Banks cut lending base for private loans by 3%

In what appears to be a sign of declining confidence in the borrowers’ ability to pay, banking institutions in the Northern Marianas have reduced lending base for private loans during the first quarter of the year.

A report obtained from the Banking and Insurance Division of the commerce department disclosed loan agreements approved by banks for private clients fell three percent in the January-March 2000 period to $285.565 million from the year ago’s $294.774 million.

Consumer loans dropped 10 percent to $72.702 million in the first quarter of the year from last year of the same period’s $80.360 million, in what finance analysts said was a diminishing confidence on the borrowers’ capability to pay back due to economic contraction.

Private banks have also taken a stricter approach on commercial loans which manifested a modest fall of 0.7 percent to $163.389 million from last year’s first quarter tally of $$164.466 million.

Increased activity in home improvement like renovation spurred the marginal increase of 0.3 percent in real estate loans approved by banking companies, reaching $49.474 million in the first three months of 2000 from last year’s $49.348.

The decline in loans approved by banking companies for private-sector packages dragged overall tally down 0.5 percent from last year’s $294.620 million to $293 million in the January-March 2000 period.

The interim financing agreement sealed by the CNMI government though the Commonwealth Development Authority with the Bank of Guam early this year provided the necessary push in overall loan figures for the period under review.

The money loaned out by Bank of Guam to the Commonwealth government will be used to fund major infrastructure projects identified in the Covenant 702 CIP Master Plan.

Negotiations surrounding the interest rate of the $30 million interim financing took six months with the government ending up with a little over seven percent in a deal struck in February.

The interim financing caused first quarter government loans to shoot up by over 1,500 percent from only $446,000 in the same period last year to $7.435 million, according to statistics from the commerce department.

In the last quarter of 1999, bank loans shrunk 0.5 percent to $288.3 million compared with the same period the previous year despite growing demand for cash due to worsening economic condition.

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.

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.