Credit to the main economic sectors grew over the quarter, according to the Bank of Jamaica (BOJ) in its latest macro-prudential report issued on November 6.
The central bank said household debt to disposable income ratio increased, which reflected a larger proportional decline in disposable income relative to the decline in household debt for the review period.
In addition, households’ net financial position to GDP ratio for households increased over the review quarter.
However, personal loans declined during the June quarter by 1.4 per cent, while loans to the distribution sector increased by 3.3 per cent.
Meanwhile, there was an increase in the deposit taking institutions’ (DTI) holdings of non-financial sector loans, measured as a share of total assets.
In particular, non-financial corporate sector (NFCs) debt as a proportion of DTIs’ asset base increased.
As it relates to NFCs, the sector’s ratio of debt to operating surplus increased while net financial position to GDP decreased relative to the previous quarter.
The BOJ explained that the continued low interest rate environment as well as moratoria has left greater capacity for households and NFC sectors to service their debt obligations as seen in the reduction in the debt service ratio for the review period.
The central bank stated, “Risks from excessive credit growth were assessed to be moderate during the review quarter as financial entities remained well capitalised to absorb moderate losses.”
It noted that financial institutions’ use of debt to fund asset expansion reflected mixed results across sub-sectors for the June 2020 quarter.
This was reflected in a deterioration in leverage metrics for DTIs and general insurance companies by 5.1 per cent and 33.9 per cent, respectively and an improvement in leverage ratios for the securities dealers and life insurance companies.
In total, credit, including corporate bond issues, increased by 8.1 per cent for the review quarter, which reflected a deceleration in the pace of credit growth.
The growth resulted in additional financing of $10.1 billion in the system compared to the March 2020 quarter.
Accordingly, the total credit-to-GDP gap indicator grew to 4.9 per cent for the June 2020 quarter relative to 4.3 per cent at end-March 2020.