Lending activities down 15 percent

In what appears to be an alarming sign that the CNMI economy is yet to witness even the slightest growth, private banking institutions have cut down lending activities in the third quarter of the year by as much as 15 percent.

Overall amount of loan agreements approved by eight commercial and savings banks in the Northern Marianas shrunk by $44.5 million to $255.7 million in the third quarter of 2000 from $300.2 million of the same period last year.

According to a report prepared by Jesse Palacios of the commerce department’s Banking Division, only loan agreements with the Commonwealth government registered growth in the period under review.

Banks have loaned out $10.7 million to the CNMI government in the July-September 2000 period, jumping 24.4 percent or increasing by about $10.3 million, from last year’s $422,000, the Quarterly Banking Report disclosed.

Slowdown in business activities sine 1997 also prompted banks to pull down lending base for commercial loans, which are usually given to businesses, by 21 percent which translates to around $36.75 million.

During the July-September 2000 period, private banks operating in the CNMI approved the release of only $136.69 million in consumer loans, down from the previous year of the same quarter’s $173.34 million.

Slowdown in construction activities also pulled down real estate loans by a whooping 26 percent from $51.521 million to $38.286 million, or a difference of more than $13 million, according to the commerce department’s report.

Weaker ability of borrowers to service their loans due to the turtle-pace recovery of the CNMI economy also forced commercial banks to cut lending base for consumer loans by seven percent from $74.97 million to $70 million.

Another 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.