Banks may intensify lending By Aldwin R. Fajardo

Due to the improving visitor arrival figures and increasing business activity, banking institutions in the island may start relaxing self-imposed restrictions on commercial and consumer loans.

The two-year old economic crisis have forced banks to slowdown on giving out loans due to the apparently crippled capabilities of borrowers to pay back.

Development Authority Chair John S. Tenorio said commercial banks normally adapt a more cautious, conservative approach on approving loan applications during times when the economy is not doing well.

Mr. Tenorio said private banks have frozen expansion on their respective lending base when the local economy was not showing significant signs of improvement or when borrowers’ capability to repay loans is weaker.

“Commercial banks are more cautious because of the ability of borrowers to repay their loans especially during a crisis,” he said.

He pointed out that the local economy is beginning to see signs of recovery from the Asian economic crisis, which is expected to ease off banks’ conservative approach on approving loan application.

This may have a positive multiplier effect on service-type establishments or businesses related to the commonwealth’s billion-dollar tourism industry which has been badly hurt by the regional recession.

Banks continued to provide loans but they practiced a more cautious approach such as the requirement of more collateral, according to Mr. Tenorio, adding that it is still not advisable to put up commercial building or multiple story apartments because of higher vacancy rate.

At the same time, the CDA chief also said that some banks may be downsizing loan applications like those applying for a million dollar loan may have their application approved lower by at least half of the original amount.

In 1998, banking institutions in the CNMI expanded their lending base despite the ongoing recession’s risks that include crippling the borrowers’ ability to pay back due to slower business activities and lower returns of income.

Government figures noted an increase in total money loaned out by private banks in the CNMI during the fourth quarter of 1998 which amounted to $304.71 million, compared with the previous year’s $279.98 million.

However, private banks loaned out lesser money during the last three months of 1998 compared with the amount recorded during the same year’s previous quarter at about $306 million.

Commercial loans posted a slight decline in 1998 at $165.7 million from the previous year’s $166 million while consumer loans were up from $80 million in 1997 to $83.6 million the following year.

Bank experts attributed the big bulk of increase in total money loaned out to the real estate sector which posted some $21 million growth, from $32.9 million in 1997 to $54.7 million last year.