Bank assets soar 27 percent in 4Q • NMI seeing a turnaround in lending activities; It’s a good sign, bankers say

The need for additional financing by local businesses paved the road for a significant increase in banking activities in the Northern Marianas, with bank assets growing 27 percent and liabilities modestly dropping by 1.3 percent by end-December 2000.

A report from the Banking and Insurance Division of the commerce department disclosed outstanding loans soared 27 percent to $325 million in the last quarter of the calendar year 2000 from the previous period’s $255.7 million.

This, as liabilities dropped 1.3 percent to $596 million from the last quarter’s $604 million as bank clients see lesser need to save on savings and commercial deposits due to increased activities in the tourism industry.

Loans, which banks consider assets since these generate revenues for them in terms of interests, had been on a steady decline beginning the first quarter of last year, dropping from $293 million to $256 million in the third quarter.

Correspondingly, loan to deposit ratio dipped from 51.1 percent in the first quarter to 42.4 percent in the July-September period, and rebounded to 54.6 percent towards the end of the year.

Government loans dropped to $2.8 million during the period under review, posting a dramatic fall of 74 percent from $10.7 million in the third quarter when the Commonwealth sealed a multi-million bridge financing for Capital Improvement Projects with the Bank of Guam.

Volume of consumer loans in the last quarter was slightly higher compared with that of the previous period, from $70.058 million to $70.790 million by end-December 2000.

Activities in the construction industry contributed little growth in the overall increase of bank assets, pitching in an additional $3.7 million to total $42 million from the third quarter’s $38.3 million.

Needs by small- and medium-scale businesses for more funding spurred the overall growth of bank assets, as commercial loans amounted $210 million that is higher by 53 percent from the previous quarter’s $137 million.

Bank officials said the growth loans could manifest increasing business activities and confidence on the borrowers’ repayment capability, after years of economic stagnation since the adverse impacts of the Asian crisis started fanning towards the CNMI.

The increase in the amount of loans over deposits during the fourth quarter of last year indicate that more people are now coming to the banks to secure loans.

During the first three quarters of 2000, six of the eight banks in the Northern Marianas registered growth in the amount of deposits while more loans are being paid out and fewer transactions for new applications are being processed.

Stiffer Competition

The very limited market for loans in the Commonwealth are forcing the eight banking institutions to come up with a more competitive lending package in order to increase their profitability by loaning out more money.

Competition among industry players for borrowers have become tougher primarily because the economic crisis has weakened prospective clients’ ability to pay.

Revenue-generating capabilities are normally weak and properties are usually appraised lower than they used to during economic difficulties, making it harder for some borrowers to strike a credit deal.

Government officials said the process wherein finance companies like banks identify which of the prospective customers have the stronger ability to pay back practically eliminates the segment in the community which is less likely to obtain loans.

Financing companies end up competing against each other over the smaller number of customers who can qualify to obtain a credit, they said, adding that this result to the sharp decline in the amount of outstanding loans.

At the same, customers have become more aware of the varying packages offered by different banking and financing companies on the island as they have started shopping for the best interest rates.

Commerce officials said the major fall in the ratio of loans as against deposits during the third quarter of 2000 indicates the persistence of the adverse effects of the Asian financial upheavals in the Northern Marianas economy.

Market conditions are the main factors that determine the acceptable loan to deposit ratio in a particular economy, said officials from the commerce department.

Government records disclosed the average loan to deposit ratio in the Northern Marianas was persistently within the 50-percent mark before it fell to 42.9 percent in the second quarter of the year, a figure that is far lower than the local industry standards.

The target loan to deposit ratio in the Northern Marianas is at least 70 percent, which is lower than the Guam banking industry’s standard of 80 percent.