CBCS introduces a freeze on credit loans

March 19, 2012 2:56 PM

WILLEMSTAD - The Central Bank of Curaçao and St. Maarten (CBCS) intends to introduce one of their most drastic credit measures to alter the mounting deficits on the balance of payments and the downward trend in the foreign currency reserves.

In a letter of March 14th sent of all commercial banks, the CBCS states it will freeze the private credit loans. The Curaçao Bankers’ Association (CBA) is giving this matter priority during a meeting this afternoon.Since several months, the CBCS has gradually increased the percentage of obligatory cash reserve with the banks from 7.75 to 10.75. However, this measure had no effect because the surplus of liquidity with the banks is so high. The increase of credit loans exceeded the growth of the economy, thus keeping the pressure on the foreign currency reserves.

In February the CBCS had ‘requested’ the commercial banks to freeze the private credit loans for a period of six months, but from the letter of March 14th, the banks conclude ‘the bank will introduce a freeze’ for the duration of six months.

This measure will affect all kinds of credit loans. With that, the CBCS departs from the amount that the banks individually have outstanding on credit per February 28th, according to the letter. The banks are no longer allowed to exceed this ‘maximum’. They are only allowed to give new loans after a granted loan has been paid.

The banks were given six weeks at the most to lodge an objection or file a complaint against the intended measure. The bankers’ association that meets once a month has placed CBCS’ letter of March 14th on the agenda for the meeting this afternoon.

On being asked, Girobank-director Eric Garcia confirms he received the letter. Although the letter had not surprised him entirely, he thinks other alternatives should be considered. “We expected this. The measures taken by the CBCS were apparently not sufficient so a more drastic measure was expected.”

However, setting a maximum for all banks will not only restrain the credit loans but also the growth of the economy. Garcia: “I understand something must be done about the downward trend of the foreign currency reserve but restraining the economic growth as well isn’t a wise decision. I know a developer who wishes to build a hotel of forty rooms. His plans will most likely not go through if this measure is implemented.” Garcia also wonders what he’s to tell a client whose loan of millions was approved for example on March 5th.

“The CBCS wants to introduce the maximum on credit loans with retroactive effect to February 28th. Am I now to tell this client he will not get any credit after all? Garcia hopes the bankers’ association will present alternatives to suppress the downward trend of the foreign currency reserve but allow the economy to grow. “One could decide that these restrictions do not apply when taking over a mortgage. There is no question of consumption with a take over. In that case, a bank could offer the mortgage against a lower rate, so the mortgagee contracts a new mortgage to pay the old one against a higher interest. On the other hand, I can imagine the larger banks will not be favorably disposed towards this.”

(Amigoe)