enterprises.

According to Clarke, the development bank was insisting on a loan spread, which Scotiabank found unpalatable.

Under the $350 million loan package for small hotels, DBJ would borrow the funds for Scotiabank at eight per cent and lend at the same rate, which means any costs incurrent in distributing the loans would have to be borne by the state bank.

On the $250 million loan fund earmarked for farmers, DBJ would lend at 7.875 per cent through its network of PC Banks, after borrowing from BNS at 7.625 per cent.

According to DBJ, that meagre spread would not be enough to cover the administrative charges and credit risk for PC Banks.

Whittingham reiterated the point on Wednesday.

"Every time you get a line of credit you have to make sure that the line covers itself, or in no time the business would be bankrupt," he said.

"We wanted to make sure, in particular, that the PC banks had a larger spread than É was being granted. We thought that was not enough because when you are dealing with small farmers you have to do a lot of travelling to verify information which they give you."

The DBJ head, however, shied away from saying the size spread required to make the loans economically feasible to manage, nor would he comment on the size subsidy government was providing.

"Put it this way, we would have been put back in the same position had we gotten a change in spread from BNS. I would rather than not state what per cent it will be at this point, but I can assure you that it will be more than the one-eighth of a per cent," he said.

He also declined to say when disbursements of the loan would begin, saying certain administrative matters had to be settled.

"We are far advanced [in the agreement] but as to tell you the exact date when we hope to disburse I can't say but we hope to do so shortly."

Added BNS: "We have sent execution copies of the agreement to DBJ. When the agreement has been signed and conditions precedent met, the funds will be disbursed to DBJ."

Whittingham also brushed aside the impasse with Scotiabank.

"Oh, our relationship with BNS has always been good. Scotiabank is one of our biggest retailers. We [weren't] being difficult; we just wanted them to understand that we had genuine issues which needed to be resolved."

ashford.meikle@gleanerjm.com