Tough financial times ahead for TT says top banker

A top banker has warned that recent hikes in the prime lending rates could put excessive strain on borrowers and see many people defaulting on loans.

And Catherine Kumar, Chairman of the Bankers' Association of Trinidad and Tobago, says the ones who are likely to be hardest hit are small and medium-sized business owners and homeowners.

Kumar told the Trinidad Guardian the greatest threat is to homeowners and first-time home buyers who have to pay the their loans based on the highest prime lending rate the country has ever had.

Prime at some banks is now 13 per cent and Kumar expects all banks to take the interest rate to that level.

Kumar told the paper the banks are very concerned about inflation "because if inflation continues to skyrocket, it is definitely going to have an impact on banks’ profitability as far as loans going into default."

She said, “I honestly believe that the measures being used right now by the Central Bank may not be the best way to control inflation and we have to look at other ways.”

Inflation for August was reported to be 13.5 per cent, the highest it has been since at high of 13.7 per cent more than 15 years ago, the paper reported.

Kumar said while tightened monetary policy aims to dampen consumer credit it also impacts on overall growth because commercial and corporate loans are usually tied to prime and move according to what the rates are.

“Particularly, we are concerned about the commercial areas, the small and medium enterprises and maybe the macro enterprises who cannot afford to really take these increases in the interest rate, but the banks have no choice but to carry up the interest rates because the cost of their funds have gone up...It has just gone up significantly over the last year.”

Kumar said banks are concerned about inflation because it cuts into people's disposable incomes. That, she said, creates a financial crisis where people start defaulting on loans.

“We give loans based on an estimate of disposable income and if that disposable income is substantially depleted, of course, that loan does not get paid and we get defaulted loans, etc,” she said.