Loans at record levels despite uncertainty
The loan portfolios at Jamaica’s commercial banks have surpassed $1 trillion, fuelled by record levels of household debt but tempered by shrinking exposure to certain sectors, including agriculture and entertainment.
The growth reflects the stated strategy of the banks to grow loans in the mortgage and consumer debt categories.
The stock of bank loans grew eight per cent to $1 trillion as of June and was 19 per cent higher than in June 2020, according to Bank of Jamaica data. Non-performing loans accounted for 2.8 per cent of portfolios, well within the regulatory limit.
The largest growth in loans came from the personal category, which surpassed $520 billion, reflecting a 13 per cent rise above 2021 levels and 24 per cent relative to 2020 when the pandemic was in full force.
In other words, consumers have added an extra $100 billion to their debt load since the pandemic.
At Scotia Group Jamaica, which holds the second largest loan book at $220 billion, behind NCB Financial’s $560 billion, its President and CEO Audrey Tugwell Henry indicated that borrowing activity remained fairly robust in the wake of the company’s third-quarter financial report released more than a week ago.
“The mortgage business is an area of focus for us as home ownership remains a key financial objective of our customers,” said Tugwell Henry in a statement appended to the bank’s July quarter financial report.
Mortgage loans are up by more than 25 per cent at the bank.
“In our commercial business, we saw continued improvement with a 7.0 per cent increase in the loan portfolio versus the previous quarter, reflecting an uptick in loan demand as the economy opens up, following the lifting of the disaster risk management measures,” the bank president said.
Household loans are trending at their highest levels both in dollar terms and as a percentage of gross domestic product.
The net debt levels of households climbed from 18.6 per cent in the December 2019 quarter to 36.5 per cent in September 2021 before cooling slightly to 34.4 per cent in December 2021, according to the latest BOJ Prudential Policy Report.
Outside of personal loans, the bulk of loan increases occurred in the mining sector, up 150 per cent since the onset of the pandemic; followed by loans to financial institutions, up 75 per cent; then overseas residents, up 45 per cent; and loans to the transportation sector, up 35 per cent.
Loans to the entertainment sector, however, dipped by nearly one-third since the pandemic, more than any other sector, due to its virtual shutdown for two years during the pandemic. That equated to a $725 million reduction in the outstanding loan balance to the sector since June 2020. Construction loans also fell by 18 per cent and agriculture by 13 per cent.
Entertainment loan balances were hovering at $1.7 billion as at June, down 28 per cent year on year and 29 per cent since 2020.