Bank liabilities balloon 9%

Bank liabilities soared nearly nine percent in the third quarter of the calendar year to $603.7 million from last year of the same period’s $555.6 million, according to a government document which compiles reports submitted by banking institutions in the Commonwealth.

Assets paled in comparison to liabilities, reaching only $255.7 million in the July-September 2000 period which indicated slowdown in overall revenue-generating activities by banks as a result of the shrinking local market for loans.

The persistent increase in the volume of deposits and the declining number of loan transactions contributed to the deficiency between liabilities and assets which shrunk to 42.4 percent from last year’s 54 percent.

First Hawaiian Bank Saipan branch manager Robert I. Gardiner said more loans are currently being paid out compared with the number of lending transactions, manifested by the modest overall growth in interest income from $18.4 million last year to $20 million this year.

The 2000 Quarterly Banking Report prepared by the commerce department also revealed major increase in the overall interest expense of banks in the Northern Marianas, reaching $13 million this year from $11 million in the third quarter of 1999.

Bankers attribute this to the increasing volume of deposits during the period under review. Banks consider deposits as liabilities since they do not generate income from them, and instead pay interest.

While deposits suffered a moderate drop in the third quarter compared with the previous period, government reports disclosed the total amount has been consistently growing, from $529 million in the first quarter of 1999 to $570 million by end-1999, reaching $604 million by end-September 2000.

By end-1998, commercial and savings banks in the CNMI registered about $522 million in total deposits, up from the 1997 figure of $481.1 million. In 1996, financial institutions in the commonwealth recorded only $463 million in total deposits.

Government banking specialist Jesse Palacios said bank assets have, in fact, been going up since 1994. He said the increase could be sign of a strong banking infrastructure in the Northern Marianas although he recognized the fact that the economic crisis had taken its toll on the lending activities.

The amount of loans over deposits during the third quarter of the year dropped to 42.4 percent from 54 percent in the same period in 1999. Six of the eight banks in the Northern Marianas registered growth in the amount of deposits in the same period.

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

Government records disclosed the average loan to deposit ratio in the Northern Marianas was persistently within the 50-percent mark before it fell to 42.9 percent in the second quarter of the year, 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.