Credit Conditions Survey

Transcription

1 Credit Conditions Survey December 2013 quarter Contents Background 3 Overview 4 Personal Lending 6 Unsecured Personal Lending 7 Secured Personal Lending 8 Micro Business Lending 10 Small Business Lending 14 Medium-Sized Business Lending 18 Prepared by the Monetary Analysis & Programming Department Research & Economic Programming Division Large Corporate Lending 21 Appendix: Additional Results 25 Glossary and Key Definitions 26

2 List of Tables and Charts Chart 1-Sectoral distribution of private sector loans and advances 4 Table 1-Credit conditions indices 4 Chart 2-Credit availability to households 6 Chart 3-Approval rates on personal loans 6 Chart 4-Demand for personal loans 7 Chart 5-Drivers of demand for unsecured personal credit 7 Chart 6-Factors affecting demand for secured personal credit 8 Table 2-Weighted average lending rate on personal loans 8 Chart 7-Credit availability to micro businesses 10 Chart 8-Approval rates on loans to micro businesses 10 Chart 9-Drivers of credit availability to micro businesses 10 Chart 10-Credit demanded by micro businesses 11 Chart 11-Drivers of secured credit demanded by micro businesses 11 Chart 12 Drivers of unsecured credit demanded by micro businesses 12 Table 3-Weighted average Lending rate on loans to micro businesses 13 Chart 13- Credit availability to small businesses 14 Chart 14-Approval rates on loans to small businesses 14 Chart 15-Drivers of credit availability to small businesses 15 Chart 16-Credit demanded by small businesses 16 Chart 17-Drivers of demand for secured credit by small businesses 16 Chart 18-Drivers of demand for unsecured loans by small businesses 16 Table 4-Weighted average lending rates on loans to small businesses 17 Chart 19-Credit availability to medium-sized businesses 18 Chart 20-Approval rates on loans to medium-sized businesses 18 Chart 21-drivers of credit availability to medium-sized businesses 18 Chart 22-Credit demanded by medium-sized businesses 19 Chart 23-Drivers of demand for secured credit by medium-sized businesses 19 Chart 24- Drivers of demand for unsecured credit by medium-sized businesses 20 Table 5-Weighted average lending rates on loans to medium-sized businesses 20 Chart 25-Credit availability to large, corporate & commercial businesses 21 Chart 26-Approval rates on loans to large, corporate & commercial businesses 21 Chart 27-Drivers of credit availability to large, corporate & commercial businesses 22 Chart 28-Credit demanded by large,corporate & commercial businesses 22 Chart 29-Drivers of demand for secured credit by large, corporate & commercial businesses 23 Chart 30-Drivers of unsecured credit by large, corporate & commercial businesses 23 Table 6-weighted average lending rates on loans to large, corporate & commercial businesses 24

3 Background In order to meet its core mandate to maintain monetary and financial stability, the Bank of Jamaica seeks to appraise a wide range of data on credit market conditions. In this regard, the Bank of Jamaica s Credit Conditions Survey was designed to broaden the range of credit statistics used in the analysis of inflation and to determine the risks to growth in private sector credit. The survey is conducted online on a quarterly basis among commercial banks, building societies, near banks and credit unions. It was designed to elicit primarily qualitative information on changes in the demand and supply of credit to businesses and individuals as well as the main factors underpinning these changes including various price and non-price terms of lending and other credit market developments. The results presented in this report are based on the credit conditions indices constructed from the survey results. Each credit conditions index (credit demand or credit availability index) is a single metric used to assess overall changes in demand for credit from households and businesses or the amount of credit made available to households and businesses. The credit conditions indices range from 0 to 200. An index less than 100 indicates a decline in the particular variable whereas an index greater than 100 indicates an increase in the variable in question. 1 The interest rates presented in this report are based on the average interest rates reported by the respondents of the survey. This report presents the results of the December 2013 survey which was conducted between 29 January 2014 and 07 March Overview of the Responses to the December 2013 Credit Conditions Surveys S u rv e y s C o m p le te d P e rs o n a l Lo a n s M icro B u s in e s s e s S m a ll B u s in e s s e s M e d iu m - s iz e d B u s in e s s e s La rg e, C o p e ra te & C o m m e rcia l B u s in e s s e s C o m m e rcia l B a n k s B u ild in g S o cie tie s N e a r B a n k s C re d it U n io n s T o ta l See glossary and key definitions for further details on the construction of the credit conditions indices. 2 The results presented in this report are based on lenders responses to survey questions and do not necessarily reflect the Bank s views on credit conditions. See the glossary for the computation of aggregate results.

4 4 Overview At end-december 2013, the stock of credit in the banking system was $ 467, million. 3 Of this stock, the Bank of Jamaica s Credit Conditions Survey suggests that 63 per cent of these loans were distributed to households and 37 per cent to businesses across all firm sizes (see Chart 1). 4 Table 1-Credit conditions indices C re d it In d ice s D e c M a r- 1 4 A v a ila b ility o f C re d it A v a i l a b i l i ty o f cre d i t to b u s i n e s s e s A v a i l a b i l i ty o f p e rs o n a l cre d i t Chart 1-Sectoral distribution of private sector loans and advances C re d it D e m a n d D e m a n d b y b u s i n e s s e s D e m a n d b y i n d i v i d u a l Distribution of Private Sector Loans Personal Credit as a Percentage of Total Credit, 63% Credit to Micro Businesses, 1% Credit to Small Businesses, 17% Credit to Large Businesses, 57% Credit to Medium Businesses, 25% D e m a n d f o r l o ca l cu rre n cy l o a n s D e m a n d f o r f o re i g n cu rre n cy l o a n s A v e ra g e ra te s o n lo c a l c u rre n c y lo a n s to b u s in e s s e s A v e ra g e ra te s o n l o ca l cu rre n cy p e rs o n a l l o a n s A v e ra g e p ri m e ra te o n l o ca l cu rre n cy l o a n s ( % ) ( % ) Lenders reported that they increased marginally the quantity of credit made available to the private sector for the December 2013 quarter (see Table 1). That increase reflected a moderate expansion in the availability credit to the productive sector which was partially offset by a decline in credit made available to individuals and households. 3 This represents the total loan portfolio of all institutions that participated in the survey. 4 Chart 1 shows the distribution of credit between households and businesses. Credit to businesses is disaggregated to show to total loans to various firm sizes as a percentage of total business loans. A v e ra g e ra te s o n f o re ig n c u rre n c y lo a n s to b u s in e s s e s A v e ra g e p ri m e ra te o n f o re i g n cu rre n cy l o a n s (<100)- Decline, (100)-no change, (>100)-increase While the availability of credit to businesses increased during the review quarter, lenders reported that weak economic conditions have restrained credit to the productive sector given its adverse impact on the performance of businesses working capital. As a consequence, institutions have implemented more restrictive credit requirements to prevent the accumulation of non-performing loans.

5 5 Credit availability in the December 2013 quarter was reportedly affected by liquidity challenges faced by lenders. This impacted both the quantity and the cost of credit. In this regard, there was a general increase in the interest rates on local currency loans. For the March 2014 quarter, lenders indicated they intend to increase the quantity of credit made available for local currency loans to both businesses and individuals. For the December 2013 quarter, credit demanded by both business and individuals declined marginally (see Table 1). This fall reflected a sharp decline in foreign currency loans to businesses as there was an increase in the demand for local currency loans 5. For the March 2014 quarter, lenders also anticipate an increase in local currency loan demand, while the demand for foreign currency loans is expected to decline further. The fall in the demand for foreign currency loans was largely attributed to the faster pace of depreciation of the exchange rate as well as a reduction in the supply of US dollars. 5 Foreign currency loans are reflective of foreign currency denominated loans to domestic businesses.

6 6 Personal Lending For the December 2013 quarter, there was a general decline in the supply of credit for personal lending (see Chart 2). Notwithstanding this, lending via credit cards increased during the quarter. The supply of credit is expected to increase for all categories of personal loans for the March 2014 quarter. Chart 2-Credit availability to households Credit Availability to Households In this context, lenders reportedly tightened lending conditions by reducing the maximumloan-to-value (LTV) ratio while maintaining all other conditions of personal credit. Consequently, there was a marked decline in approval rates on loans to individuals particularly for motor car loans and other unsecured personal loans (see Chart 3). In the upcoming quarter, credit conditions on secured personal loans are expected to be less restrictive reflecting an increase in the maximum loan-to-value ratio and the maximum debt service ratio. Credit Supply Index Dec-13 Quarter Credit Card Unsecured Personal Loans Mar-14 Quarter Economic Sectors Mortgages & Real Estate Other Secured personal Loans Chart 3-Approval rates on personal loans Approval Rates for Personal Loans Personal Loan Categories The reduction in the availability of credit to households during the review quarter was largely influenced by changes in the cost of funds facing lenders and the limited availability of funds for lenders to access in the tight liquidity environment. Lenders also cited changing economic conditions and the relatively higher risks associated with lending to individuals and households as significant contributors to the restraint exercised in granting personal loans during the quarter. Dec-13 Quarter Mar-14 Quarter Overall demand for credit by households declined during the December 2013 quarter. This decline reflected an overall reduction in unsecured loans. In contrast, the demand for secured loans remained unchanged relative to the September 2013 quarter. A marginal increase in the demand for credit is anticipated for the March 2014 quarter (see Chart 4).

7 Credit Demand Index Bank of Jamaica Survey of Credit Conditions December 2013 Quarter 7 Lenders posited that interest rate levels and increased macroeconomic risks had the most significant impact on reducing the demand for secured personal loans. Likewise, borrowers of unsecured credit were most impacted by the macroeconomic risks and other factors. For the March 2014 quarter, lenders expect interest rates to remain the main factor that will determine the demand for secured loans. Notwithstanding this, loan promotional activities were expected to drive the anticipated increase in the demand for unsecured personal loans during the quarter. quarter given an anticipated increase in the approval rate on these loans. Similarly, there was a sharp reduction in the demand for unsecured credit during the review quarter. This reflected declines in the demand for both personal credit cards and other unsecured loans. Lenders attribute this decline in demand to growing macroeconomic risks. For the March 2014 quarter, unsecured personal loans are expected to increase marginally, reflecting increases in the demand for credit cards and other unsecured loans. Chart 4-Demand for personal loans Credit Demand: Personal Loans For the ensuing quarters, lenders indicate that the demand for personal loans is expected to be constrained by continuing weakness in the domestic economy Chart 5-Drivers of demand for unsecured personal credit Factors Influencing Unsecured Personal Credit Demand Local currency: Dec-13 Local Currency: March 14 Personal Income Other factors Promotional Activities Unsecured Personal Lending Unsecured credit made available to households declined moderately in the December 2013 quarter relative to the September 2013 quarter (see Chart 2). This decline was largely influenced by a reduction in the approval rate on credit cards and other unsecured loans. Notwithstanding this, a marginal increase in unsecured credit is expected in the March 2014 Macroeconomic Risks Interest Rates Government Policy Unsecured Credit:Mar-14 Unsecured Credit:Dec-13

8 8 Secured Personal Lending Lenders reported a moderate decline in the quantity of secured credit made available such as mortgages, real estate and other secured loans over the review period. However, there was an increase in the approval rate on mortgages, which may be attributed to the decline in the number of applications for mortgage loans. In contrast, the approval rates on other forms of secured credit declined during the December 2013 quarter. This reduction may be attributed to increased screening by lenders due to the operations of the credit bureaus. For the March 2014 quarter, lenders are anticipating a moderate increase in the availability of credit made available for secured lending, which will be supported by an increase in the approval rates on these loans. Despite the decline in credit availability, the demand for secured credit remained constant in the December 2013 quarter. However, the demand for secured credit is expected to increase in the March 2014 quarter. Lenders attributed the development in the December 2013 quarter to an increase in interest rates and macroeconomic risks during the quarter. For the March 2014 quarter, interest rate changes and less stringent collateral requirements are expected to drive the anticipated increase in credit demand. Table 2-Weighted average lending rate on personal loans Chart 6-Factors affecting demand for secured personal credit Collateral Value personal Income Other factors Promotional Activities Macroeconomic Risks Interest Rates Government Policy In te re s t R a te s o n P e rs o n a l Lo a n s Lo a n C a te g o ry D e c- 13 M a r- 14 C h a n g e Factors Influencing Secured Personal Credit Demand Secured Credit:Mar-14 Secured Credit:Dec-13 ( % ) ( % ) ( % ) M o rtgage s ( 0.03) O th e r s e cu re d p e rs o n a l lo a n s C re d it ca rd s O th e r u n s e cu re d p e rs o n a l lo a n s A ve rage rate s Lenders reported that the average rate on personal loans was 20.63% in the December 2013 quarter. This is expected to increase marginally to 20.65% in the March 2014 quarter given to anticipated increase in unsecured personal loans, excluding credit cards. The weighted average lending rate on new local currency credit cards averaged 40.38%. No change in this rate was anticipated for the March 2014 quarter. The weighted average

9 9 lending rate on other local currency unsecured loans averaged 18.57%. This rate was expected to increase to 18.68% in the upcoming quarter. The rates on mortgages and other secured personal loans averaged 10.47% and 13.11%, respectively. Mortgage rates are expected to fall by 3 bps to 10.44% for the March 2014 quarter.

10 Credit Index Bank of Jamaica Survey of Credit Conditions December 2013 Quarter 10 Micro Business Lending For the December 2013 quarter, there was a moderate increase in the quantity of credit made available to micro businesses relative to the previous quarter (see Chart 7). This increase was despite a marginal decline in approval rates. For the March 2014 quarter, a stronger increase in credit availability to this sector is anticipated. This will however be restrained by the anticipated decline in the approval rate (see chart 8). Chart 7-Credit availability to micro businesses Chart 8-Approval rates on loans to micro businesses Approval Rates for Loans Micro Businesses Loan Purposes Dec-13 Quarter Mar-14 Quarter 128 Credit Availability: Micro Businesses Credit Supply Index Chart 9-Drivers of credit availability to micro businesses Factors Influencing Credit Availability to Micro Businesses Sector-Specific Risks Capital Market Pressures Competition Economic Sectors Dec-13: Credit Supply Mar-14: Credit Supply Average Supply-Dec-13 Average Supply-Mar-14 The increase in credit availability for the review quarter was attributed to improvements in economic outlook, economic sector specific risks and changes in competition among lenders (see Chart 9). These factors were also expected to be the leading contributors to the anticipated increase in credit availability in the March 2014 quarter. Cost or Availability of Funds Dec-13 Appetite for Risk Loan Portfolio Mix Market Share Objectives Economic Outlook Mar-14 0% 20% 40% 60% 80% 100% Net Percentage Balance of Opinion (-) Insignificant Factors, (+) Significant Factors There was a marginal increase in loan demand from micro businesses for the December 2013 quarter. This reflected a moderate increase in

11 Credit Demand Index Bank of Jamaica Survey of Credit Conditions December 2013 Quarter 11 local currency loans to all sectors except Manufacturing. This was partially offset by a decline in foreign currency loans (see Chart 10). Loans demanded by micro businesses for the quarter were for the purposes of inventory & working capital financing and commercial real estate. Lenders reported a decline in demand for loans to refinance existing loans and purchase commercial motor vehicles. For the upcoming quarter, lenders are anticipating a further increase in demand for local currency loans. However, the decline in foreign currency loans observed in the December quarter will also obtain in the March quarter. Chart 10-Credit demanded by micro businesses Credit Demanded By Micro Businesses however, partially offset by a decline in business activities. For the March 2014 quarter, a decline in interest rates is also expected to stimulate loan demand. However, an anticipated reduction in loan promotion and business activities may restrain credit demand. Credit demand over the December 2013 quarter may have also been impacted by tightened conditions reported by lenders. In this context, lenders reported higher fees on both secured and unsecured loans offered to micro businesses. Additionally, the maximum repayment period on secured loans was lowered which may have also been a hindrance to loan demand. For the March 2014 quarter, lenders will reportedly loosen credit conditions to drive loan demand. In particular, fees on secured loans to micro businesses are expected to fall. Chart 11-Drivers of secured credit demanded by micro businesses Other factors Factors Influencing Secured Credit Demand Promotional Activities Sector Developments Macroeconomic Risks Local Currency:Mar-14 Foreign Currency:Mar-14 Foreign Currency:Dec-13 Local currency: Dec-13 (right) Interest Rates Government Policy Business Activities The increase in demand observed for the review quarter was largely attributable to a reduction in interest rates on secured and unsecured loans to micro firms (see Charts 11-12). This was Mar-14 Dec-13

12 12 Chart 12 Drivers of unsecured credit demanded by micro businesses Factors Influencing Unsecured Credit Demand in interest rates reflects a fall in rates to all sectors except Construction & Land Development (see Table 3). Other factors Promotional Activities Sector Developments Macroeconomic Risks Interest Rates Government Policy Business Activities Mar-14 Dec-13 Lending rates on local currency loans to micro businesses averaged 22.21% for the review quarter while the average interest rate on foreign currency loans was 12.24%. Local currency loans to Distribution, Electricity, Gas & Water and Mining & Quarrying were priced at the highest lending rate while the Manufacturing in contrast, benefitted from the lowest lending rate. For the March 2014 quarter, rates are generally expected to increase by 1.31 percentage points (pps) mainly due to an anticipated increase in interest rates on loans to all sectors except Agriculture & Fishing, Distribution and Professional & Other Services (see Table 3). For the March 2014 quarter, the average rate on foreign currency loans is expected to decline by 1.48 pps to 10.76%. The anticipated decline

13 13 Table 3-Weighted average Lending rate on loans to micro businesses W e ig h te d A v e ra g e Le n d in g R a te s o n Lo c a l C u rre n c y Lo a n s ( % ) D e c-1 3 M a r -1 4 E co n o m ic S e ct o r R a t e (% ) R a t e (% ) C h a n g e A g r icu lt u r e & F ish in g C o n st r u ct io n & L a n d D e v e lo p m e n t (0.8 5 ) D ist r ib u t io n (6.2 9 ) E le ct r icit y G a s & W a t e r E n t e r t a in m e n t M a n u fa ct u r in g M in in g & Q u a r r y in g P r o fe ssio n a l & O t h e r S e r v ice s (2.8 6 ) T o u r ism T r a n sp o r t, S t o r a g e & C o m m u n ica t io n A v e r a g e R a t e W e ig h te d A v e ra g e Le n d in g R a te s o n F o re ig n C u rre n c y Lo a n s ( % ) E co n o m ic S e ct o r R a t e (% ) R a t e (% ) C h a n g e A g r icu lt u r e & n.a n.a F ish in g C o n st r u ct io n & L a n d D e v e lo p m e n t M in in g & Q u a r r y in g (1.9 2 ) E n t e r t a in m e n t n.a n.a D ist r ib u t io n (2.0 8 ) E le ct r icit y G a s & W a t e r n.a n.a M a n u fa ct u r in g n.a n.a P r o fe ssio n a l & O t h e r S e r v ice s (0.4 4 ) T o u r ism (1.0 8 ) T r a n sp o r t, S t o r a g e & C o m m u n ica t io n (2.0 8 ) A v e r a g e R a t e (1.4 8 )

14 Credit Index Bank of Jamaica Survey of Credit Conditions December 2013 Quarter 14 Small Business Lending Lenders indicated that the supply of credit made available to small businesses increased marginally in the December 2013 quarter (see Chart 13). However, there was a decline in the number of approved applications for commercial motor vehicles, real estate and unsecured loans (see Chart 14). In contrast, approval rates for inventory & other working capital and plant & equipment increased. lines. Finally, a general lack of meticulous record-keeping among small businesses makes financial performance difficult to assess and hence limit their ability to access credit. Chart 14-Approval rates on loans to small businesses Approval Rates for Loans to Small Businesses Chart 13- Credit availability to small businesses 100 Credit Supply Index Credit Availability: Small Businesses 95 Secured Loans Inventory & Working Capital Motor Vehicles Plant & Equipment Loan Purposes Dec-13 Quarter Mar-14 Quarter Real Estate Unsecured Loans Economic Sectors Dec-13: Credit Supply Mar-14: Credit Supply Average Supply-Dec-13 Average Supply-Mar-14 With respect to credit availability, lenders reported that small businesses were at a general disadvantage relative to their larger counterparts due to their size and capital structure. In particular, small businesses do not possess the capital levels necessary to provide a buffer against adverse events. Consequently, the quantity of credit made available to these entities is limited and the cost was relatively high. Additionally, it was also reported that the limited ability of small businesses to exert influence over customers and suppliers negatively impacts their ability to access credit Improvements in the cost and availability of funds faced by the lending institutions, changes in lenders appetites for risk and an improvement in the economic outlook were cited as the leading factors that contributed to the expansion in credit availability in the December 2013 quarter (see Chart 15). For the March 2013 quarter, credit availability to small businesses was anticipated to increase. This increase should emanate from further improvements in the cost of funds faced by lenders, changes in lenders appetite for risks, changes in competition and improvements in economic outlook. In addition, the increase in credit availability is expected to be supported by a general increase in the approval rate (see Chart 14).

15 15 Chart 15-Drivers of credit availability to small businesses Factors Influencing Credit Availability to Small Businesses Sector-Specific Risks Capital Market Pressures increase in macroeconomic risks faced by these businesses. This was however, partially offset by a decline in interest rates on secured loans (see Chart 17). With respect to unsecured loans, lenders reported that the increased demand was due to a marginal increase in loan promotional activities by lenders (see Chart 18). Competition Cost or Availability of Funds Appetite for Risk Loan Portfolio Mix Market Share Objectives Economic Outlook 0% 15% 30% 45% 60% 75% 90% Mar-14 Dec-13 Net Percentage Balance of Opinion (-) Insignificant Factors, (+) Significant Factors For the December 2013 quarter, credit demand from small businesses declined. This reduction reflected a sharp decline in the demand for foreign currency loans to all sectors, which was partially offset by a moderate increase in local currency loan demand (see Chart 16). Loans demanded by small businesses were primarily for the purposes for credit cards, inventory & working capital financing and loan refinancing. 6 The demand for loans for all other purposes declined. Consequently, there was a decline in the demand for secured loans, while the demand for unsecured loans increased. The reduction in demand for secured loans in the December 2013 quarter was attributed to a decline in business activities as well as an The reduction in demand from small businesses over the quarter may have also been impacted by the relatively tightened lending conditions which existed. Tight credit conditions were influenced by high interest rates and fees on secured and unsecured loans. Additionally, lenders reportedly increased the maximum LTV. For the March 2014 quarter, lenders are anticipating an increase in demand for local currency loans which is expected to be partially offset by a decline in foreign currency loans. Increased loan demand is anticipated for inventory & working capital financing as the demand for all other categories of loans declined. A reduction in interest rates and increased loan promotion activities are expected to stimulate loan demand over the quarter. This may however, be offset a decline in business activities. Credit conditions are also expected to remain tight over the March quarter. However, borrowers can expect a reduction in the maximum loan-to-value and debt service ratios. 6 See appendix for decomposition of loan demand

16 16 Chart 16-Credit demanded by small businesses Chart 18-Drivers of demand for unsecured loans by small businesses 120 Credit Demand By Small Businesses Factors Influencing Unsecured Credit Demand Credit Demand Index Other factors Promotional Activities Sector Developments Macroeconomic Risks Interest Rates Local currency: Dec-13 Foreign Currency:Dec-13 Chart 17-Drivers of demand for secured credit by small businesses Local Currency:Mar-14 Foreign Currency:Mar-14 Government Policy Business Activities Unsecured Credit:Mar-14 Unsecured Credit:Dec-13 Factors Influencing Secured Credit Demand Other factors Promotional Activities Sector Developments Macroeconomic Risks Interest Rates Government Policy The weighted average lending rates on local currency loans to small businesses across all sectors for the review period averaged 11.26% (see Table 4). Mining & Quarrying, Distribution and Tourism were offered the highest lending rate while the lowest lending rate was offered to the Electricity, Gas & Water, Construction & Land Development and Agriculture & Fishing. Business Activities Secured Credit:Mar-14 Secured Credit:Dec-13 For the March quarter interest rates on local currency loans are expected to increase by an average of 1.8 pp to 13.08%. This reflects increases in rates on local currency loans to all sectors except Manufacturing. Lending rates on foreign currency loans to small businesses averaged 8.72% for the December 2013 quarter and are expected to increase to an average 9.95% for the March 2014 quarter (see Table 4). For the review quarter, businesses in Electricity, Gas & Water and Transport, Storage

17 17 & Communication benefitted from the lowest lending rate while businesses in Mining & Quarrying and Entertainment and Tourism faced the highest rates. Table 4-Weighted average lending rates on loans to small businesses W e ig h te d A v e ra g e Le n d in g R a te s o n Lo c a l C u rre n c y Lo a n s ( % ) D e c M a r- 1 4 E c o n o m ic S e c to r R a te ( % ) R a te ( % ) C h a n g e A g ricu ltu re & F is h in g C o n s tru c tio n & La n d D e v e lo p m e n t D is trib u tio n E le c tricity G a s & W a te r E n te rta in m e n t M a n u f a c tu rin g ( 0.67) M in in g & Q u a rry in g P ro f e s s io n a l & O th e r S e rv ice s T o u ris m T ra n s p o rt, S to ra g e & C o m m u n ica tio n A v e ra g e R a te W e ig h te d A v e ra g e Le n d in g R a te s o n F o re ig n C u rre n c y Lo a n s ( % ) E c o n o m ic S e c to r R a te ( % ) R a te ( % ) C h a n g e A g ricu ltu re & F is h in g C o n s tru c tio n & La n d D e v e lo p m e n t n.a n.a M in in g & Q u a rry in g E n te rta in m e n t D is trib u tio n n.a n.a E le c tricity G a s & W a te r M a n u f a c tu rin g P ro f e s s io n a l & O th e r S e rv ice s T o u ris m T ra n s p o rt, S to ra g e & C o m m u n ica tio n A v e ra g e R a te

18 Credit Supply Index Credit Index Bank of Jamaica Survey of Credit Conditions December 2013 Quarter 18 Medium-Sized Business Lending For the December 2013 quarter, the supply of credit made available to medium-sized businesses increased moderately (see Chart 19). This expansion was supported by an increase in the approval rates during the quarter. For the March 2014 quarter, an increase in credit availability is expected. This increase is expected to be supported by a higher approval rate for applications from medium-sized businesses (see chart 20). Despite the increase in credit availability to medium-sized businesses, lenders reported increasing signs of financial strain due to continued inability to collect on receivables in the context of a generally weak economy. They reported that this has been manifested in the decline in the level of working capital and therefore has been impacting credit access by these businesses. Chart 20-Approval rates on loans to medium-sized businesses Secured Loans Dec-13 Quarter Approval Rates for Loans to Medium-sized Businesses Inventory & Working Capital Mar-14 Quarter Motor Vehicles Plant & Equipment Loan Purposes Real Estate Unsecured Loans Improvements in the cost and availability of credit, shifts in the lenders appetite for risks, changes in sector-specific risks and competition were considered by creditors to be the most important factors impacting lending to medium-sized companies during the review quarter (see Chart 21). These factors are also anticipated to drive credit availability in the March 2014 quarter. Chart 19-Credit availability to medium-sized businesses Credit Availability: Medium-sized Businesses Chart 21-drivers of credit availability to medium-sized businesses Factors Influencing Credit Availability to Medium Businesses Sector-Specific Risks Capital Market Pressures Competition Cost or Availability of Funds Appetite for Risk Loan Portfolio Mix Economic Sectors Dec-13: Credit Supply Mar-14: Credit Supply Average Supply-Dec-13 Average Supply-Mar-14 Market Share Objectives Economic Outlook -90% -70% -50% -30% -10% 10% 30% 50% 70% 90% Dec-13 Mar-14 Net Percentage Balance of Opinion (-) Insignificant Factors, (+) Significant Factors

19 19 With regard to the demand for loans by economic sector, an increase in demand for local currency loans from all sectors except, Agriculture & Fishing and Construction & Land Development was observed during the December 2013 quarter (see Chart 22). For the March 2014 quarter, an increase in the demand for local currency loans from medium-sized businesses within all economic sectors is anticipated. There was a significant decline in demand for foreign currency loans from all sectors in the December 2013 quarter (see Chart 22). The most significant contraction in demand for foreign currency loans emanated from Manufacturing, Construction & Land Development, Distribution and Professional & Other Services. For the March 2014 quarter, a decline in loans from all sectors is anticipated. A reduction in loan promotional activities was the most significant factor contributing to the decline in secured loan demand during the December 2013 quarter. However, increased promotional activities and positive sector developments are expected to be undertaken in the March quarter which is expected to facilitate an expansion in unsecured loan demand (see Chart 23). The demand for unsecured loans, in the December 2013 quarter was buoyed by positive sector-specific developments and changes in business activities (see Chart 24). These factors, in addition to loan promotional activities undertaken by lenders and positive changes in government policy are expected to drive the anticipated increase in secured loan demand in the March 2014 Chart 23-Drivers of demand for secured credit by medium-sized businesses Chart 22-Credit demanded by medium-sized businesses Factors Influencing Secured Credit Demand Credit Demand Index Credit Demand By Medium Businesses Other factors Promotional Activities Sector Developments Macroeconomic Risks Interest Rates Government Policy Business Activities Local currency: Dec-13 Foreign Currency:Dec-13 Local Currency:Mar-14 Foreign Currency:Mar Secured Credit:Mar-14 Secured Credit:Dec-13

20 20 Chart 24- Drivers of demand for unsecured credit by medium-sized businesses Other factors Promotional Activities Sector Developments Macroeconomic Risks Interest Rates Government Policy Business Activities Factors Influencing Unsecured Credit Demand Unsecured Credit:Mar-14 Unsecured Credit:Dec-13 For the December 2013 quarter, interest rates on local currency loans to medium-sized businesses averaged 12.18% (see Table 5). Tourism and Professional & Other Services had the highest lending rates in the review quarter while the lowest lending rate was offered to Mining & Quarrying. For the March 2014 quarter, rates are expected to increase for all sectors except Tourism. Table 5-Weighted average lending rates on loans to medium-sized businesses W e ig h te d A v e ra g e Le n d in g R a te s o n Lo c a l C u rre n c y Lo a n s ( % ) D e c M a r- 1 4 E c o n o m ic S e c to r R a te ( % ) R a te ( % ) C h a n g e A g ricu ltu re & F is h in g C o n s tru c tio n & La n d D e v e lo p m e n t D is trib u tio n E le c tricity G a s & W a te r E n te rta in m e n t M an u factu rin g M in in g & Q u a rry in g P ro f e s s io n a l & O th e r S e rv ice s To u ris m ( ) T ra n s p o rt, S to ra g e & C o m m u n ica tio n A v e ra g e R a te W e ig h te d A v e ra g e Le n d in g R a te s o n F o re ig n C u rre n c y Lo a n s ( % ) E c o n o m ic S e c to r R a te ( % ) R a te ( % ) C h a n g e A g ricu ltu re & ( ) F is h in g C o n s tru c tio n & La n d n.a D e v e lo p m e n t M in in g & Q u a rry in g E n te rta in m e n t n.a n.a For the December 2013 quarter, the weighted average lending rates on foreign currency loans to medium-sized businesses averaged 9.23%. Agriculture & Fishing had the highest lending rate while the lowest lending rate was offered to the Electricity, Gas & Water. For the March 2014 quarter, rates on foreign currency loans are expected to average 9.8%. D is trib u tio n n.a E le c tricity G a s & W a te r M a n u f a c tu rin g n.a n.a P ro f e s s io n a l & O th e r S e rv ice s To u ris m T ra n s p o rt, S to ra g e ( ) & C o m m u n ica tio n A v e ra g e R a te

21 21 Large Corporate Lending For the December 2013 quarter, the supply of credit made available to large companies declined marginally in all areas of the productive sector, except Construction & Land Development and Electricity, Gas & Water (see Chart 25). Despite this contraction, lenders reported a moderate increase in the loan approval rate. The higher loan approval rate for the review quarter may reflect an increase in the number of suitable loan applications (see Chart 26). Greater approval rates were particularly reflected in credit for inventory and other working capital financing, secured business loans and commercial real estate loans. Chart 25-Credit availability to large, corporate & commercial businesses Credit Supply Index Credit Availability: Large & Corporate Businesses Economic Sectors Dec-13: Credit Supply Mar-14: Credit Supply Average Supply-Dec-13 Average Supply-Mar-14 Chart 26-Approval rates on loans to large, corporate & commercial businesses For the March 2014 quarter, a moderate increase in the availability of credit to large businesses is anticipated given the expectation of increased credit to the Manufacturing, Construction & Land Development, Distribution and Entertainment. In addition an increase in the approval rates on inventory and other working capital and secured business loans in anticipated for the quarter. Credit Index Approval Rates for Loans to Large & Corporate Businesses Loan Purposes Dec-13 Quarter Mar-14 Quarter A decline in creditors appetites for risk and the higher cost and reduced availability of funds were cited as the most significant contributing factors to the decline in the availability of credit to large companies in the review quarter. Increased sectors specific risks as well as changes in the loan portfolio mix were also important factors affecting lenders ability to

22 22 provide credit (see Chart 27). These factors along with the institutions market share objectives are anticipated to impact the availability of credit in the March 2014 quarter. for foreign currency denominated loans is expected. Chart 28-Credit demanded by large businesses Chart 27-Drivers of credit availability to large, corporate & commercial businesses Factors Influencing Credit Availability to Large Businesses Sector-Specific Risks Capital Market Pressures Competition Credit Demand Index Credit Demand By Large Businesses Cost or Availability of Funds Appetite for Risk Loan Portfolio Mix Market Share Objectives Economic Outlook Local currency:dec-13 Foreign Currency:Dec-13 Local Currency:Mar-14 Foreign Currency:Mar-14 Dec-13 Mar-14-75% -50% -25% 0% 25% 50% 75% 100% Net Percentage Balance of Opinion (+) Significant Factors, (-) Insignificant Factors For the December 2013 quarter, there was a moderate increase in demand for local currency loans from all sectors except Transportation, Storage & Communication and Entertainment. In particular, lenders observed a significant increase in demand from businesses within the Distribution, Tourism, Construction & Land Development and Electricity; Gas & Water (see Chart 28). The increased demand for both secured and unsecured credit in the December 2013 quarter was attributed to changes in business activities, interest rates as well as improvements in government policy and macroeconomic risks (see Charts 29-30). The anticipated increase in secured and unsecured loans in the March 2014 quarter is expected to reflect to positive changes in interest rates and improvements in macroeconomic risks. In contrast, there was a decline in the demand for foreign currency loans. This reflected reductions in demand from borrowers within all sectors except Electricity, Gas & Water. An increase in the demand for local currency loans from most sectors is anticipated in March 2014 quarter. However, a contraction in the demand

23 23 Chart 29-Drivers of demand for secured credit by large, corporate & commercial businesses Other factors Promotional Activities Sector Developments Macroeconomic Risks Interest Rates Government Policy Business Activities Factors Influencing Secured Credit Demand Secured Credit:Mar-14 Secured Credit:Dec-13 Chart 30-Drivers of unsecured credit by large, corporate & commercial businesses Factors Influencing Unsecured Credit Demand (see Table 6). Loans to Construction & Land Development and Agriculture & Fishing were offered the highest lending rate in the review quarter while the lowest lending rate was offered to Electricity, Gas & Water and, Entertainment. For the March 2014 quarter, the increase in the weighted average rate is expected to emanate from higher rates on loans to all economic sectors except Agriculture & Fishing. For the December 2013 quarter, the weighted average lending rate on foreign currency loans to large businesses averaged 3.66% and is expected to increase to 6.68% in the upcoming quarter. For the March 2014, rates on foreign currency loans are expected to increase as higher rates are anticipated for all economic sectors. Other factors Promotional Activities Sector Developments Macroeconomic Risks Interest Rates Government Policy Business Activities Unsecured Credit:Mar-14 Unsecured Credit:Dec-13 The interest rate on local currency loans to large and corporate businesses averaged 7.12% in the December 2013 and is expected to increase to 10.35% in the March 2014 quarter

24 24 Table 6-weighted average lending rates on loans to large, corporate & commercial businesses W e ig h te d A v e ra g e Le n d in g R a te s o n Lo c a l C u rre n c y Lo a n s ( % ) D e c M a r- 1 4 E c o n o m ic S e c to r R a te ( % ) R a te ( % ) C h a n g e A g ricu ltu re & F is h in g C o n s tru c tio n & La n d D e v e lo p m e n t ( ) D is trib u tio n E le c tricity G a s & W a te r E n te rta in m e n t M a n u f a c tu rin g M in in g & Q u a rry in g P ro f e s s io n a l & O th e r S e rv ice s To u ris m T ra n s p o rt, S to ra g e & C o m m u n ica tio n A v e ra g e R a te W e ig h te d A v e ra g e Le n d in g R a te s o n F o re ig n C u rre n c y Lo a n s ( % ) E c o n o m ic S e c to r R a te ( % ) R a te ( % ) C h a n g e A g ricu ltu re & F is h in g C o n s tru c tio n & La n d D e v e lo p m e n t M in in g & Q u a rry in g E n te rta in m e n t D is trib u tio n E le c tricity G a s & W a te r M a n u f a c tu rin g P ro f e s s io n a l & O th e r S e rv ice s To u ris m T ra n s p o rt, S to ra g e & C o m m u n ica tio n A v e ra g e R a te

25 Appendix: Additional Results 25 Purpose for Credit Demand: Large, Corporate & Commercial Businesses Inventory & Working Capital financing Commercial motor vehicles Dec-13 Mar Plant & Equipment Commercial real estate Balance Sheet restructuring Loan refinancing Unsecured loans Other Loans Lines of Credit Loan Guarantees Mergers & Acquisitions Demand Index Purpose for Credit Demand: Small Businesses Dec-13 Mar-14 Credit Cards Inventory & Working Capital financing Commercial motor vehicles Plant & Equipment Commercial real estate Balance Sheet restructuring Loan refinancing Unsecured loans Other Loans Lines of Credit Loan Guarantees Demand Index Purpose for Credit Demand: Medium Businesses Inventory & Working Capital financing Dec-13 Mar Commercial motor vehicles Plant & Equipment Commercial real estate Balance Sheet restructuring Loan refinancing Unsecured loans Other Loans Lines of Credit Loan Guarantees Mergers & Acquisitions Demand Index Purpose for Credit Demand: Micro Businesses Dec-13 Mar-14 Credit Cards Inventory & Working Capital financing Commercial motor vehicles Plant & Equipment Commercial real estate Balance Sheet restructuring Loan refinancing Unsecured loans Other Loans Lines of Credit Loan Guarantees Demand Index

26 26 Glossary and Key Definitions Diffusion Index (DI) This is a method of summarizing the common tendency of a group of statistical series. The DI value is calculated as: ( ) ( ) 7 By construction, lenders who report that credit conditions have changed a lot are assigned twice the score as those who reported that the index has changed a little. The scores are then weighted by the market share of the respondents. The diffusion index (DI) is therefore the net percentage balance of opinion computed as the difference between the weighted balance of lenders reporting an increase in the index and those reporting a decline. The metric always ranges between -100 and A negative DI indicates that the majority of the respondents view the variable in question as being declining/ easing, while a positive DI indicates that the majority of the respondents view the variable in question as being increasing/ tightening. An index of 100 indicates no change in the variable. Credit Demand Index (CDI)-The average net balance of opinion of loan demand across firm sizes and loan purposes. ( ) ( ) 7 = percentage of respondents selecting substantially stronger or substantially tightened ms = percentage of respondents selecting moderately stronger or moderately tightened sw = percentage of respondents selecting substantially weaker or substantially eased mw = percentage of respondents selecting moderately weaker or moderately eased The use of the fixed weight (0.5) relating to the proportion of respondents selecting either moderately stronger or moderately weaker distinguishes between the level of conviction in the respondents answers. The weight makes the views of those claiming substantial changes twice as important to the direction of the overall change in the index, relative to those claiming moderate changes.

27 27 Credit Supply Index (CSI)-The average net balance of opinion of credit availability across economic sectors and firm sizes. ( ) ( ) Micro business firm may be classified by loan size or annual turnover: 1. Classification by loan size: if the loan is less than the equivalent of US$ at origination, 2. Classification by turnover: if firm annual sales/turnover is less than the equivalent of US$ Small business firm may be classified by loan size or annual turnover: 1. Classification by loan size: if the loan is more than the equivalent of US$ and less than the equivalent of US$ at origination, 2. Classification by turnover: if firm annual sales/turnover is more than the equivalent of US$ and less than the equivalent of US$5.0 million. Medium-sized business firm may be classified by loan size or annual turnover: 1. Classification by loan size: if the loan is more than the equivalent of US$ and less than the equivalent of US$1.0 million at origination, 2. Classification by turnover: if firm annual sales/turnover is more than the equivalent of US$5.0 million and less than the equivalent of US$25.0 million. Large corporate and commercial business firm may be classified by loan size or annual turnover: 1. Classification by loan size: if the loan is more than the equivalent of US$1.0 million at origination,