Wednesday, October 29, 2008

Harder to borrow

Published: Wednesday October 29, 2008

As the Central Bank continues to make it more expensive for commercial banks to lend money, there has been a slowdown in credit in Trinidad and Tobago.

And with loans more expensive now, a leading banker has suggested that Trinidadians are becoming more conservative in how they borrow money and spend on credit, but they may shortly have to pay even more for loans.

Private sector credit expansion by the financial system has been slowing within recent months because of tighter monetary policy measures, the Central Bank said in a statement.

"The 12-month increase in credit expansion was 13.7 per cent in August compared to a rate of increase in excess of 20 per cent at the beginning of the year," the Bank stated.

"Consumer and business credit posted year-on-year increases of 11.6 per cent and 12.6 per cent respectively in August, while real estate mortgage loans rose to 18.4 per cent in the 12 months to August."

The real estate market in the country has slowed within recent months, as consumers found it difficult to repay monthly mortgages for million-dollar homes which were hundreds of thousands of dollars cheaper a couple of years ago.

Last Friday, the Central Bank announced that from November, it will increase the cash reserve requirement for commercial banks to 17 per cent, up from 15 per cent, to dampen bank credit expansion and absorb excess cash in the financial system.

Commercial banks increased lending rates several times this year, as the Central Bank raised the reserve requirement the banks must deposit.

Banks recently announced increases in the prime lending rate to 13 per cent.

Richard Young, managing director of Scotiabank, acknowledged the slowdown in private sector credit expansion.

He said the latest increase in the cash reserve requirement suggested that the Central Bank believed it could suppress demand and this was strategy it intended to pursue.

Young told the Express in a phone interview on Monday that even as infrastructure projects and spending continued in the country, it was apparent that the public was adopting a "more conservative approach" toward taking credit.

Source: Trinidad Express Newspapers

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