Personal loans continue to be a big income earner for local banks, attracting higher interest revenues than commercial loans and representing the single-largest portfolio segment in loans.
Personal loans were 34.8 per cent of all loans, second only to Government-sector borrowing at 13.7 per cent.
Credit to individuals is priced around the 20 per cent range, while commercial loans average 13 per cent.
Pre-crisis, these loans were fuelled by a wave of consumerism.
In 2009, however, a new element has been added to the mix.
The main reason for borrowing in this segment appears to be for debt consolidation, followed by purchasing items for the home and paying for home-linked obligations, including children's school fees, according to feedback from the banks.
And lenders tend to charge different interest rates, according to the purpose of the loan (see insert for a sampling from First Global Bank).
even spread
At RBTT Bank Jamaica Limited, while there tended to be a fairly even spread among categories of need, for the quarter April to June 2009, motor-vehicle purchases, home improvement, debt consolidation, and furniture acquisition accounted for the majority of funds disbursed within the retail-loan portfolio - close to 75 per cent, said Annette Atkinson, manager of corporate communications.
The size of the average loan was about $300,000, she said.
The Bank of Jamaica analysis of loans and advances shows that as of August 2009, local commercial banks had issued $83 billion in personal loans to local residents of a total loan pool of $259.7 billion.
In August 2008, personal loans were estimated at $81.8 billion within a total credit pool of $229 billion.
But with inflation running at an annual 6.1 per cent to August, Jamaicans are borrowing less in real terms.
Scotiabank Jamaica's Wayne Powell, executive vice-president - branch banking, says the primary reason for borrowing in 2009 was debt consolidation from different lenders into one loan to make payments easier.
But individuals also sought credit for car purchases, home improvement, and personal expenses such as school fees, travel, medical bills, and generally to cover cash-flow shortfall due to reduced income, Powell said.
cheapest personal loans
In general, the cheapest personal loans on offer appear to be for cars - a segment for which banks are currently trying to drum up business - and home equity loans, with unsecured lines of credit attracting the highest rates.
At First Global Bank, car loans make up approximately 36 per cent of the bank's retail-loan portfolio but is second to a general category called 'personal', which Marketing Manager Kerry-Ann Stimpson says are loans are taken out by persons - accounting for 61 per cent of the retail portfolio.
"These are people who simply need funds for a wide variety of personal reasons, including to purchase items for their homes (for example, air-conditioning units); taking a vacation; paying school fees for their children, among other personal needs," said Stimpson.
One per cent of the First Global retail portfolio is made up of education loans by mostly full-time employees studying part-time, while two per cent involves home-improvement loans.
avia.collinder@gleanerjm.com
Motor car - new 19.75%
Motor car - used 20.75%
Home equity loan - up to 7 years 19.75%
Home equity loan - over 7, up to 10 years 20.75%
Home equity - revolving line of credit 21.75%
Doctor's loan 23.75%
Education loan - tertiary 24.75%
Education loan - postgraduate 23.75%
Global line - unsecured 24.75%
Global line - secured 22.75%