PHILIPSBURG--While consumers taking bank loans in recent years have been benefitting from lower interest rates, the banks themselves have been raking in smaller profits on interest.
Windward Islands Bank (WIB) Managing Director Derek Downes said lending rates have declined significantly in St. Maarten over the past two to three years resulting in banks earning less interest on new and existing loans.
Downes said too that investment in St. Maarten’s economy is “slowing down.” The WIB Managing Director was at the time responding to questions from The DailyHerald on statements made by Central Bank of Curaçao and St. Maarten President Emsley Tromp that the output has dropped in the financial intermediation sector as reflected by a decline in the net interest income of commercial Banks. Tromp made his statements during his presentation about the bank’s Annual Report 2014 last week.
Downes said the drop in net interest income is impacted by, amongst other factors, the decline in lending rates. Downes said that the entire loan market of the island has been declining for the past four years while the total deposit market has been on the increase.
“A higher amount of interest is therefore being paid on deposits (because of there being more deposits attracting interest), while less interest is being earned on a reducing loan portfolio,” he said. “This impacts negatively on net interest income for banks.”
Banks, he added, also earn less income on excess deposits invested on the international market, as interest rates in the United States and Europe are “very low.” Another factor, he adds, is that there are not many local interest bearing opportunities for banks to invest in, as no corporate bonds have been recently issued.
Downes said it’s difficult to say how each bank is being affected by this drop in net interest, “but I would imagine that most banks are being affected.”
And what does this mean for the financial sector in St. Maarten and what can it mean for the St. Maarten economy in general? “This is a signal that investment in the St. Maarten economy has slowed down, as while banks have funds to lend, less businesses and individuals are borrowing as noted by the decline in the loan portfolio of the island.”
He said the negative trend regarding the decline in net interest income and the decline in the loan market has been going on for the past three plus years.
Downes said this trend can be reversed by increased economic activity on the island. “The government must create the atmosphere to improve business and consumer confidence. Once this happens, businesses and consumers will borrow more, thereby reversing the negative trend seen in the declining loan market. The trend is also reversed by an increase in lending rates and interest rates on international investments. Already the US Federal Reserve is talking about increasing rates in the US this summer, so we have to wait and see how this impacts the Caribbean lending environment. This increase in rates in the US will bode well for investments St. Maarten banks made there from their excess liquidity. They will earn higher income from this source.”
