No loans awarded by CDA in 1Q

Keeping up with its decision to slowdown on lending amid the borrowers’ weakening ability to pay, the Commonwealth Development Authority has not awarded a single loan in the first quarter of the year.

According to a report submitted by CDA to the Central Statistics Division of the commerce department, the government’s lending arm did not approve of any loan agreement in the period covering January-March 2000 apparently because of rising delinquency rate.

Back in 1999, the development authority has consistently awarded an average of $1.625 million in each quarter which is, however, lower than the previous year’s $2.075 quarterly average or when the CNMI economy was yet to feel the pinch of the regional recession.

CDA had been approving an average of more than a million dollars in both direct and guaranteed loan in each quarter of 1996 and 1997, the Quarterly Economic Review disclosed.

In 1996, the economic report revealed CDA approved $4.3 million worth of direct and guaranteed loan agreements. The figure rose to $7 million the following year, then soared to $8.3 million in 1998, only to suffer a modest drop to $6.5 million last year.

CDA 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, Board Chair John S. Tenorio said the current state of the local economy is forcing CDA to take stricter measures in approving credit packages.

However, 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.

The development authority has taken more careful steps at reviewing loan applications to curb further growth in the number of remiss credits, which currently account for about 19 percent of CDA’s portfolio.

Borrowers are now 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.

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.

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 Mr. 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.