Home' Trinidad and Tobago Guardian : May 18th 2014 Contents SBG6 | FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt MAY 18 • 2014
T&T does not have a prob-
lem with consumer credit
at this time, says Dr Alvin
Hilaire, the deputy gov-
ernor of the Central Bank.
In an interview earlier this
week, Dr Hilaire told the
Sunday BG, that increases
in the amount of borrowing done by consumers
is "normal". However, private sector business
borrowing remains relatively stagnant, a sit-
uation which he said continues to concern the
In a story last week, the Sunday BG exam-
ined the borrowing habits of citizens and
whether the country may be on the edge of
a serious problem with debt. Figures cited
from the January 2014 Summary Economic
Indicators, show that consumer loans in several
categories had increased over the years 2006
to 2013, meanwhile credit card transactions
were running into the range of billions of dollar.
The Central Bank s deputy governor does not
believe this is cause for alarm.
No evidence of credit bubble
"Even if you see outstanding loans going
up, that would be a normal state of affairs,
because as an economy grows and as prices
grow, people would need more funds to do
everything. So it is a normal thing to see
growth in credit."
Dr Hilaire said the increase in borrowing is
being fuelled by high liquidity in the economy.
Banks, now having the excess funds, are
encouraging people to come in and take loans.
"They have funds to lend. So you would
see loan sales, you would see interest rates
going down and some people are taking advan-
tage of that to borrow. Therefore, you do have
some increase in some debt, because there are
more funds being offered. Some years ago, it
would have been more difficult to get a loan."
He also did not see banks reducing the qual-
ity of their credit criteria to accommodate pri-
vate sector borrowers, something that he said
would be one of the key signals that T&T was
on its way to a problem with credit.
Hilaire said the Central Bank, through its
financial supervisions department, was working
very closely with institutions to ensure they
were not offering low quality loans or reducing
their credit criteria.
Credit growth that was too rapid was also
something the Central Bank deputy governor
said might indicate all was not well.
"If it grows at 20 per cent, 25 per cent, it
could be a sign of something that is moving
much more quickly than you would want. An
economy would not be growing, even in the
best of times, more than 4.0 or 5.0 per cent
and inflation might be 3.0, 4.0 per cent, so
if you are growing too fast, it could signal that
you are in something called a credit bubble.
The bubble means that things are on the edge
and they could just collapse."
Speaking with the Sunday BG, economist
and lecturer Dr Roger Hosein defined a credit
bubble as existing where "low interest rates
are used to motivate a high level of economic
activity and may prompt some risky invest-
ments at times."
The Central Bank deputy governor said that
there was no evidence to suggest that either
situation was occurring.
Looking again at the numbers for loans out-
standing by purpose in the January 2014, real
estate and mortgage loans---almost 43 per cent
of consumer loans taken in one year over the
period of 2006-2013---in some of the years
(2006 to 2009) percentage changes in the rate
of borrowing, actually approach, are within
and exceed the 20 to 25 per cent range Dr
Hilaire said. There was a 28 percentage increase
in borrowing over 2008 to 2009. However,
from 2010, percentage changes began to
decrease, ranging between 8.0 to 15 per cent.
Dr Hilaire said a more accurate indicator of
whether people were getting in over their
heads with regard to debt would be to look
at the figures for non-performing loans, which
he defined as loans that had not been serviced
for at least three months.
Non performing loans are expressed as a
percentage of the total number of loans taken
in the system. According to Dr Hilaire, non-
performing loans were at 6.5 per cent in 2011,
5.4 per cent in 2012 and 4.1 per cent in 2013.
He said while the situation did not warrant
undue worry, it was one the Central Bank was
keeping its eye on, since there was no room
Low business credit worrying
Dr Hilaire said what was troubling the Cen-
tral Bank, however, was the persistent slug-
gishness in business sector loan arena.
According to the deputy governor, the major-
ity of private sector borrowing was for con-
sumer and mortgage/real estate purposes.
"From the point of view of the Central Bank,
we would want to encourage business credit
to pick up, because this is what will help to
fuel investment. The bias towards mortgages
and consumer growth is something we would
want to balance off with business credit grow-
ing. What we do find, over the last few months,
is that business credit has started to inch up.
This is a positive sign after over a year of
Dr Hilaire said the Central Bank is especially
interested in small- and medium-sized enter-
prises increasing their business credit.
Economist and PNM Senator, Dr Lester
Henry said that it is more likely that SMEs
were taking their loans from institutions like
Nedco and not commercial banks.
Dr Hosein also said that business confidence
in the economy may be the underlying issue.
"This may be because of perceptions by the
business community that the economy has
not fully recovered. They are still in wait-and-
He also mentioned social issues as a possible
contributory factor, adding that the crime sit-
uation may have had more "protracted effects
on the confidence of business people than
policy makers may wish to admit."
Dr Henry agrees that the business commu-
nity is showing a lack of confidence in the
economy, but said this is generated by "political
interference in the running of enterprises.
Given the country s macro-economic indica-
tors, there was no reason for a lack of con-
Going further, Dr Henry directly connected
the lack of business confidence to the current
shortage of US currency within the system.
He told the Sunday BG that imports have been
decreasing for the last few years, yet there was
still a shortage of foreign exchange. His con-
clusion was that businessmen were "putting
their money elsewhere."
He also criticised incentives included in
successive budgets specifically to entice the
business community, saying that they had
failed to meet their objective of encouraging
the business community to invest in the local
Dr Hosein also noted the shortcoming, say-
ing it was critical that policymakers find ways
to stimulate the supply side of the economy
or the business sector, "so that any further
demand shocks would not stimulate a rise in
He said consumer confidence in the econ-
omy---as demonstrated by their increasing
willingness to purchase items---is likely to
create responding interest in the business com-
"One expects that once the growth patterns
continue in a solid pronounced manner, that
the business community would, by way of the
stimulus through increased demand pressure,
Central banker says...
credit What's troubling the
Central Bank, however,
was the persistent
sluggishness in business
sector loan arena.
DR ALVIN HILAIRE
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