Lending rates on the rise

RBC Royal Bank (RBC) will soon increase its TTD commercial prime lending rate.

In a notice published in newspapers yesterday, the bank said effective August 13, the rate will increase from 9.0 per cent to 9.25 per cent. This, it explained, was “in keeping with changing market conditions.” While RBC did not specify which conditions led to this, its decision comes six weeks after the Central Bank announced a 25 basis point increase in the repurchase rate (repo rate) – from 4.75 per cent to 5.00 per cent. Republic Bank Ltd (RBL) made a similar move last month, when its prime lending rate increased from 9.5 per cent to 9.75 per cent, effective July 16.

As of August 8 however, neither of the two other major banks in TT have increased their prime lending rates. Contacted by Newsday, Scotiabank declined to comment on the matter while First Citizens said it “has not, at this time, increased any rates in response to the increase in the repo rate.”

Data on the Central Bank’s website shows that in 2017, Scotiabank monthly prime lending rate was 9.0 per cent and First Citizens’ was 9.25 per cent while the average basic prime lending rate was 9.08 per cent. When banks raise their prime rate, customers tend to pay more interest on personal loans, commercial loans, credit card rates, mortgages and vehicle loans.

TT Chamber of Industry and Commerce CEO, Gabriel Faria told Newsday, “no one wants to increased (lending) rates but whenever the repo rate changes, it’s expected that the banks follow suit, so it’s not a surprise.”

Economist Indera Sagewan was critical of the banks, saying they do not have to adjust rates simply because the repo rate went up.

“When you look at the extent to which the banking system is flushed with liquidity and the extent to which borrowing for investment purpose is comatose, it really makes very little sense. If, at your lower rate, people are not borrowing to invest, they’d hardly now be borrowing to invest when you increase your rates.”

Sagewan was also critical of the impact a rate increase has on the “large captive market” of mortgage holders, who she said “are basically at the mercy of the bank because all of our interest rates are flexible interest rates.”