SUMMARY OF THE RESULTS OF THE COMMERCIAL BANK SENIOR LOAN OFFICERS OPINION SURVEY ON CREDIT MARKET CONDITIONS IN THE ECCU (JANUARY TO JUNE 2015)

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1 SUMMARY OF THE RESULTS OF THE COMMERCIAL BANK SENIOR LOAN OFFICERS OPINION SURVEY ON CREDIT MARKET CONDITIONS IN THE ECCU (JANUARY TO JUNE 2015) EASTERN CARIBBEAN CENTRAL BANK ST KITTS

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3 SUMMARY OF THE RESULTS OF THE COMMERCIAL BANK SENIOR LOAN OFFICERS OPINION SURVEY ON CREDIT MARKET CONDITIONS IN THE ECCU (JANUARY TO JUNE 2015) 1. INTRODUCTION In accordance with its function to regulate the availability of money and credit in the Eastern Caribbean Currency Union (ECCU), the Eastern Caribbean Central Bank (ECCB) conducts a bi-annual survey to capture information on the qualitative (non-price) factors affecting the demand for and supply of credit. The self-administered questionnaire targets the senior loan officers at the commercial banks in the ECCU and contains questions covering the business and household sectors. The information gathered helps to enhance the knowledge of the trends and developments in credit conditions in the Currency Union which serves as an input into monetary policy decisions at the Central Bank. The results of the survey are reported using the net percentage indicator. 1 Declines in the net percentage indicator denote worsening conditions in the environment, while increases denote an improvement. For the survey period January to June 2015, 29 of the 37 banks 2 surveyed responded. The table below shows the response rate. Country Number of Banks in Country Number of banks responded % of Total Banks Responded % of Total Asset Contribution Anguilla % 100.0% Antigua and Barbuda % 41.7% Dominica % 84.7% Grenada % 86.9% Montserrat % 100.0% St Kitts and Nevis % 80.8% Saint Lucia % 79.2% Grenadines % 100.0% ECCU % 76.2% 1 See Appendix I for further explanation. 2 The banking operations of the Royal Bank of Trinidad and Tobago (RBTT) Limited in Antigua and Barbuda, St Kitts and Saint Lucia were merged with the Royal Bank of Canada in the respective territories. 1

4 SUMMARY OF THE RESULTS 3 A. Credit to Businesses and Households At the ECCU level, overall lending terms and conditions tightened for all types of loans to businesses 4 over the period January to June This result compares with expectations in overall lending conditions for all types of loans to businesses. The tightening in overall lending terms and conditions for the survey period was more pronounced than that reported for the second half of Risks related to the general economic conditions, increases in the percentage of non-performing loans and risk related to the financial standing of the bank s largest borrowers were cited as the main factors which contributed to the tightening. In terms of household 5 loans, the results show that at the ECCB level overall lending terms and conditions tightened for mortgages and other consumer loans. This is in contrast to expectation for an easing in both types of loans to households. The main reasons cited for the tightening in overall lending terms and conditions were increases in the percentage of nonperforming loans and risks related to the general economic conditions. For the second half of 2015, overall lending terms and conditions are expected to ease for all types of business loans and loans to households except for commercial real estate loans. The expectation for easing is based on the view that interest rates may be lowered. In terms of the expectation for tightening in the overall conditions for commercial loans, uncertainty in the construction and tourism industry was cited as the main reason for the projection. On the demand side, at the ECCU level, demand declined for all loans to businesses except for short term loans to large businesses and increased for loans to households, both mortgage loans and consumer loans. The results compare with expectations for household loans and are in contrast to expectations for demand for business loans, where an increase in demand was 3 The results represent the opinions of the senior loan officers at the commercial banks and may not be reflective of the general credit supply and demand conditions in the ECCU. The ECCB does not undertake any assessment of the results of the survey but only reports the views of respondents as expressed. 4 Loans to businesses are categorised into commercial real estate loans, loans to large businesses and loans to small and medium sized businesses. 5 Loans to households are categorised into mortgages and other consumer loans 2

5 expected for all types of loans. The main reasons cited for the decline in demand for loans to businesses were changes in the terms and conditions and changes in business confidence. The increase in demand for household loans was mainly as a result of changes in interest rates. For the period July to December 2015, expectations are for overall increases in the demand for all types of business and household loans except commercial real estate loans. The expectation for an increase in demand for loans is based on the opinion that loan campaigns will influence businesses and households to borrow due to the lower interest rates that are offered. B. Other Issues Financial Intermediation in a Challenging Environment In the survey, ten open-ended questions were posed to the banks under the theme Financial Intermediation in a Challenging Environment (Appendix III). The questions were posed to ascertain how commercial banks policies have changed or expect to change in light of the reduction in the minimum savings rate, which took effect on 01 May Most banks did not consider the recent one percentage point reduction in the minimum savings rate sufficient to initiate adjustments to lending terms and conditions. Based on the survey responses, in most banks the interest rates on loans were adjusted prior to the reduction in the minimum saving rate. In addition, in most banks the reduction in the minimum savings rate is not likely to encourage any new investment opportunities. In regard to the impact of the reduction on cost of services, the majority of responses indicated that their bank has not considered any changes to the cost of services (e.g., bank fees) in light of the recent reduction in the minimum savings rate. An outflow of customers funds due to the reduction in the interest rate is not anticipated. Respondents are of the opinion that their rates remain attractive compared to that offered internationally. In addition, the rates are relatively the same in the domestic market. 3

6 APPENDIX I: Net Percentage Indicator The indicator is calculated as the difference between the percentage of banks reporting responses of eased considerably or eased somewhat and the percentage of banks reporting responses of tightened considerably or tightened somewhat. This result is then weighted, with the weights being determined for each of the three major categories of loan according to the banks contribution to the total value of loans made in that category. For example, if bank X contributes 70 per cent of the total mortgage loans in the ECCU, then that bank's response is weighted by 70 per cent of the overall results for each question relating to mortgage loans. All responses pertaining to small-medium sized businesses, large businesses or commercial real estate are weighted by the corresponding bank s contribution to total business loans in the ECCU. APPENDIX II: Survey Results Table 1 - Overall Conditions of Lending to Businesses (net percentage indicator) Commercial Real Large Businesses Small/Medium Estate Sized Businesses Jan-Jun'15 Jul-Dec'14 Jan- Jun'15 Jul-Dec'14 Jan- Jun'15 Jul- Dec'14 Anguilla Antigua and Barbuda Dominica Grenada Montserrat St Kitts and Nevis Saint Lucia Grenadines ECCU Indigenous Banks Foreign Owned Banks i

7 Table 2 - Demand for Business Loans (net percentage indicator) Commercial Real Estate Loans to Large Businesses Short-term Long-term Loans to Small/Medium Sized Businesses Short-term Long-term Jan-Jun'15 Jul-Dec'14 Jan-Jun'15 Jul-Dec'14 Jan- Jun'15 Jul-Dec'14 Jan- Jun'15 Jul-Dec'14 Jan- Jun'15 Jul- Dec'14 Anguilla Antigua and Barbuda Dominica Grenada Montserrat St Kitts and Nevis Saint Lucia Grenadines ECCU Indigenous Banks Foreign Owned Banks Table 3 - Outlook for Lending Policies for Business Loans July to December 2015 (net percentage indicator) Commercial Real Estate Loans to Large Business Loans to Small/Medium Sized Businesses Short-term Long-term Short-term Longterm Anguilla Antigua and Barbuda Dominica Grenada Montserrat St Kitts and Nevis Saint Lucia Grenadines ECCU Indigenous Banks Foreign Owned Banks ii

8 Table 4 - Outlook for Demand for Business Loans July to December 2015 (net percentage indicator) Commercial Real Estate Loans to Large Business Loans to Small/Medium Sized Businesses Short-term Long-term Short-term Longterm Anguilla Antigua and Barbuda Dominica Grenada Montserrat St Kitts and Nevis Saint Lucia Grenadines ECCU Indigenous Banks Foreign Owned Banks Table 5 - Overall Conditions of Lending to Households (net percentage indicator) Mortgages Other Consumer Loans Jan-Jun'15 Jul-Dec'14 Jan- Jun'15 Jul-Dec'14 Anguilla Antigua and Barbuda Dominica Grenada Montserrat St Kitts and Nevis Saint Lucia Grenadines ECCU Indigenous Banks Foreign Owned Banks iii

9 Table 6 - Demand for Household Loans (net percentage indicator) Mortgages Other Consumer Jul-Dec'14 Jul-Dec'14 Jan-Jul'15 Jan-Jul'15 Anguilla Antigua and Barbuda Dominica Grenada Montserrat St Kitts and Nevis Saint Lucia Grenadines ECCU Indigenous Banks Foreign Owned Banks Table 7 - Outlook for Lending Policies for Household Loans July to December 2015 (net percentage indicator) Mortgages Other Consumer Anguilla Antigua and Barbuda Dominica Grenada Montserrat St Kitts and Nevis Saint Lucia Grenadines ECCU Indigenous Banks Foreign Owned Banks iv

10 Table 8 - Outlook for Demand for Household Loans July to December 2015 (net percentage indicator) Mortgages Other Anguilla 10.4 Consumer L64.2 Antigua and Barbuda Dominica Grenada Montserrat St Kitts and Nevis Saint Lucia Grenadines ECCU Indigenous Banks Foreign Owned Banks v

11 APPENDIX III: Survey Questions Part I. Credit to Businesses and Households 1. How have the terms and conditions of lending changed over the past six months? 2. How have the following factors affected your bank s lending policies over the past six months? 3. How has the demand for credit by businesses changed at your bank over the past six months, apart from normal seasonal fluctuations? 4. How has the demand for loans by households changed over the past six months, apart from normal seasonal fluctuations? 5. How have the following factors affected the demand for credit over the past six months? 6. Please indicate how you expect your bank s terms and conditions of lending to businesses to change over the next six months. 7. Please indicate how you expect the demand for credit by businesses to change over the next six months, apart from normal seasonal fluctuations? 8. Please indicate how you expect your bank s lending policies for household lending to change over the next six months. 9. Please indicate how you expect the demand for loans to households to change over the next six months, apart from normal seasonal fluctuations? vi

12 Part II. Other Issues New Products 10. What new product(s) have you introduced during the past six months? Please name the product and rate its performance. 11. What new product(s) do you plan to introduce over the next six months? Financial Intermediation in a Challenging Environment 12. a. Does your bank consider the recent one percentage point reduction in the minimum savings rate sufficient to initiate adjustments to lending terms and conditions? b. If no, please indicate the reason why your bank does not consider the reduction sufficient to initiate adjustments to lending terms and conditions. c. If yes, please state the changes your bank is likely to make to lending terms and conditions 13. a. In light of the reduction in the minimum savings rate is your bank likely to undertake any new investment opportunities? b. If yes, please indicate the type of investment opportunities that your bank is likely to undertake. 14. a. Has your bank considered any changes to the cost of services (eg bank fees) in light of the recent reduction in the minimum savings rate? b. If yes, please indicate the changes to the cost of services being considered. 15. a. In terms of the recent reduction in the minimum savings rate, does your bank anticipate that there will be an outflow of customers funds? b. If no, please specify the reason why your bank does not anticipate that there will be an outflow of funds. vii

13 c. If yes, please indicate what policies are likely to be put in place to mitigate potential outflows. viii