Overview of the Results of ECCU Credit Market Conditions Survey January to June 2009

The Credit Market Conditions survey conducted on a semiannual basis is designed to capture the qualitative (non-price) factors affecting the demand for and supply of credit in the Eastern Caribbean Currency Union (ECCU). The questions cover both the business and household sectors. The results of the survey are reported using the net percentage indicator. The indicator is calculated as the difference between the percentage of banks reporting responses of “eased considerably” or “eased somewhat” and the percentage of banks reporting responses of “tightened considerably” or “tightened somewhat”. This result is then weighted, with the weights being determined for each of the three major categories of loan (business loans, mortgages and consumer loans) according to the banks’ contribution to the total value of loans made in the relevant category for the ECCU. Declines in the net percentage indicate worsening conditions in the environment while increases denote an improvement. The survey is addressed to senior loan officers of all the forty (40) regulated commercial banks in the ECCU. For the period January to June 2009, responses were received from 36 of the 40 banks surveyed.

The results of the survey conducted for the period January to June 2009 show that, on net, domestic credit conditions continue to decline amidst improvements in the global economic conditions. The decline in domestic conditions is evident by the negative net percentages reported by banks, in relation to the supply and demand for credit by households and businesses. This continues the trend reported for the survey period July to December 2008.

On net, banks reported continued tightening in lending terms and conditions for loans to all type of businesses. However the tightening in lending conditions for commercial and real estate loans was less pronounced than that reported in the previous survey conducted for the period July to December 2008. This is evident by the smaller negative net percentage observed when compared to the last survey conducted for the period July to December 2008. Banks also reported tightening of credit to households for mortgages and other consumer loans. The tightening continues the trend observed in the last survey conducted for the period July to December 2008. The main factors explaining the net tightening in lending terms and conditions were the risk related to the general economic situation, concerns over the creditworthiness of customers and the changes in the percentage of non performing loans to total loans.

In terms of the demand for loans, on net, banks reported a decline in demand by all types of businesses. The main factors reported to have contributed to the decrease in demand were changes in consumer/business confidence and changes in the financing needs for fixed investments. In regards to the demand for credit by households, banks also noted further reduction in demand. This is evident by the higher negative net percentages reported for the period when compared with the negative net percentages reported during the previous survey conducted in the second half of 2008. Changes in financing needs for purchase of consumer durables and decline in consumer confidence were cited as the main factors influencing the fall in demand.

Current Global Financial Crisis

The survey also contained questions that focused mainly on the impact of the current global crisis on banking operations such as ability to access credit on the international market, relationship with correspondent banks, liquidity management, portfolio performance and lending terms and conditions. The majority of the loan officers stated that their ability to access credit on the international market and their relationship with correspondent banks have not been hampered by the developments in the global financial markets. In regard to liquidity management banks reported that tightened lending policies, heightened monitoring of liquidity position, shift in investment strategy and embarking on deposit campaign as the main strategies developed to deal with the effects of the crisis on their liquidity position. Aspects of commercial banks’ operations such as portfolio performance were expressed to have been affected by the impact of the crisis on real sector developments. To mitigate the effects on the portfolio performance, banks noted that greater focus on compliance and risk management and tightened lending policies as some of the main measures undertaken. Banks also indicated that actions were taken to assist the sectors that were hardest hit by the financial crisis. Such actions included the granting of moratorium on principal repayments and maturity date extensions.