CDA expects delinquency rate to exceed 15%

The Commonwealth Development Authority is expecting the delinquency rate for the month of April to exceed the 15 percent registered during the first three months of the year due to the persistently slow rally of the local economy.

“The delinquency rate for the month of April is very high because most clients are not paying in their regular monthly obligation,” said CDA Executive Director Marylou S. Ada in an interview.

Ms. Ada said the anticipated increase in the delinquency rate is a result of the ongoing discussions with existing borrowers who have been asking CDA for a reduction in monthly amortization because of low investment turnout.

She said CDA has installed mechanisms to accommodate monthly amortization from borrowers that are lower than what was stipulated in the loan agreement.

“We’ve come up with ways to be able to work with borrowers because we want to help them salvage their businesses since foreclosure would mean bigger problems for both our clients and CDA,” Ms. Ada said.

The government-owned financial institution is expected to implement the reduced payment system in at least two years or when economic experts predict a major turnaround of the local economy.

The flexible payment scheme was instituted to prevent more foreclosures, especially by businesses who have existing loans from the development authority.

She disclosed the current delinquency rate is higher than the 15 percent registered during the first three months of the year but promptly added that this is because clients pay lower than what was agreed upon in the loan contract.

She said experts from the government-controlled lending agency are still finalizing financial reports but stressed that initial figures point to higher number of remiss or delinquent borrowers.

At present, the development authority has at least 220 clients. CDA has an aggregated outstanding loan portfolio of around $39 million for fishing, farming and commercial purposes.

CDA Board Chair John S. Tenorio earlier revealed a two-percent increase in delinquency rate which indicated a distressing growth in the number of remiss borrowers in the first three months of the year.

The two percent rise in the January-March loan payment delinquency brought to 15 percent the development authority’s overdue collectibles. CDA reported a 13 percent delinquency rate by end-December 1999.

Mr. Tenorio said if the increase in the delinquency rate of the government’s prime lending agency would continue at the first quarter level, it may translate to more than $2 million in unpaid and overdue collectibles from its $80 million portfolio each year.

Records obtained from CDA noted that the financial institution’s monthly collections fell by more than 40 percent from the average $700,000 to only $400,000 during the first three months of the year.

Under existing local statutes, loans are considered non-performing if borrowers failed to service their monthly obligation within 90 days.

Mr. Tenorio believes that the increasing delinquency rate indicate that local businesses continue to crumble from the adverse effects of the worst economic crisis ever to hit the region, which drew fewer visitors into the Northern Marianas.