Quarterly Credit Conditions Survey Report

Transcription

1 Quarterly Credit Conditions Report Contents List of Figures & Tables... 2 Overview... 4 Personal Lending... 8 Micro Business Lending Medium-Sized Business Lending Large Corporations and Commercial Lending Appendix A: Overall Credit Market Conditions September 2018 Quarter Appendix B: Glossary and Definitions Box A: Redefinition of Business Sizes Prepared by the Monetary Analysis & Programming Department Research & Economic Programming Division

2 List of Figures & Tables Figure 1a: Index of Overall Credit Market Conditions... 5 Figure 1b: Index of Credit Market Conditions for Secured & Unsecured Loans... 5 Figure 2: Components of Credit Supply... 5 Figure 3: Distribution of Private Sector Credit... 6 Figure 4: Components of Credit Demand... 7 Table 1: Overall Average Lending Rates on Local and Foreign Currency Loans... 7 Figure 5a: Index of Overall Credit Conditions for Personal Lending... 8 Figure 5b: Index of Credit Conditions for Secured and Unsecured Personal Lending... 8 Figure 6: Availability of Credit for Personal Lending... 9 Figure 7: Demand for Personal Loans... 9 Table 2: Interest Rates on Personal Loans... 9 Figure 8a: Credit Conditions for Micro-sized Figure 8b: Credit Conditions for Secured and Unsecured Loans to Micro-sized Table 3: Interest Rates on Local Currency Loans to Micro-sized Figure 9a: Credit Conditions for Small... Error! Bookmark not defined. Figure 9b: Credit Conditions for Secured and Unsecured Loans to Small.. Error! Bookmark not defined. Table 4: Interest Rates on New Local and Foreign Currency Loans to Small... Error! Bookmark not defined. Figure 10a: Credit Conditions for Medium-sized... Error! Bookmark not defined. Figure 10b: Credit Conditions for Medium-sized... Error! Bookmark not defined. Figure 11: Credit Demanded by Medium-sized... Error! Bookmark not defined. Table 5: Interest Rates on Local and Foreign Currency Loans to Medium-sized... Error! Bookmark not defined. Figure 12a: Credit Conditions for Large... Error! Bookmark not defined. Figure 12b: Credit Conditions for Secured and Unsecured Loans to Large Error! Bookmark not defined. Figure 13: Availability of Credit to Large... Error! Bookmark not defined. Figure 14: Credit Demanded by Large... Error! Bookmark not defined. Table 6: Interest Rates on Local and Foreign Currency Loans to Large... Error! Bookmark not defined. Figure 15: Credit Conditions for Secured Loans Figure 16: Credit Conditions for Unsecured Loans Table 7: Components of Credit Demand and Supply Indices Figure 17: Drivers of the Supply of Credit Figure 18: Drivers of the Demand of Secured Credit Figure 19: Drivers of the Demand of Unsecured Credit Table 1: Overall Average Lending Rates on Local and Foreign Currency Loans 7 Table 2: Interest Rates on Personal Loans... 9

3 Table 3: Interest Rates on Local and Foreign Currency Loans to Micro-sized Table 4: Interest Rates on New Local and Foreign Currency Loans to Small... Error! Bookmark not defined. Table 5: Interest Rates on Local and Foreign Currency Loans to Medium-sized... Error! Bookmark not defined. Table 6: Interest Rates on Local and Foreign Currency Loans to Large... Error! Bookmark not defined. Table 7: Components of Credit Demand and Supply Indices... 21

4 Background In order to meet its core mandate to maintain monetary and financial stability, Bank of Jamaica (BOJ) seeks to assess a wide set of data on credit market conditions. In this regard, the BOJ s Quarterly Credit Conditions (QCCS) broadens 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, credit unions and development banks. It is designed to elicit qualitative information on changes in the demand and supply of credit to various types of businesses as well as individuals. The QCCS explores the main factors underpinning these reported changes, including price and non-price lending terms and other credit market developments. The results presented in this report are based on the credit conditions indices constructed from the results of the surveys. 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 (see Glossary for more information). The interest rates presented in this report are based on weighted average interest rates reported by the respondents of the survey. This report represents the results of the September 2018 survey which was conducted between 12 October 2018 and 01 November Past survey reports are available on the BOJ website at s Completed by Each Institution No. of survey respondents Personal Loans Number of s Completed by Each Institution Micro Small Medium Large Commercial Banks Building Societies Merchant Banks Credit Unions Public Entities Total

5 5 Overview STATIN s estimate of GDP growth for the September 2018 quarter indicated that the economy grew by 1.8 per cent, an acceleration relative to the September 2017 quarter. The outturn was attributed to increases in both the Goods Producing industries and the Services industries. The positive performance of the Goods Producing industries was due primarily to increased output in Mining & Quarrying (51.0 per cent) and Construction (3.7 per cent). The annual point-to-point inflation rate at September 2018 was 4.3 per cent, an acceleration relative to the 2.8 per cent recorded at end-june 2018 and a deceleration relative to the 4.6 per cent recorded at September The acceleration in inflation, relative to the preceding quarter, largely reflected the impact of higher prices for domestic agricultural commodities and increased electricity costs. With respect to monetary policy developments, Bank of Jamaica (BOJ) held the policy interest rate (the rate offered on overnight placements with Bank of Jamaica) unchanged at 2.00 per cent on its policy decision dates of 28 August and 02 October. Consequently, the rate on the Bank s Standing Liquidity Facility (SLF) remained unchanged at 5.00 per cent, thereby maintaining the width of the interest rate corridor (IRC) at 3.0 percentage points. 1 Bank of Jamaica s decision to maintain its policy rate reflected the Bank s assessment that inflation would approach the middle of the inflation target of 4.0 to 6.0 per cent after the March 2019 quarter. The policy action was aimed at reinforcing the positive and emerging signs of faster credit growth and generally accommodative monetary conditions. In the context of the Government s payout of $58.5 billion for a benchmark investment note which matured in July 2018 and continued strong demand for liquid assets, there remained strong placement on Bank of Jamaica s overnight (O/N) deposits, which averaged $76.0 billion for the September 2018 quarter, compared with $45.8 billion for the preceding quarter. In relation to international developments, the US Federal Reserve raised interest rates in September 2018 in the context of sustained expansion of US economic activity, strong labour market conditions and inflation being near the Committee s symmetric 2.0 per cent objective. Notwithstanding the increase in the US Federal Funds target rate, yields on GOJ global bonds declined over the quarter, reflecting a reduction in Jamaica s sovereign risk premium. In the context of the foregoing, credit conditions eased during the September 2018 quarter. Easier credit conditions were evident in both secured and unsecured lending. For secured loans, lenders reported that a decrease in interest rates and fees, as well as an increase in the maximum debt service ratio would have contributed to an overall easing in credit conditions. Regarding the terms on unsecured loans, lenders reported that a reduction in the interest rates on non-credit card lending and fees, as well as an increase in credit card limits would have contributed to an overall 1 The lower bound of the IRC is determined by the interest rate on the overnight CD, while the upper bound is determined by the rate on overnight SLF.

6 easing in credit conditions (see Figure 1a and 1b and Appendix A: Figures 15 & 16). Figure 1a: Index of Overall Credit Market Conditions 107 Expected Overall Credit Terms Overall Credit Terms The CSI moderated to from in the previous quarter and reflected a decline in credit supply to individuals relative to the previous quarter, the effect of which was dampened by an increase in the growth in credit supply to businesses. The growth in the supply of local currency credit made available moderated marginally. The growth mainly reflected an increase in credit made available by lenders to the Tourism and Distribution sectors. In relation to foreign currency loans, there was marginal growth in credit supply, mainly reflected in the Entertainment, Tourism and Distribution sectors. Figure 1b: Index of Credit Market Conditions for Secured & Unsecured Loans 107 Unsecured Credit Secured Credit Figure 2: Components of Credit Supply 120 Supply to Supply to Individuals Credit Supply Index (CSI) 115 CSI Expectations Lenders reported that they expected credit conditions to tighten marginally in the December 2018 quarter. This outlook primarily reflected the expectation for tighter terms for secured loans, stemming from more collateral requirements and declines in size of credit lines. Credit Supply Growth in credit availability, as measured by the Credit Supply Index (CSI), moderated when compared to the previous quarter (see Figure 2). 1. *Expectations for the upcoming quarter from the current survey. 2. Indices greater than 100 indicate an increase while indices less than 100 indicate a decline. The allocation of credit between businesses and personal loans remained largely unchanged relative to the previous quarter, with businesses accounting for the majority. Regarding credit distribution to businesses, credit to medium-sized businesses continued to account for the lion s share of lenders business portfolio, with the proportion being slightly more than that which

7 Figure 3b: Distribution of Private Sector Credit by Business Size was obtained in the previous quarter. In this context, the proportion of credit allocated to micro firms declined to 5.2 per cent from 5.4 per cent during the previous period. There was also a decline in the proportion of credit made available to large firms to 34.4 per cent from 36.7 per cent. The proportion of credit allocated to large-sized businesses declined while credit allocated to small businesses increased to 8.3 per cent from 7.7 per cent in the previous quarter (see Figure 3a and 3b). These changes for the September 2018 survey are in part due to ongoing adjustments being made by credit providers to be in line with the national definition for business sizes (see Box and Appendix B: Table 1). Figure 3a: Distribution of Private Sector Credit 2 100% 80% 60% 40% 20% 0% 46% 54% Personal Loans 47.6% 57% 56.1% 54% 55% 43% 46% 45% Business Loans 7 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 9% 6% 28% 62% 54% 5% 5% 8% 8% 50% 52% 39% 37% 34% LARGE MEDIUM SMALL MICRO For the December 2018 quarter, lenders reported that they plan to increase the amount of credit made available to both businesses and individuals (see Figure 2 and Appendix A: Table 7). Credit Demand Credit demand, as measured by the Credit Demand Index (CDI) for the September 2018 quarter, declined relative to the June 2018 quarter (see Figure 4). As such, the CDI for the quarter was 95.2 down from in the previous quarter. This contraction stemmed from reduced demand for both personal and business loans (see Appendix A: Table 7). For personal loans, lenders reported that the decline was evident in the demand for credit cards, debt consolidation loans and other secured loans. The decline in demand in the review quarter was reflected in declined demand for both local and foreign currency loans. The fall in demand for local currency loans was mostly evident in the Tourism, Manufacturing, Construction & Land Development and Distribution sectors. The fall in foreign 2 Figure 3 shows the distribution of credit between households and businesses. Credit to businesses is further disaggregated to show total business loans distributed to firms of various sizes.

8 8 currency loan demand stemmed from the Distribution sector. The overall fall in local and foreign currency credit demand reflected a decline in the demand for credit by micro and small businesses. For the December 2018 quarter, lenders indicated that they are anticipating growth in the demand for credit from both individuals and businesses, particularly individuals. Changes in business activities and loan promotion activities were cited as the main drivers. during the review quarter, relative to the previous quarter. This reflected a reduction of 41 bps in rates for personal loans, while there was a 1 bp increase in the rates for business loans. Higher rates on business loans primarily reflected the impact of increased interest rates on loans to medium firms (see Table 1). In contrast, the indicative average interest rate on new foreign currency loans increased by 65 bps to 7.52 per cent, which reflected higher rates on foreign currency loans to all business sizes. Figure 4: Components of Credit Demand Demand by Demand by Individuals Credit Demand Index (CDI) CDI Expectations For the December 2018 quarter, lenders reported that they plan to increase the interest rates on new local and foreign currency loans by 85 bps and 27 bps to per cent and 7.79 per cent, respectively Indices greater than 100 indicate an increase while indices less than 100 indicate a decline. 2. The asterisk (*) represents expectations provided by the respondents. Price of Credit Based on the survey responses, average indicative interest rates on new local currency loans declined by approximately 8 bps to per cent Table 1: Overall Average Lending Rates on Local and Foreign Currency Loans June 2018 September 2018 Jun-18 Sep-18* Sep-18 Dec-18* Local Currency (LC) Loans Business loans Personal loans Reference rate Average LC rates Foreign Currency (FC) Loans Business loans Reference rate Note that the projected rates are usually higher than transaction rates as lenders generally resort to quoting their posted rates.

9 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index 9 Personal Lending Credit Conditions There was a marginal tightening in overall lending conditions for personal loans in the September 2018 quarter, evidenced by the index of 99.9 (see Figure 5a). This tightening was reflected in lending terms for unsecured loans, while there was notable easing in in lending terms for secured loans (see Figure 5b). For secured loans, the easing of lending terms mainly reflected declines in interest rates, fees and maximum debt servicing ratio. For unsecured loans, the tightening was attributed to increases in the minimum portion of balance repaid. For the December 2018 quarter, easing in lending conditions is expected for both secured and unsecured loans. This outlook reflects plans by some lenders to reduce fees and interest rates. Figure 5a: Index of Overall Credit Conditions for Personal Lending Figure 5b: Index of Credit Conditions for Secured and Unsecured Personal Lending Unsecured Credit Secured Credit 1. Indices above 100 indicate easing of credit market conditions while indices below 100 indicate tightening of market conditions. Credit Supply The share of credit made available for personal reasons declined to 44.9 per cent from 46.2 per cent in the previous quarter (see Figure 3a). For the September 2018 quarter, there was increased financing for mortgages, as well as credit cards, loans with real estate as collateral, debt consolidation, and other secured personal loans, although the supply of these categories of loans increased at a slower pace than the previous quarter. There was less credit made available for motor vehicle loans and unsecured personal loans. Loans for debt consolidation and mortgages benefited from higher approval rates (see Figure 6). There was a deceleration in the pace of increase in approval rates for Motor vehicle loans relative to the previous quarter. For the December 2018 quarter, credit supply is expected to expand at a faster rate compared with the pace of expansion in the September 2018 quarter. This increase is expected to impact most categories of personal loans (see Figure 6).

10 Credit Supply Index (CSI) Credit Demand Index (CDI) 10 Figure 6: Availability of Credit for Personal Lending Jun-18 Sep-18 Dec-18* Approv. Rate: Sep Index of Approval Rates Figure 7: Demand for Personal Loans 150 Jun-18 Sep-18 Dec-18* CSI less than 100 indicates a decline in credit supply while a CSI greater than 100 indicates an increase. 2. An index less than 100 indicates a reduction in the approval rate while an index greater than 100 indicates an increase. 3. The asterisk (*) represents forward looking expectations provided by the respondents. Credit Demand The demand for personal credit declined in the review quarter. The CDI declined to 94.9 from in the previous quarter. This contraction was evidenced by a decline in demand for financing credit cards, debt consolidation, loans with real estate as collateral and other secured loans. (see Figure 7). For the December 2018 quarter, an uptick in demand is anticipated as the CDI is expected to increase to reflecting increased demand for all categories of loans. Price of Credit Average indicative loan rates on new personal loans offered by participating institutions declined for the review period to per cent from per cent in the previous survey. The lower average rate for the review quarter was underpinned by lower interest rates on all loan categories except mortgages and Other secured loans which increased for the review quarter (see Table 2). For the December 2018 quarter, lenders reported a planned increase of approximately 27 bps in the average interest rates. Table 2: Interest Rates on Personal Loans June 2018 September 2018 Jun- 18 Sep-18* Sep-18 Dec-18* Credit Cards Other Unsecured Mortgages Motor Vehicle Other Secured Average rates

11 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index 11 Micro Business Lending Credit Conditions For the September 2018 quarter, there was noticeable easing in overall credit terms faced by micro-businesses, evidenced by the index of (see Figure 8a). This easing reflected the impact of lower interest rates and fees on secured loans as well as reduced lower interest rates on non-credit card lending. For the December 2018 quarter, credit conditions are expected to ease for both secured and unsecured loans extended to micro-firms. Figure 8b: Credit Conditions for Secured and Unsecured Loans to Micro-sized Unsecured Credit Secured Credit Figure 8a: Credit Conditions for Micro-sized Indices above 100 indicate easing of credit market conditions while indices below 100 indicate tightening of market conditions Credit Supply The supply of credit to micro firms increased for the review quarter as evidenced by a CSI of compared to in the previous quarter. This increase is reflected in more foreign currency credit being made available to the Entertainment sectors. For the December 2018 quarter, lenders reported that they expected to increase the supply of local currency credit to micro businesses. Credit Demand Credit demand by micro businesses contracted at a faster rate for the September 2018 quarter. This is reflected by the CDI of 86.2 for the current quarter in comparison to 97.9 in the previous quarter. This continued decline reflected a reduction in demand for local currency loans to Agriculture & Fishing, Manufacturing, Construction & Land Development, Distribution,

12 Table 3: Interest Rates on Local Currency Loans to Micro-sized and Tourism. The demand for foreign currency loans also declined and reflected a contraction in demand by the Distribution sector. For the December 2018 quarter, lenders reported that they expected an acceleration in the pace of demand for both local and foreign currency loans relative to the September 2018 quarter. Price of Credit For the review period, the indicative average lending rate on new local currency loans to micro businesses declined by 109 bps to per cent (see Table 3). This decline was predominantly reflected in lower interest rates on loans to the Tourism, Professional & Other Services, Agriculture and Manufacturing sectors. In contrast, interest rates on foreign currency loans to micro businesses increased to 7.93 per cent for the quarter. For the December 2018 quarter, lenders reported that they expected to increase the average interest rates on local currency loans to micro businesses and maintain rates for foreign currency loans. 12 Micro Firms Jun-18 Sep-18* Sep-18 Dec-18 Agriculture & Fishing Construction & Land Development Distribution Electricity Gas & Water Entertainment Manufacturing Mining & Quarrying Professional & Other Services Tourism Transport, Storage & Communication June 2018 Local Currency September Average Rate The asterisks (*) represent expectations provided by the respondents. 2. Note that n.a indicates that creditors did not lend to businesses within those sectors for the review quarter.

13 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index 13 Small Business Lending Credit Conditions For the September 2018 quarter, there was a marginal easing in the overall credit terms faced by small businesses, relative to the previous quarter. The overall credit conditions index increased to for the quarter from in the previous quarter (see Figure 9a and 9b). This easing mainly reflected a reduction in interest rates for secured loans. For the December 2018 quarter, lenders reported that they plan to improve credit terms for secured loans offered to small businesses. The credit conditions for unsecured loans will remain the same. Credit Supply Credit allocated to small businesses as a share of total credit increased to 8.3 per cent for the September 2018 quarter, relative to 7.7 per cent in the previous quarter. The supply of credit made available to small firms declined marginally in comparison to the previous quarter. In this context, the CSI declined to 99.8 for the quarter. Lenders reported declines in local currency loans to the Construction & Land Development and the Transport, Storage & Communication sector. The supply of Foreign Currency credit was unchanged, with the CSI remaining at in comparison to the previous quarter. For the December 2018 quarter, lenders reported that they planned to marginally increase credit supply to small businesses, as evidenced in the projected CSI of Figure 9a: Credit Conditions for Small Figure 9b: Credit Conditions for Secured and Unsecured Loans to Small Unsecured Credit Secured Credit Indices above 100 indicate easing of credit market conditions while indices below 100 indicate tightening of market conditions. Credit Demand Demand for loans from small businesses continued to decline in the review quarter and was reflected in the CDI for local currency loans of This decline was reflected in the local currency demand from the Tourism, Construction and Manufacturing sectors. Foreign currency loan demand showed a decline for the review quarter, relative to the previous quarter. This was

14 14 evidenced by a CDI for foreign currency loans of 93.2 compared to in the previous quarter. For the December 2018 quarter, lenders reported that they expected an increase in the demand for both local and foreign currency loans by small firms. This expectation for stronger local currency credit demand is predicated on plans for further reductions in interest rates and increased loan promotion activities. Price of Credit For the review period, the indicative average lending rate on new local currency loans to small businesses declined to per cent from per cent. This was, lower than the expected rate of per cent reported in the June 2018 survey (see Table 4). The reduction in the average local currency rates to small businesses mainly reflected lower borrowing costs for the Construction, Professional & Other Services and Transport Sectors 4. Conversely, the weighted average interest rate on foreign currency loans increased by approximately 107 basis points to 8.56 per cent, which was observed in all economic sectors. For the December 2018 quarter, lenders reported planned increases in interest rates on both new local and foreign currency loans to small business enterprises. Table 4: Interest Rates on New Local and Foreign Currency Loans to Small Local Currency Foreign Currency Small September 2018 September 2018 June 2018 June 2018 Firms Jun-18 Sep-18* Sep-18 Dec-18* Jun-18 Sep-18* Sep-18 Dec-18* Agriculture & Fishing Construction & Land Development Distribution Electricity Gas & Water Entertainment Manufacturing Mining & Quarrying Professional & Other Services Tourism Transport, Storage & Communication Average Rate The asterisks (*) represent expectations provided by the respondents. Note that n.a indicates that creditors did not lend to businesses within those sectors for the review quarter 4 The lending rates for the Manufacturing, Entertainment, Tourism, Electricity Gas & Water, and Mining sectors increased.

15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index 15 Medium-Sized Business Lending Credit Conditions Lending conditions faced by medium-sized enterprises in the September 2018 quarter eased relative to the previous quarter. There was however a slower pace of easing with the index of credit conditions to medium-sized businesses of for the quarter being lower than the in the previous quarter (see Figure 10a and 10b). For the December 2018 quarter, lenders reported that they expected to tighten credit terms applied to both secured and unsecured loans. This projected tightening would be reflected in increased interest rates on secured loans and collateral requirements. Lenders also reported that they plan to increase interest rates on noncredit card lending and on fees applicable to unsecured loans. Lenders cited changes in the economic outlook, and changes in economic sector-specific risks as important factors that continued to influence the supply of credit in the quarter. For the December 2018 quarter, the CSI for medium-sized businesses is expected to accelerate at a marginally slower rate, with an index of Figure 10a: Credit Conditions for Medium-sized Credit Supply Growth in credit supply to medium-sized firms expanded at a slower rate in the September 2018 quarter compared with the pace of expansion in the June 2018 quarter. The CSI moderated to for the review quarter from in the previous quarter. This moderation in the growth rate in supply reflected a deceleration in the supply of foreign currency loans, particularly to the Manufacturing and Electricity, Gas & Water sectors. The pace of growth in local currency loan supply however remained unchanged. In this context, there was a slight increase in the proportion of credit allocated to medium-sized businesses to 52.1 per cent from 50.1 per cent in the previous quarter

16 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index 16 Figure 10b: Credit Conditions for Medium-sized Figure 11: Credit Demanded by Medium-sized Transport Tourism Professional Mining Manufacturing Entertainment Electricity Distribution Construction LC: Jun-18 LC: Sep-18* FC: Jun-18 FC: Sep-18* 75.0 Agriculture Unsecured Credit Secured Credit Indices above 100 indicate easing of credit market conditions while indices below 100 indicate tightening of market conditions. 1. The asterisk (*) represents expectations provided by the respondents. Credit Demand There was a decline in the demand for loans by medium-sized firms in the review quarter. This was reflected in a CDI of 95.0 compared to 96.0 in the previous quarter. There was a decline in demand for local currency loans largely evidenced in the Construction, Distribution and Professional sectors. Of note, there was a marginal increase in the demand for foreign currency loans which was evidenced in the Agriculture, Manufacturing and Electricity sectors while loan demand by most other sectors was relatively unchanged (see Figure 11). For the December 2018 quarter, lenders reported that they expected the demand for both local and foreign currency loans from medium-sized firms to increase Credit Demand Index 1. An index less than 100 indicates a reduction in the Credit availability while an index greater than 100 indicates an increase. 2. The asterisk (*) represents forward looking expectations provided by the respondents. Price of Credit There was an increase in the indicative average lending rate on new local and foreign currency loans to medium-sized businesses for the review period. The average rate on local currency loans increased to per cent from 9.69 per cent in the previous quarter. The increase in the average rate was evidenced across all economic sectors except the Construction, and Distribution sectors. Interest rates on loans to the Tourism, Electricity Gas & Water and Mining & Quarrying sectors reflected the largest increases, increasing by 250 bps, 250 bps and 222 bps respectively. Similarly, there was an increase of 85 bps to 7.65 per cent in the average rate on foreign currency loans for the review quarter. Higher rates were evidenced in all sectors with the Mining and Entertainment sectors reflecting the largest increases of 150 bps and 140 bps respectively (see Table 5).

17 17 Table 5: Interest Rates on Local and Foreign Currency Loans to Medium-sized Medium Firms Jun-18 Sep-18* Sep-18 Dec-18* Jun-18 Sep-18* Sep-18 Dec18* Agriculture & Fishing Construction & Land Development Distribution Electricity Gas & Water Entertainment Manufacturing Mining & Quarrying Professional & Other Services Tourism Transport, Storage & Communication June 2018 Local Currency September 2018 June 2018 Foreign Currency Average Rate ) The asterisks (*) represent expectations provided by the respondents. September 2018 For the December 2018 quarter, the average interest rate on new local currency credit to medium-sized firms is expected to decline by 92 bps to 9.95 per cent. Lower rates are expected across most sectors with Manufacturing and Mining expected to record the largest declines. Conversely, the average interest rate on foreign currency credit is expected to increase by 37 bps to 8.02 per cent with higher rates expected on loans to all sectors except Construction and Distribution.

18 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18* Credit Conditions Index 18 Large Corporations and Commercial Lending Credit Conditions Lending conditions faced by large businesses eased in the review quarter, at a faster rate than in the previous quarter. In this context, the overall credit terms index increased to from in the previous quarter (see Figure 12a and 12b). The increase in the growth rate was associated with a lower interest rates and fees applicable to secured loans. Interest rates offered on non-credit card lending and fees applied to unsecured loans to large businesses were also lower for the review period. Figure 12b: Credit Conditions for Secured and Unsecured Loans to Large For the December 2018 quarter, lenders reported that they plan to continue to ease credit conditions. As such the index is anticipated to be at Figure 12a: Credit Conditions for Large Unsecured Credit Secured Credit 1. Indices above 100 indicate easing of credit market conditions while indices below 100 indicate tightening of market conditions 2. The asterisk (*) represents forward looking expectations provided by the respondents Credit Supply Growth in credit made available to large businesses during the quarter was largely unchanged relative to the previous quarter. This was reflected in a CSI of for the quarter, relative to in the previous quarter. The CSI reflected growth in the supply of both local and foreign currency loans, predominantly to the Tourism, Distribution and Electricity sectors (see Figure 13). The increase continued to reflect changes in the cost of funds, economic outlook, lenders risk appetite and market share objectives of suppliers. For the December 2018 quarter, lenders plan to augment credit availability to large businesses at a slightly faster pace than in the September 2018 quarter. This was evidenced in an increase in the CSI to which reflected an anticipated upturn in the

19 19 pace of growth in the supply of foreign currency loans. Figure 13: Availability of Credit to Large Transport Tourism Professional Mining Manufacturing Entertainment Electricity Distribution Construction Agriculture LC: Sep-18 LC: Dec-18* FC: Sep-18 FC: Dec-18* Credit Supply Index For the December 2018 quarter, lenders reported that they expected faster growth in the demand for credit by large firms relative to the expansion which occurred in the September 2018 quarter. This expectation was underpinned by the anticipated growth in both local and foreign currency demand, most notably from the Tourism, Distribution and Electricity, Gas & Water sectors. Figure 14: Credit Demanded by Large Transport Tourism Professional Mining Manufacturing Entertainment LC: Sep-18 LC: Dec-18* FC: Sep-18 FC: Dec-18* 1. An index less than 100 indicates a reduction in the Credit availability while an index greater than 100 indicates an increase. 2. The asterisks (*) represent forward looking expectations provided by the respondents. Credit Demand There was a slow-down in the growth rate of demand for credit from large businesses in the September 2018 quarter as indicated by more moderate growth in the CDI to from This moderation was reflected in a lower rate of growth for local currency loans while the growth of foreign currency loan demand increased. The slowdown in demand for local currency loans in the review quarter stemmed mainly from the Manufacturing, Distribution, Transport, and Construction sectors (see Figure 14). On the other hand, the increase in foreign currency loan demand stemmed from the Construction sector. Lenders highlighted that important factors that influenced credit demand from large businesses continued to be changes in business activities and government policies, as well as developments in one or more economic sectors. Electricity Distribution Construction Agriculture Credit Demand Index 1. An index less than 100 indicates a reduction in the Credit availability while an index greater than 100 indicates an increase. 2. The asterisk (*) represents forward looking expectations provided by the respondents. Price of Credit For the review quarter, indicative lending rates on new local currency loans to large corporations declined by 1 bp to 8.82 per cent. Foreign currency rates however increased by 25 bps to 5.95 per cent (see Table 6). Lower rates on local currency loans were evident across most economic sectors, with Transport, Professional & Other, and Distribution sectors showing the largest declines of 117 bps, 104 bps and 103 bps, respectively. The higher rates on foreign currency loans were evident across the Mining and Professional & Other sectors. These

20 20 increases were slightly offset by lower rates for the Distribution sector. For the December 2018 quarter, the average interest rate on new local currency credit to large firms is expected to decline by 20 bps to 8.62 per cent. Lower rates are expected across most sectors with Manufacturing, Professional & Other and Construction expecting the largest declines. Likewise, the average interest rate on foreign currency credit is expected to increase by 37 bps to 6.32 per cent with higher rates expected on loans to most sectors with Construction, Entertainment, Agriculture and Transport expecting the largest increases. Table 6: Interest Rates on Local and Foreign Currency Loans to Large Large Firms Local Currency Jun-18 Sep-18 Foreign Currency Jun-18 Sep-18 Jun-18 Sep-18* Sep-18 Dec-18* Jun-18 Sep-18* Sep-18 Dec-18* Agriculture & Fishing Construction & Land Development Distribution Electricity Gas & Water Entertainment Manufacturing Mining & Quarrying Professional & Other Services Tourism Transport, Storage & Communication Average Rate

21 21 Appendix A: Overall Credit Market Conditions Figure 15: Credit Conditions for Secured Loans Figure 16: Credit Conditions for Unsecured Loans 1. Bars above the zero line represent factors that would have contributed to an easing in credit conditions while bars below the line would have contributed to a tightening in credit conditions for the quarter. 2. Indices for the June quarter are computed based on forward looking expectations provided by respondents. 1. Bars above the zero line represent factors that would have contributed to an easing in credit conditions while bars below the line would have contributed to a tightening in credit conditions for the quarter. 2. Indices for the June quarter are computed based on forward looking expectations provided by respondents.

22 22 Table 7: Components of Credit Demand and Supply Indices Figure 17: Drivers of the Supply of Credit September 2017 June 2018 September 2018 SUPPLY Sep-17 Dec-17* Jun-18 Sep-18* Sep-18 Dec-18* Credit Supply Index (CSI) Credit to Credit to Individuals Local Currency Credit Foreign Currency Credit DEMAND Sep-17 Dec-17* Jun-18 Sep-18* Sep-18 Dec-18* Credit Demand Index (CDI) Demand by Demand by Individuals Local Currency Credit Foreign Currency Credit *Expectations for the upcoming quarter from the current survey. 2. Indices greater than 100 indicate an increase while indices less than 100 indicate a decline.

23 23 Figure 18: Drivers of the Demand of Secured Credit Figure 19: Drivers of the Demand of Unsecured Credit

24 24 Appendix B: Glossary and Definitions Diffusion Index (DI) This is used to compute the various indices used in the report and is a method of summarizing the common tendency of a group of statistical series. The DI value is calculated as: DI = (ss ms) (sw mw) 100 Where ss = 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 By construction, lenders who report that credit conditions have changed substantially are assigned twice the score as those who report that the index has changed moderately. 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 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 declining/ easing, while a positive DI indicates that the majority of the respondents view the variable in question as increasing/ tightening. An index of 100 indicates no change in the variable. Credit Demand Index (CDI)-The average net balance of opinion of credit demand across firm sizes and economic sectors. CDI = ( ( n n p=1 net balance of opinion i=1 ) n n ) where s = economic sector and i = firm size Credit Supply Index (CSI)-The average net balance of opinion of credit availability across economic sectors and firm sizes.

25 ( n n S=1 net balance of opinion i=1 ) n CSI = ( n 25 ) where s = economic sector and i = firm size The following are definitions of some of the credit terms discussed in the report: 1. Loan-to-value (LTV) ratio - the ratio of the amount borrowed to the appraisal or market value of the underlying collateral, for loans secured by real estate or other collateral. 2. Debt service coverage (DSC) ratio - the ratio of the amount borrowed to the reported income of the borrower. 3. Credit lines - credit line refers to a facility with a stated maximum amount, which an entity was entitled to borrow from an institution at any given time. 4. Loan covenants - an agreement or stipulation, expressed in loan contracts, in which the borrower pledges to take certain action (an affirmative covenant) or to refrain from taking a certain action (a negative covenant), and was consequently part of the terms and conditions of the loan. 5. Loan monitoring requirements - additional reporting required of the borrower as part of the conditions of the loan agreement (for example, regular reporting of inventory margins).

26 26 Box: A Redefinition of Business Sizes Bank of Jamaica s quarterly of Credit Conditions covers personal lending, micro-business lending, small business lending, medium-sized business lending as well as large corporate and commercial lending. Prior to April 2018, participants in the survey were required to classify firms by their loan size at origination or their annual turnover as reflected below: Classification Table 1: Previous classification of firm sizes Loan Size (at origination) Annual Sales/Turnover Micro Small Less than US$10, US$10,000 < Loan Size < $US100,000 Less than US$100, US$100, < Sales < US$5.0 MN Medium-sized Large, Corporate & Commercial US$100,000 < Loan Size < US$1.0 MN Greater than US$1.0 MN US$5.0 MN < Sales < US$25.0 MN Greater than US$25.0 MN A review was undertaken of this definition in the context of a Micro, Small and Medium Enterprises (MSME) and Entrepreneurship Policy review and update in The consensus among MSME stakeholders was that both total annual turnover and number of employees were relevant qualitative indicators for the size of firms in Jamaica as these are readily understandable and aligned withexisting data collection mechanisms. In this context, the MSME Entrepreneurship Policy was updated and tabled in Parliament in November It contains the updated national definition as follows: Classification Micro Small Medium-sized Table 2: New classification of firm sizes Primary Indicator (J$) Annual Sales/Turnover J$15 MN J$15 MN >Sales J$75 MN J$75 MN < Sales J$425 MN Secondary Indicator (For Guidance Purposes Only) No. Employees Source: Jamaica Micro, Small & Medium Enterprises (MSME) & Entrepreneurship Policy (updated 2017)

27 27 Against this background, effective April 2018, Bank of Jamaica replaced the definitions for MSMEs used by institutions in their responses to the survey of credit conditions and their completion of prudential returns with the updated definition in the updated MSME & Entrepreneurship Policy (2017). IMPLICATIONS FOR BOJ S DATA COLLECTION AND DATA REPORTING The adoption of the new national definition for the Bank s survey of credit conditions will result in a change in the distribution credit among business sizes. Table 3: Comparative Business Size Definitions 5 Annual Sales/Turnover (J$) Firm Size BOJ* NATIONAL Micro < J$12.6 MN J$15 MN Small Medium-sized J$12.6 MN - J$632.3 MN J$632.3 MN - J$3,161.7 MN J$15 MN >Sales J$75 MN J$75 MN < Sales J$425 MN Large, Corporate & Commercial > J$3,161.7 MN > J$425 MN *The Jamaica Dollar equivalent using an assumed exchange rate of J$126.47=US$1 and rounded to the nearest integer 5 For completeness, the Bank added a definition for Large, Corporate & Commercial