No drop in interest rates coming soon

POSTED: 08/10/11 5:59 PM

St. Maarten – Despite an impassioned plea at one point by Independent Member of Parliament Patrick Illidge the St. Maarten Bankers Association has said the interest rates on loans are not likely to fall any further any time soon. The request for banks to drop their rates was a main theme throughout Tuesday’s Central Committee meeting.
Interest rates vary depending on the type of loan people are taking. For example banks are preparing to implement an instruction by the Central Bank of Curacao and St. Maarten to use Annual Percentage Rates between 6.5 percent and eight percent. This is between three percent and 4.5 percent lower than when the interest rate was as high as 11 percent.
“Interest rates here are comparable to those in Curacao. We are restricted in the programs we can offer. Rates should remain low for the time being and I don’t foresee any hikes in the short term. Credit on a small island is not easy and no one can accuse the banks of not having confidence in the people. Also you need to remember a bank is a business and we have very strict rules that we have to comply with alongside the demand from our shareholders to make profits,” Beaujon said.
“We should always remember that loans are given from depositors and we can’t just give their money to paying losses, so we always have to make sure and collect the amount that is owed, so we can continue to have the confidence of our depositors,” Beaujon added.

Loan types
The perception that the banks promote car loans over loans to purchase land and homes was also a common thread in the debate. Beaujon said the focus on cars is down to the fact that the dealers are pushing their product and that there continues to be high demand but mortgages and business loans still form a large part of the loan portfolios held by the banks. He also pointed out that the bank works with developers to create packages to sell land and homes.
“That market is different. What we have done to promote home ownership is tell people who inherit land to do things little by little. For example if someone builds their foundation, by the time they come to us, they have enough collateral from that to use it as a down payment. We’ve also been encouraging the government to buy more land to sell homes at social rates. We cannot depend solely on the commercial market. A balance has to be found,” Beaujon said.
Fellow banker Ronald Holman added, “The price of land and the cost of construction in St. Maarten is more restrictive than in other islands as well. That is something we need to remember when we talk about dealing with mortgages.”
The Bankers Association president also revealed that banks do not like when they have to auction homes and properties, especially when they have to go through multiple rounds, because the amount they can auction it for will then not cover the outstanding, which is a loss for the bank, and the defaulter will still stand responsible for paying the outstanding. Beaujon also explained that banks attempt to collect the vast majority of what is owed in interest in the first half of a loan that covers a long period. One example of this is a mortgage, where people also have to remember they are being charged compounding interest.

Dollarization was also a common thread throughout Tuesday’s discussion. The Bankers Association, much like government, are awaiting the outcomes of an independent study on the matter before taking a formal position, but that study has been delayed.
“Dollarization is not an easy decision. I believe that Dr. Tromp (Director of the Central Bank of Curacao and St. Maarten) has always had his opinion and he’s now expressed that. It’s now up to the government and the banks to form their own opinion. I believe dollarization will be a major change so it must be studied so someone can tell us the pros and cons. We’ve seen with the BES Islands that it was a very easy decision to take but the effects have been huge,” Beaujon said.
Even though the report has not yet been published at least two MPs took a firm position on Tuesday.
National Alliance MP Frans Richardson said, “Dollarization seems to be a very ticklish issue for some people but I see no real difference in having the dollar as your currency and pegging your currency to the dollar, because if the dollar is devalued, a currency that is pegged to it will also be devalued. I still think that maybe dollarization is the best option because no matter what the dollar will remain a trading currency.”
United People’s Party simply stated, “I am pro dollarization.”

In one whimsical remark of “Banks pay a lot in taxes” Beaujon also made it clear that the sector is contributing to the government’s coffers. He referred specifically to wage tax by pointing out that the seven banks on Dutch St. Maarten employ roughly 400 people.
Beaujon has said the body would also like to have more involvement in the Tax Committee. The Bankers Association is not directly involved at the moment and they’ve “very often been consulted after the fact.”
“We would definitely like to be involved more to give advice on micro and macro-economic issues,” Beaujon said.
Tuesday’s meeting ended with a commitment from the President of Parliament drs Gracita Arrindell that the banker will be invited to return within a year.

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