Downtrend in banks’ lending noted

Weaker ability of borrowers to service their loans due to the turtle-pace recovery of the CNMI economy forced commercial banks to cut lending base by as much as 11 percent in the second quarter of the year.

A quarterly report from the commerce department disclosed a downward trend in the amount of loans approved by private banking institutions beginning in the third quarter of the calendar year 1999.

Commerce officials said private banks normally adapt a more cautious, conservative approach on approving loan applications in times like this when the economy persistently rallies weaker and slowly.

Private banks also usually freeze 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 particularly impacted service-type establishments or businesses related to the CNMI’s billion-dollar tourism industry which has been badly hurt by the recession.

During the third quarter of 1999, bank loans totaled $300.2 million which dipped four percent to $288.3 million in the October-November period, the government report said.

The Banking and Insurance Division disclosed loan agreements approved by banks in the April-June 2000 period fell to $260.9 million 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.

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.

Consumer loans also suffered a setback, declining by 3.3 percent from $72.702 million in the January-March period to $70.286 in the second quarter of the calendar year, in what analysts said was a diminishing confidence on the borrowers’ capability to pay back due to economic upheavals.

Private banks have also taken a stricter approach on commercial loans which manifested a dramatic fall of about 20 percent to $131.477 from the previous period’s $163.389.