Households expand borrowing in 2007
November 2007 | By Rawle Lucas
Important Borrowers
The two major borrowers from the commercial banks in Guyana are households and private businesses. During the period 2001 to 2005, these two important sectors of the economy accounted for about 92 percent of all loans and advances of commercial banks. The share of borrowing by households and businesses of the loans and advances of commercial banks topped 95 percent in 2001 and bottomed out at 89 percent in 2004. On average, households account for 20 percent of the balances while private businesses account for 72 percent of loans and advances. However, this distribution between the two sectors has undergone some change in the last two years. By May 2006, households held 27 percent of the share of loans and advances up from 26 percent in 2005 and 18 percent in 2004. This figure had reached 31 percent in May 2007 reflecting a continuous increase in demand for loans by households. While private businesses remain the larger of the two major groups of borrowers, its share of loans and advances declined to 73 percent in May 2006 and to 69 percent in May 2007 down from a period high of 82 percent in 2001.
A Fancy for Motor Cars
The shift in the composition of loans made by commercial banks was due in part to sustained demand for loans by households who continued increasing their borrowing at an annual growth rate of one percent during the period 2001 to 2005. In contrast, borrowing by businesses declined by 9 percent over the same period, perhaps reflecting their apprehension about the economy. Households used 37 percent of borrowed funds on housing, 21 percent on motor cars and 42 percent for “other purposes”, including education. However, there is some indication that households had begun to reconfigure their priorities. Despite its significant share of the portfolio of households, loans for housing were declining by an annual average of 6 percent while that for “other purposes” was declining by 4 percent during 2001 to 2005. Auto loans maintained a positive growth of 21 percent throughout the period reflecting a fancy for motor cars by households.
Not a Trend
Attitudes of households seem to be changing again. From May 2006 to May 2007 there was a 20 percent growth in borrowing by households and an 8 percent growth in borrowing by businesses. Despite constituting only 30 percent of household loans, the demand for housing loans like that of auto loans went up by 16 percent while loans for “other purposes” grew by 28 percent. One year hardly constitutes a trend. However, this expansion in borrowing by the private sector should be welcomed news for the commercial banks and the Guyana economy since consumer spending make up the lion’s share of gross domestic product, and commercial banks need to do something with the excess liquidity in their possession.
Permission required © 2007 Rawle Lucas