National Commercial bank has made most loans under the IDB credit scheme.

Commercial banks are reporting mixed results in their efforts to channel to clients the 80 per cent of the US$300 million (J$26.7 billion) in credit government received from the Inter-American Development Bank (IDB) in January for on-lending to local industry.

Originally, all the money was intended for the private sector, but the finance ministry confirmed last week that it had recieved approval from the IDB to allow public-sector entities to access 20 per cent of the cash, once they do not require central government guarantees.

open to all commercial banks

Only four financial houses - National Commercial Bank (NCB), First Global Bank, Pan Caribbean Financial Services and the Export Import (EXIM) Bank - have taken up any of the funds, which are being administered by the Development Bank of Jamaica (DBJ), but which finance ministry official, Pamella McLaren, said are open to all commercial banks and the EXIM Bank.

"The banks borrow the funds at a variable rate determined by the six-month US dollar Libor, reset semi-annually each year on the 15th of February and 15th of August, plus 450 basis points per annum," McLaren, who is the senior director for debt management told Sunday Business.

Currently, the rate to the banks is 5.58 per cent, McLaren, who was inadvertently, incorrectly named in the Financial Gleaner story, said.

The banks determine the on-lending rate to its client and there is no cap on the rate they charge.

First Global says its lends the IDB funds at 10 per cent and 11 per cent and got the funds at a seven per cent variable rate from the DBJ. Other banks declined to say what they were lending at.

The finance ministry has said US$89.7 million, or approximately J$8 billion, has already been loaned, with 71 per cent going to the private sector and the balance taken up by government companies, which have not been named.

70 projects

By the finance ministry's count, 70 projects have already been funded from the IDB cash, with 24 or 34 per cent of them being in manufacturing. The services sector was next, with 13 projects, followed by tourism with 10, agroprecessing - nine, distribution - seven, four projects in construction, two in the energy field, and one in mining.

Even as the government rolls out these numbers, some in the banking sector point to problems in the structuring of the loan facility that make it unattractive to many enterprises it was meant to help. One banking source, who declined to be named, said the funds have not been the cheapest of similar multilateral loans, being about two per cent more expensive than normal.

NCB has already disbursed to borrowers US$43.93 million from the facility, which it accesses based on client demand. The bank says it expects a further drawdown of US$4 million this month.

Meanwhile, one-year-old Pan Caribbean Bank, the commercial banking arm of Pan Caribbean Financial Services group, has reported that with a late start to its participation in the facility, only US$3.5 million of the funds has so far been lent to its clients.

aggressive stance

A total of nine firms involved in tourism, energy, distribution, transport and construction have received loans from the IDB facility through NCB. The three tourism projects, at US$22.78 million, account for the bulk of the disbursements, with US$10 million going to one transport business; US$9 million allocated to two energy companies; US$1.6 million going to two entities in construction; and, US$500,000 lent to a distribution concern.

The high take-up of the funds through NCB reflects the bank's aggressive loan stance with the Bank of Jamaica March 2009 commercial banking industry review showing NCB with the bulk of net loans. In its nine months to June, the bank, with the largest branch network in Jamaica, grew commercial loans by 38 per cent over the same period in 2008. During the nine months, NCB earned $9.8 billion in interest income from loans, nearly 33 per cent more than the same period last year.

Comparatively, Pan Caribbean pulled in $531.9 million in interest income from loans for the first six months of 2009, 39 per cent more than in the same period in 2008.

First Global says it has lent US$23 million to 10 corporate clients seeking working capital for distribution companies, manufacturing retooling and hotel refurbishing.

foreign-exchange exposure

In information posted to its website, the EXIM Bank says it has accessed US$18 million from the IDB pool of funds.

"EXIM Bank Jamaica assists potential borrowers to manage their foreign-exchange exposure by ensuring that hard currency funds are lent only to those businesses that earn hard currency. As such, loans will be disbursed in United States dollars (USD) and borrowers must prepare to repay the loan, in full, in USD only," the bank said.

But with a still uncertain foreign-exchange situation, at least one bank says many of its clients are shying away from US-dollar-denominated loans.

"With the currency risks involved and revenues of many companies affected by the economic downturn, many clients are more interested in Jamaican dollar loans," a Pan Caribbean representative, who requested anonymity, said.

special facilities

Based on the nature of the bulk of its private sector loan demand, Pan Caribbean, which says it matches client needs with available loans rather than marketing specific programmes, has been directing most borrowers to DBJ and EXIM Bank's small and medium enterprise special-loan facilities, rather than towards the IDB funds

Despite the bank official being optimistic that demand for the IDB funds will improve over time, the relatively low demand through Pan Caribbean is also symptomatic of concerns over the structure of the loans and their still relatively high interest rate.

The funds are wholesaled to the lending institutions at "seven per cent or a little below" one bank representative said.

"There are also fees attached, which are not always recoverable from the client and so have to be included in the pricing of the funds, which results in this facility not being competitive against other loan products," said the Pan Caribbean executive.

Import restrictions connected to this line of credit require that raw material and supplies purchases be made only from IDB member countries.

Other eligibility criteria mandate that businesses must be at least 66.6 per cent Jamaican owned, borrowers must be in compliance with environmental law and have the necessary environmental and other permits to operate.

huntley.medley@gleanerjm.com