Home' Trinidad and Tobago Guardian : October 23rd 2014 Contents OCTOBER 2014 • WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
COVER STORY | BG5
On an energy equivalency basis, T&T pro-
duces far more natural gas than it does oil
(by a ratio of about 7 to 1), said the Energy
Chamber in a press statement.
Nevertheless, the recent drop in oil prices
has obvious implications for T&T's economy.
Crude oil accounts for 16.6 per cent of our
total energy exports while refined petroleum
products account for another 16.4 per cent.
Oil production is also a major source of Gov-
ernment revenue. Supplemental petroleum
tax (SPT), the second largest category of tax,
is only charged against oil production and
not natural gas production. The current
decline in oil prices is offset by the continued
higher prices for LNG in our key Latin Amer-
ican markets and for methanol and ammonia
in the United States and elsewhere.
Declining oil prices also have a positive
side for Petrotrin, whose costs for imported
oil to run through the refinery will decrease,
helping the refinery's very low margins. Nev-
ertheless, we need to be wary of the current
situation. The last time we experienced sig-
nificant declines in oil prices in 2008 other
commodity prices also rapidly followed. T&T
must therefore monitor all of our commodity
export prices carefully and be ready to revise
expenditure in line with falling revenue if
prices remain low, the chamber said.
One important tool in monitoring the
price of our energy exports is the Energy
Commodity Price Index (ECPI) developed
by the Central Bank of T&T and the Energy
Chamber. The ECPI tracks the price move-
ment of the country's top ten energy-based
The index is weighted by each commodity's
relative share of its value. The commodities
and their weights are: US natural gas (40 per
cent); oil (16.6 per cent); ammonia (11.8 per
cent); methanol (9.4 per cent); diesel (7 per
cent); motor gasoline (4.3 per cent); natural
gasoline (3.5 per cent); jet fuel (2.7 per cent);
propane (2.4 per cent); and urea (2.3 per
The value of the index is currently 134.61,
the lowest value since November 2013 and
represents a fifth consecutive month of
decline in the index's value. The current Sep-
tember 2014 value is also the second lowest
value in the past two years (See Chart 1).
Oil contributes 33 per cent of T&T's energy exports
as we believe that the country's GDP and wealth growth
are driven mainly by energy revenues," S&P said.
S&P said its economic outlook for the country is better,
with an expected GDP growth of 2 per cent to 3 per cent
through 2015. "The increase in exploration activities in the oil
and gas sector in recent years should maintain energy production
for the coming decade, contributing to economic growth,"
Why all the liquidity
S&P said credit growth stagnated during the 2009 recession,
but during the prior five years, lending to the private sector
had grown on average of 17.8 per cent annually. Despite lower
interest rates, economic uncertainty and weaker private sector
confidence have hampered credit demand and increased
liquidity among commercial banks.
Credit began to recover in the fourth quarter of 2011 as
lending for businesses and mortgages picked up. The mortgage
volume continued to grow even during periods of overall credit
contraction as customers took advantage of lower interest
rates, S&P said. Mortgage loans, which grew about 12 per cent
in 2013, have been "the main engine" behind credit growth,
While credit from commercial banks to the private sector
grew only by 1 per cent on an annual average between 2010
and November 2013, the average annual consumer mortgage
lending growth was 9 per cent, according to S&P.
"There is certain rigidity in T&T real estate market prices,
but this has not been the case for high-end properties whose
prices dropped during the recession. As a significant proportion
of real estate loans are allocated to these types of properties,
this had an effect on banks' loan books," S&P said.
Non-performing loans (NPLs) were about 5.6 per cent as
of September 2013, down from the 6.8 per cent peak of March
2012. The drop was due to the banks' stronger underwriting
standards and efforts in restructuring loans and write-offs.
Real estate loans continue to generate the bulk of NPLs, about
37 per cent.
With GDP per capita of US$19,087 for 2013, S&P said it
views "the household debt capacity" of the average T&T family
as satisfactory. Nevertheless, leverage measured as domestic
credit to the private sector as a percentage of GDP has been
historically low ---about 38 per cent as of December 2013---
because the large energy companies, part of the most dynamic
sector in the economy, usually borrow abroad in foreign cur-
S&P said credit to the private sector rose to $37.4 billion
in 2012 from $33.1 billion in 2011, and it expects it to reach
$38.3 billion by December 2013. S&P said it expects credit
growth to increase by 8 per cent to 10 per cent in 2013-2015
and credit to private sector should remain below 40 per cent.
Relaxed underwriting standards
On lending and underwriting standards, S&P said: "We
regard T&T's banking sector to have overall "relaxed" lending
and underwriting standards. This assessment is mostly based
on the sector's somewhat large exposure to real estate, which
has resulted in a sharp increase in NPLs in the past few years."
S&P said: "Lending for construction of luxury apartments
has resulted in high delinquency, while the level of past-due
consumer mortgage loans has remained low." S&P said that
although there's no sub-prime lending, it views the sector's
average loan to value of 80 per cent to 85 per cent as aggres-
S&P said: "We assess the payment culture and rule of law
in T&T as weak.' The constitution and common-law practice
protect property rights, and the judiciary system is independent
and sound. However, bankruptcy laws are outdated and the
legal process is lengthy. According to a Doing Business 2013
survey, resolving insolvency in T&T takes four years on average,
and recovery rate is only at 18.4 per cent."
Earlier this year, the Bankruptcy and Insolvency Act of 2006
that was proclaimed earlier this year updates many of the
provisions of the law.
See Ernst & Young analysis on page 10
Continued from Page 4
Banks relax lending standards
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