Move could result in more credit flow in the domestic market
Durrant Pate/Contributor
The Central Bank of The Bahamas (CBOB) has relaxed guidelines surrounding qualification criteria for lending institutions, including an increase in the debt service ratio.
This move could result in more credit flow in the domestic market with financial institutions now being permitted to grant loans of up to 100 per cent of a borrower’s financing requirement, except in the case of mortgages. This policy shift comes as a result of what the CBOB said is the Bahamian economy’s increased capacity to sustainably absorb more credit expansion.
This shift is part of the Central Bank’s push to stimulate credit growth, which may lead to greater imports and an increase in the net use of foreign exchange.
In a statement to the local media, the CBOB advises that, “effective immediately, lending institutions may, on a case-by-case basis, approve applications for new personal loans, subject to the total debt service ratio for the facility and any preexisting obligations not exceeding 50 per cent. That is, unless stipulated regulatory requirements have been imposed by the Central Bank on specific banks or credit unions”.
Continuing, the Central Bank says “this increases the total debt service ratio from the current range of 40 per cent to 45 per cent. The total debt service ratio is calculated as the sum of total monthly principal and interest payments divided by the total monthly income of the borrower or borrowers”.
However, the minimum equity requirement for loans secured by residential mortgages remains at 15 per cent. When secured by mortgage indemnity insurance, the equity requirement may be reduced to five per cent.
Comments