AMID ECONOMIC SLOWDOWN CDA eyes tighter rules on loan approval

The Commonwealth Development Authority has tightened its existing policies on the approval of loan agreements amid increasing delinquency rate and stock-piling applications due to the turtle-paced recovery of the Northern Marianas economy.

While stressing the government-owned lending agency has been carefully scrutinizing each loan application, Executive Director Marylou S. Ada said the current state of the local economy is forcing CDA to take stricter measures in approving credit packages.

However, Ms. Ada pointed out CDA continues to provide technical and financial assistance to local clients, especially those who could not qualify for commercial loan packages from banks, despite its recent adoption of tighter policies.

“CDA maintains its mission to help stimulate the local economy through the promotion of the entrepreneurial spirit, and helping in the establishment of small, local-based businesses,” she told an interview with reporters.

She added the development authority has taken more careful steps at reviewing loan applications now to curb further growth in the number of remiss credits, which currently account for more than 15 percent of CDA’s portfolio.

Ms. Ada explained borrowers are asked to consult with experts from CDA first where a discussion of which business types will potentially fail and which are likely to succeed before submitting their application for commercial loans.

“We are carefully looking into the applications of our clients. This include a study of whether their proposed business has the promise of making it good in the market or are we simply breeding potential failures,” she said.

She emphasized CDA has already stopped giving out loans to borrowers who intend to construct residential or commercial buildings since this is the biggest contributor to the agency’s current credit delinquency rate.

“Commercial and real estate are not priority.
We are now looking at other types of businesses that will bring additional money or new services to the island. Things that are still not available,” she said.

Loans issued to borrowers who ventured into apartment-type businesses have been contributing to the high delinquency rate reported by the CDA which reached about 15 percent last year.

According to CDA Board Chairman John S. Tenorio, only about 40 percent of loans approved by the Development Authority for apartment-type businesses have been paid so far.

Government records disclosed that the second largest category of loans issued by CDA was for apartments; the third largest was for fishing.

At the end of 1997, CDA had a reserve for bad loans of more than $9 million, equivalent to roughly 30 percent of the outstanding loans.

This, coupled with the adverse effects of the regional economic contraction, has apparently resulted to a sharp increase in the number of delinquent borrowers. CDA registered a 15 percent delinquency rate last year.