Commerce Secretary Michael J. Ada has asked banks to shed light on their lending practices following findings that not one in the CNMI has extended U.S. Small Business Administration-guaranteed loans in the last five years.
“It has come to my attention that no financial institution has originated and subsequently made a loan to avail of the U.S. SBA-guaranteed loan program within the last five years to any small businesses in the CNMI,” Ada told bank officials in separate letters dated March 10, copies of which were obtained yesterday.
He said this is “disheartening,” given that the CNMI economy is largely derived from small business.
“While I can appreciate the hesitancy of financial institutions to lend in tough economic times, it is disheartening to know that the financial resources required by our small businesses in order to sustain and grow within our economy are nonexistent, especially given that the federal government through the SBA guarantees such loans up to 90 percent of the exposure,” he added.
Ada wrote to key officials of First Hawaiian Bank, Bank of Hawaii, Bank of Guam, and Bank Pacific, which are members of the Federal Deposit Insurance Corp.
His letter posed six questions to determine the obstacles associated with ensuring that small businesses in the CNMI have access to required resources, including the number of those who applied for an SBA loan through these banks, within the last three years.
Ada also asked how these banks have partnered with SBA to promote their programs within the banks' branches in the CNMI.
Fred Camacho, branch manager of Bank Pacific, told Saipan Tribune yesterday that the bank will be responding to Ada's letter.
Officials of the three other banks did not return Saipan Tribune's call for comments as of press time.
Ada said there are excess deposits that are not being lent in the CNMI.
As of Dec. 31, 2009, the average loan-to-deposit ratio of all licensed banks in the CNMI is only 0.3 to 1, the Commerce secretary said.
“Although it is the burden of the government to ensure that programs and planning are in place and aimed to promote economic growth within our islands, a large portion of the solution to economic recovery rests with the financial sector's willingness to lend resources required for businesses to thrive,” Ada told bank officials.
Ada also asked the banks about their plans, if any, to promote SBA lending programs to applicants.
“What percentage of your current loan portfolio are loans made to small businesses, as defined by the U.S. Small Business Administration? What percentage of your existing business loans has been made to businesses within the first two years of their operations?” Ada asked the banks.
His last question asked about the banks' primary concerns for making a small business loan to applicants, should they opt to take advantage of an SBA loan that guarantees 90 percent of the loan.
“As my office works toward ensuring that financial institutions operating in the CNMI do their part to aid in our economic recovery efforts, I sincerely hope that the apparent trend of CNMI lending practices to small businesses shifts to a more favorable and equitable relationship,” Ada added.
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