CDA loans shrink 21 percent

The Commonwealth Development Authority approved more than $6.5 million in direct and guaranteed loans last year, or a 21 percent drop from year ago’s $8.3 million.

Guaranteed loans fell marginally by .07 percent from $6.042 million in 1998 to $5.6 million last year, while direct loans stumbled by 57 percent to $947,000 from the previous year’s $2.215 million.

CDA’s lending base expanded two years ago to $8.3 million compared with about $7 million in 1997.

The increase in the volume of loan applications in 1998 was attributed to the severe economic conditions in the Northern Marianas brought about by a major plunge in visitor arrivals figures due to the Asian currency crisis.

During that time, more than 1,700 establishments which were not able to deal with financial difficulties closed down while several thousands others opted to borrow money from both government and private financial institutions to stay afloat.

Lending institutions have, however, adopted stricter loan requirements considering the fact that the recession virtually crippled the borrowers’ ability to pay their loans back.

Private financial institutions have adopted a more cautious, conservative approach in processing loan applications due to the worsening economic conditions in the islands.

Financial institutions have also considered freezing any expansion on their respective lending base until the local economy shows significant signs of improvement or when the borrowers’ capability to repay loans is stronger.

In light of the agency’s shrinking lending base, Board Chair John S. Tenorio said CDA has started providing loan guarantees through private lending institutions to facilitate continued development of new projects.

Mr. Tenorio said that although the recession have forced many “weak businesses” to close down, it provided expansion opportunities to stronger businesses.

At the same time, he said the crisis paved the way for businesses to create greater efficiencies by downsizing and evaluating approaches to becoming more competitive.

Mr. Tenorio added that the lending agency would also give financial, technical and advisory assistance to the private sector, as well as assist in the identification, formulation and promotion of new projects.