Banks report reduction in lending base

Economic contraction during the past two years which virtually crippled the ability to pay of many individuals and businesses has forced private banks to take cautious attitude on lending money.

The volume of loans approved by private banks in the Commonwealth fell during the third quarter of 1999 compared with the previous quarter’s level, according to statistics obtained from the Department of Commerce.

Total loans approved by commercial and savings banks operating in the Northern Marianas were down from $300.8 million during the second quarter of 1999 to $300.2 million in the July-September period.

Government loans fell to $422,000 during the third quarter of last year from $602,000 compared with quarter-ago level. The government secured $446,000 in total loans during the first three months of last year.

Banks also slowed down in approving consumer loans apparently due to the borrowers’ reduced capability to pay back following the government’s and the private sector’s cutdown on manpower hours.

During the July-September period, banks approved only $75 million in total consumer loans. The figure is lower compared with the previous quarter’s $77 million.

Finance analysts said private banks may freeze any expansion on their respective lending base until the local economy shows significant signs of improvement or when borrowers’ capability to repay loans is stronger.

The slowdown in banks’ loan application approval will particularly impact service-type establishments or businesses related to the CNMI’s billion-dollar tourism industry which has been badly hurt by the regional recession.

Banks are still providing loans but they now practice a more cautious approach such as the requirement of more collateral.

Some banks may also be downsizing loan applications like those applying for a million dollar loan may have their application approved lower by at least half of the original amount.

However, commercial loans jumped to $173.3 million during the period under review from the second quarter’s $172.6 million, while real estate loans totaled $51.5 million which is up from the previous quarter’s $50.4 million.

The Banking and Insurance Division of the commerce department also reported that current loan to deposit ratio is 54 percent, down from the April-June period’s 54.3 percent, and from the first quarter’s 55.6 percent.

In 1998, banking institutions in the CNMI expanded their lending base despite the ongoing recession’s risks that include crippling the borrowers’ ability to pay back due to slower business activities and lower returns of income.

Government figures noted an increase in total money loaned out by private banks in the CNMI during the fourth quarter of 1998 which amounted to $304.71 million, compared with the previous year’s $279.98 million.

However, private banks loaned out lesser money during the last three months of 1998 compared with the amount recorded during the same year’s previous quarter at about $306 million.