5 days ago
6
The Bank of Jamaica (BOJ) expects borrowers to fall behind on loan payments in the wake of Hurricane Melissa, with non-performing loans (NPLs) projected to double.
The central bank said the fallout from Hurricane Melissa – one of the most severe disasters on record – will strain households and businesses but should not destabilise the financial system.
NPLs, defined as loans unserviced for three months or more, stood at $42.9 billion in September, according to BOJ data. They were already close to twenty-five-year highs and the forecasted doubling would push the figure to about $86 billion. That would equate to the highest level since records began in March 1999, according to BOJ datasets analysed by the Financial Gleaner.
Deputy Governor Dr Jide Lewis acknowledged the expected deterioration.
“We are anticipating that there will be deterioration in terms of the credit quality of [the banks’] portfolios. Fortunately, the banking system entered into this episode with very low NPLs,” he said at the central bank’s Quarterly Monetary Policy press conference on Monday.
As of October 27, the day before Melissa struck, some 2.7 per cent of loans were non-performing. The BOJ now anticipates that ratio will grow over the next four to five quarters, reaching as high as 6.0 per cent. “Globally, prudential supervisors become concerned about NPLs at about 10 per cent of the portfolio,” Dr Lewis said, adding that even at double the current level, the figure remains manageable. “As you can see, that’s still going to be some way below that 10 per cent threshold.”
The BOJ added that banks remain well capitalised, meaning their assets surpass liabilities with a buffer of 10 per cent or more.
“For every dollar of NPLs, they have a dollar of funds reserved to be able to pay off and write down that loss. They also have buffer capital…at about 14.5 per cent. So they were four and a half percentage points above the minimum,” Dr Lewis said.
The regulator noted that international benchmarks aim to keep NPLs below 10 per cent, though some local institutions target half that amount, the Financial Gleaner understands. The BOJ, however, did not respond to queries when pressed on internal targets.
Still, doubling NPLs will affect lives. Non-payment can lead to further deterioration of credit once loans surpass 90 days, eventually entering bad-debt territory. Credit cards and microlending – often carrying interest rates near 50 per cent – are typically the first facilities affected, followed by car loans, and then mortgages. BOJ Governor Richard Byles pointed to expectations of fallout among tourism workers, particularly at properties in western parishes that remain shuttered. But other properties are reporting reopening delays and guest cancellations. He added that “already, we have received reports indicating worker lay-offs”.
The hurricane caused damage estimated at over US$8.8 billion, equivalent to 40 per cent of Jamaica’s total output, or GDP. Byles noted that the storm will trigger an “inflation shock” beyond the immediate impact on agricultural food and electricity prices.
“As a result, the upside risk of the disaster on the inflation outlook is greater, meaning that inflation could be higher than forecast,” he noted.
Last week, the Monetary Policy Committee voted unanimously to hold the policy rate at 5.75 per cent, pledging to curb inflation and remain proactive in preserving price stability in the foreign exchange market.
English (US) ·