Bank loans shrink to $288-M

Bank loans shrunk 0.5 percent to $288.3 million in the last quarter of 1999 compared with the same period the previous year, according to statistics obtained from the Banking Division of the commerce department.

Although there is a growing demand for cash due to the worsening economic condition, officials said banks have taken a more conservative approach in their dealings with loan application because of the borrowers’ weakened ability to pay back.

Consumer loans fell 10 percent from $83.6 million during the fourth quarter of 1998 to $74.7 million in the same period last year, due to a dramatic cut down on spending.

Despite a massive refinancing of loans by property owners since a big chunk of commercial and residential spaces are literally empty, real estate loans dropped 0.2 percent to $53.4 million during the same period from $54.7 million in 1998.

Money borrowed for commercial purposes edged downward 0.3 percent to $159.9 million from $165.3 million. Commerce officials said this is a strong indication that economic activities on the island are yet to pick up from the Asian crisis.

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

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.