Tuesday 20 November, 2018

Entry of JN Bank lowers interest rates - BOJ

The reduction in interest rates was also impacted by increased competition by institutions as lenders attempted to maintain and possibly increase market share.

The reduction in interest rates was also impacted by increased competition by institutions as lenders attempted to maintain and possibly increase market share.

The entry of JN Bank into the commercial banking market earlier this year has led to lower interest rates for borrowers, according to the Bank of Jamaica (BOJ).

“With the conversion of a building society into a commercial bank, the overall weighted average lending rate of commercial banks declined by 123 bps (basis points) for the [March] quarter," said the BOJ in its quarterly report. 

The central bank said the development was fueled by increased competition as lenders attempted to maintain and possibly increase market share. Some institutions reportedly increased loan promotional activities through the offer of lower lending rates, fees and collateral requirements for households as well as small, medium-sized and large businesses in anticipation of increased competition.

Commercial bank rated average lending rates have fallen from 17.8 per cent at the start of the economic reform period in 2013 to a little under 15 per cent in February this year.

Specifically, lending rates to the private sector declined by 172 bps for the March 2017 quarter relative to the corresponding quarter in 2016, with rates for installment credit recording the sharpest decline.

“We believe that bank lending rates can go lower still but note that private sector credit is already expanding and in annual terms did so by 15.9 per cent in February,” BOJ Governor Brian Wynter said as he spoke at the central bank’s quarterly press briefing at the Hilton Rose Hall in Montego Bay last Friday.

Indeed, JN Bank’s entry into the market also led to an increase in private sector credit, contributing to an increase in the credit stock to 27.8 per cent of GDP for the March 2017 quarter compared to 22.2 per cent in the March 2016 quarter.

According to the BOJ, the annual growth in private sector credit at end-February 2017 was 30.7 per cent, which was stronger than the expansion of 10 per cent and 14.8 per cent in February 2016 and December 2016, respectively. 

“The continued expansion in private sector credit was underpinned by continued acceleration in economic activity in Jamaica in the context of stable macroeconomic conditions, supported by BOJ’s generally accommodative monetary policy stance,” said the BOJ.

There are seven commercial banks in Jamaica, with JN being the third largest in terms of assets, behind National Commercial Bank and Scotia.