CDA extends assistance to underserved loan applicants
As banks move to abridge their lending base amid persistent economic contraction, the Commonwealth Development Authority has taken the initiative to extend assistance to loan applicants who could not qualify for credit packages offered by private financing companies.
Executive Director Marylou S. Ada disclosed CDA has been encouraging businesses that meet the requirements set by the private financing sector to seek loan packages from commercial banks instead of applying for loans from the government lending agency.
This way, Ms. Ada explained CDA will have the capability to prioritize those who are not able to qualify for bank loans because of some reasons that include insufficient credit history.
“By encouraging businesses that qualify for private sector loans to go to the bank first, we are able to serve the particular group of clientele that are equally in need for fresh capital but are unable to get it from the banks,” she stressed.
Ms. Ada pointed out that a big number of clients could not satisfy requirements for loan approval by private banks due to the stricter policies observed and complied with by financing companies, which manifested in the drop of approved credit packages in 1999.
According to the Banking Division of the commerce department, bank loans shrunk 0.5 percent to $288.3 million in the last quarter of 1999 compared with the same period the previous year.
Although there is a growing demand for cash due to the worsening economic condition, officials said banks have taken a more conservative approach in their dealings with loan application because of the borrowers’ weakened ability to pay back.
Consumer loans fell 10 percent from $83.6 million during the fourth quarter of 1998 to $74.7 million in the same period last year, due to a dramatic cut down on spending.
Despite a massive refinancing of loans by property owners since a big chunk of commercial and residential spaces are literally empty, real estate loans dropped 0.2 percent to $53.4 million during the same period from $54.7 million in 1998.
Money borrowed for commercial purposes edged downward 0.3 percent to $159.9 million from $165.3 million. Commerce officials said this is a strong indication that economic activities on the island are yet to pick up from the Asian crisis.
Ms. Ada said the measure adopted by the development authority is anticipated to assist small businesses obtain their badly need additional or supplemental funds but could not go to the private sector for loans.
She added a big volume of loan applicants that are being submitted to the CDA are qualified to obtain credit from private banks. In order to expand the available risk in the CNMI, CDA refers these applications to commercial banks.
“We really want to help those businesses that really cannot get the approval of private banks for loan agreements. We encourage qualified businesses to instead secure loans from the banks and take advantage of that,” she said.
According to Ms. Ada, CDA requirements, policies and procedures are more flexible compared with the criteria set by the private banks, which identify a particular business’ profitability before a loan is approved and released.
