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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.
With regard to the outlook for the next six months (July to December 2009), the majority of banks, on net, are projecting continued tightening in terms and conditions for both businesses and households. The main factors reported to have contributed to the outlook are the negative impact of the global economic downturn on key sectors particularly tourism and the availability of short term funds. In terms of the demand for credit for business loans, banks are projecting a fall in demand for commercial real estate loans and short term loans to large businesses and a rise in demand for short term loans to small/medium sized businesses. The expectation for a decrease in demand, for commercial real estate loans and short term loans to large businesses, is based on the general lack of confidence in the signs of improvement in international economic conditions. The expected increase in the demand for short term loans to small/medium business is influenced by banks’ view that the slowdown in economic activity will impact the cash flow of small/medium businesses resulting in an increase in requests for funds to meet working capital needs. On net, the majority of banks are anticipating a decrease in the demand for household loans over the next six months. The uncertainties surrounding the global financial crisis were the main reason cited for this projection. |