Loans with moratorium not classified as non-performing
NON-PERFORMING LOANS at deposit-taking institutions (DTIs) have slightly worsened since the onset of the COVID-19 pandemic, but borrowed funds to which a moratorium apply have not been so classified, Bank of Jamaica (BOJ) Governor Richard Byles said.
In an effort to ease the burden on their customers, several financial institutions have been offering moratorium options to help borrowers who are experiencing temporary difficulties with their loan payments. Such loans, Byles said, have not been classified as non-performing for the period of the moratorium.
“This is unlike normal practice, where past due loans would automatically be classified as non-performing after a certain time,” he added.
“And after 90 days, the DTI would be required to make provisions for such a loan. Bank of
Jamaica, in turn, has not and will not take any punitive measures against DTIs with loans on moratorium,” the BOJ governor said last Friday during a Private Sector Organisation of Jamaica-organised digital conference dubbed ‘Crossing the Chasm: The Road to Economic Recovery’.
He said Jamaica’s current account of the balance of payments is expected to worsen from the projected deficit of about 1.1 per cent for fiscal year 2019-20 to between 6.0 and 7.5 per cent of gross domestic product.
While noting that a major contributor to that fallout is tourism, Byles said that “on the helpful side”, preliminary data show that remittances overperformed in May, June and July, but there is no guarantee that it will continue to do so.
“We also anticipate some benefit from a decline in oil prices for the fiscal year, and generally imports are expected to fall in the context of a slowdown in economic activity,” he said.
The governor said the BOJ’s expectation is for a substantial decline in net foreign currency inflows in Jamaica this fiscal year, within the range of about US$800 million to US$1.4 billion.
Consequently, the outlook is for Jamaica’s gross reserves to fall by between US500 million and US$800 million this fiscal year.
SHARP DEPRECIATION
“The combination of these lower foreign currency inflows and periods of increased demand for foreign currency implies a significant financing gap, and this has resulted in episodes of sharp depreciation in the exchange rate since the end of March,” said Byles.
The trend in depreciation has occurred even though the BOJ has been augmenting foreign exchange liquidity in the market quite significantly, said Byles, who was speaking a day after the weighted average selling rate of the Jamaica dollar breached the psychological threshold of J$150 to the United States dollar.
However, the governor reiterated measures he outlined earlier this year that the central bank has instituted to ensure financial institutions and the public have adequate access to foreign currency “during this challenging period”.
Total liquidity support to the market from those facilities since the start of the crisis has amounted to more than US$700 million, which included sales of approximately US$226 million to the energy sector in particular, he said.
Byles said that while the impact from COVID-19 has proven to be significant, the BOJ’s assessment is that the financial system was in good shape prior to the onset of the crisis, and in general, the bank’s stress tests show that financial institutions are adequately positioned to weather the shock.
He said that one impact of the crisis on the financial system has been a fall in loan demand growth generally. The crisis, however, appears to have disproportionately affected consumer and personal lending as opposed to business credit.
Growth in business loans remain relatively strong at 18.2 per cent at May this year, the same rate recorded in February this year. However, personal loans fell to 10 per cent from 15 per cent during the same period.
“So it seems that the business sector continues to be robust in its demand for credit, and that’s a good sign for the country,” said Byles, adding that the strong growth in business lending has been driven by increased demand for working capital as well as loans that were already in the pipeline.
“As expected, however, there has been a slight worsening in non-performing loans since the onset of the pandemic. But the financial system remains well capitalised and is safely able to dispense with these obligations,” he said.
The central bank governor pointed out that the recovery of tourism is vital to any sustainable recovery of the economy, but until then, “we have to be tempered in our demand for foreign exchange and judicious in the sale of the country’s foreign exchange reserves”.