Wednesday, June 25, 2008

Jamaicans borrowing more than they are saving

Published: Wednesday June 25, 2008

Jamaicans are borrowing more than they are saving at banks - but now the deficit at $32 billion is triple what it was three years ago.

At the same time this rise in borrowing continues to shun the manufacturing and agriculture sectors.

Ironically, Jamaicans saved more than they borrowed up to 2004 - $118.8 billion, versus $113 billion in loans. But in 2005 there was a $5 billion deficit, which more than doubled to $12 billion in 2006 and nearly tripled to $32 billion last year.

Saving is categorised among banks' deposits.

Saving by far is the largest contributor to the bank total
deposits. Total deposits also include government, demand and time deposits.

Bank of Jamaica statistics indicate that in 2000 for every dollar loaned by banks an equivalent $1.78 was saved by Jamaicans. But since then the reduction had been rapid.

In December 2000 savings at $72.3 billion was 78 per cent more than loans and by December 2004, savings at $118.8 billion was 4.5 per cent more than loans.

At the end of 2002 loans jumped by 50 per cent to $73.9 billion. It was not to be an extraordinary event as the loans continued to climb: $99.1 billion in 2003; $113.3 billion in 2004; $132.0 billion in 2005; $153.4 billion in 2006; and $195.0 billion in 2007.

The rise in loans could signal prospects for investment-led growth for the stagnated economy. However, the percentage of the loans used for investment in manufacturing and agriculture crawled; signalling that investors continue to shun these sectors which in the past fuelled Jamaica's growth. Manufacturing loans crawled from 4 billion in 1998 to $6.2 billion in 2007, even with devaluing dollar and inflation.

Interestingly 10 years ago manufacturing loans were on par with tourism and the distribution loans. Ten years later, loans to tourism hit a record $29.5 billion, 7 times its 1998 figure, while distribution loans jumped to $18.7 billion, 5 times its 1998 figure.

Agriculture loans hardly moved from $1.9 billion in 1998 to $2.1 billion last year December. The highest figure over the period was $2.28 billion in 2006. It's in stark contrast to personal loans-used mainly for consumption-jumping from $10.6 billion 10 years ago to $73.7 billion in 2007. As a percentage of total loans, personal loans increased from 24.6 per cent to $37.7 per cent.

Construction & land development shot from 2.5 billion in 1998 to $8.9 billion in 2007.

Transport, storage and telecommunication jumped from 1.9 billion in 1998 to $8.1 billion last year. The highest was $8.7 billion loaned in 2004. The sector benefited from the liberalisation of the telecom sector, which saw many entrants in the market including cell-providers Digicel and Miphone.

Source: Jamaica Observer

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