Banks note disparity in volume of loans, deposits

Slowdown in lending during the second quarter of the calendar year has taken another toll in the banking sector’s loan to deposit ratio, which dropped whooping 8.2 percent to 42.9 percent from the first three month’s 51.1 percent.

Commerce officials said the major fall in the ratio of loans as against deposits during the second 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 ration in a particular economy, said officials from the commerce department.

In the first three months of last year, loan to deposit ratio reached 55.6 percent in, dropping to 51.1 during the same period this year, a report obtained from the Banking Division of the commerce department disclosed.

Government records disclosed the average loan to deposit ratio in the Northern Marianas continues to be within the 50-percent mark, 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.

A government quarterly report disclosed loan agreements approved by banks in the April-June 2000 period amounted to $260.9 million, down by 11 percent from the previous quarter’s $293 million.

Private loans fell 12 percent in the same period to $252.106 million from the previous quarter’s $285.565 million, although real estate loans registered a modest growth of two percent to exceed the $50 million-mark from $49.5 million in the first three months of the year.

The overall reduction in total volume of loans approved by CNMI banks was mitigated by the significant increase of 18 percent in government loans during the April-June 2000 period, compared with the quarter-ago.

Commerce department records showed banks approved a total of $8.765 million in government loans between April and June this year. In the first three months of 2000, some $7.435 million in total credit agreements were entered into with the CNMI government.

Officials said the increase in the volume of deposits and the modest drop in approved loan agreements explain the 4.5 percent decline in the loan to deposit ratio, coupled with current market conditions on the island.

At the same time, restrictions on land ownership on the island, as guaranteed by Article 12 in the CNMI Constitution, topped the very few reasons cited by bank officials in the industry’s failure to meet the standard 70 percent loan to deposit ratio.

Aside from the Article 12 restrictions, CNMI bankers also said the local banking sector lags behind the industry standard on the loan to deposit ratio because of the lack of active real estate market on the islands.

Banks also cited as reason to its inability to meet the industry standard the Commonwealth’s heavy reliance on nonresident workers and the uncertainties about future economic viability caused by this dependence on foreign labor.